SHELL LNG OUTLOOK 2019
Royal Dutch Shell SHELL LNG OUTLOOK 2019 Cautionary Note
The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate legal entities. In this presentation “Shell”, “Shell group” and “Royal Dutch Shell” are sometimes used for convenience where references are made to Royal Dutch Shell plc and its subsidiaries in general. Likewise, the words “we”, “us” and “our” are also used to refer to Royal Dutch Shell plc and its subsidiaries in general or to those who work for them. These terms are also used where no useful purpose is served by identifying the particular entity or entities. ‘‘Subsidiaries’’, “Shell subsidiaries” and “Shell companies” as used in this presentation refer to entities over which Royal Dutch Shell plc either directly or indirectly has control. Entities and unincorporated arrangements over which Shell has joint control are generally referred to as “joint ventures” and “joint operations”, respectively. Entities over which Shell has significant influence but neither control nor joint control are referred to as “associates”. The term “Shell interest” is used for convenience to indicate the direct and/or indirect ownership interest held by Shell in an entity or unincorporated joint arrangement, after exclusion of all third-party interest.
This presentation contains forward-looking statements (within the meaning of the U.S. Private Securities Litigation Reform Act of 1995) concerning the financial condition, results of operations and businesses of Royal Dutch Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Royal Dutch Shell to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as “aim”, “ambition’, ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘estimate’’, ‘‘expect’’, ‘‘goals’’, ‘‘intend’’, ‘‘may’’, ‘‘objectives’’, ‘‘outlook’’, ‘‘plan’’, ‘‘probably’’, ‘‘project’’, ‘‘risks’’, “schedule”, ‘‘seek’’, ‘‘should’’, ‘‘target’’, ‘‘will’’ and similar terms and phrases. There are a number of factors that could affect the future operations of Royal Dutch Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this presentation, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand for Shell’s products; (c) currency fluctuations; (d) drilling and production results; (e) reserves estimates; (f) loss of market share and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, fiscal and regulatory developments including regulatory measures addressing climate change; (k) economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; and (m) changes in trading conditions. No assurance is provided that future dividend payments will match or exceed previous dividend payments. All forward-looking statements contained in this presentation are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-looking statements. Additional risk factors that may affect future results are contained in Royal Dutch Shell’s Form 20-F for the year ended December 31, 2017 (available at www.shell.com/investor and www.sec.gov). These risk factors also expressly qualify all forward-looking statements contained in this presentation and should be considered by the reader. Each forward-looking statement speaks only as of the date of this presentation, February 25, 2019. Neither Royal Dutch Shell plc nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this presentation. We may have used certain terms, such as resources, in this presentation that the United States Securities and Exchange Commission (SEC) strictly prohibits us from including in our filings with the SEC. U.S. Investors are urged to consider closely the disclosure in our Form 20-F, File No 1- 32575, available on the SEC website www.sec.gov.
Royal Dutch Shell 2 SHELL LNG OUTLOOK 2019 Content
01 02 03 Growing recognition of the role Asian LNG imports exceed Near term supply growth of gas and LNG as the world expectations again in 2018 expected to be absorbed by tackles poor air quality and absorbing continued Europe and Asia – continued climate change supply growth need for investment in supply to meet long-term demand growth
Royal Dutch Shell 3 01 Bunkering of world’s first LNG fuelled cruise ship, AIDAnova Growing recognition of the role of gas and LNG as the world tackles poor air quality and climate change Royal Dutch Shell SHELL LNG OUTLOOK 2019 The energy challenge
Growing Rising Need for Mitigating Improving population demand energy solutions climate change air quality According to United Nations By 2070 the world is likely to According to the International The world currently emits 33 billion Updated World Health estimates, the current world be using at least 50% more Energy Agency (IEA), renewable tonnes of energy-related CO2 each Organization (WHO) estimates population of 7.6 billion is energy than it does today as generation is expected to underpin year. To limit the rise in global reveal an alarming death toll of expected to reach 8.6 billion in population grows and people the growth of electricity from 18% temperature to 2°C, the IEA has 7 million people every year 2030, 9.7 billion in 2050 and seek to improve their quality of to 50% of energy supply by 2050. calculated that energy related caused by outdoor and household
11.2 billion in 2100. Nearly a life. The remaining energy demand CO2 emissions need to fall to air pollution. According to WHO, billion people still live without that is difficult to electrify will around 18 billion tonnes a year global air pollution is linked to electricity while another billion still require cleaner solutions. by 2040. The challenge is not inefficient energy use in every struggle with unreliable supplies just to reduce emissions, but to sector of human activity including of electricity. do this while providing more coal-fired power plants, industry, reliable energy supplies. agriculture and transport.
Royal Dutch Shell 5 SHELL LNG OUTLOOK 2019 Gas and renewables to play a critical role in meeting the energy challenge
Global energy demand growth by fuel type Gas growth in the energy mix 2018-2035
BCM 20,000 4% 4% 30% 15% 6% India 41% 16,000 China 12,000
8,000 Europe
4,000 North America
0 Global
0% 10% 20% 30% 40% Energy demand 1% CAGR 2018 2035 Gas share % in the energy mix
Source: Shell interpretation of Wood Mackenzie Q4 2018 data CAGR - Compound annual growth rate
Royal Dutch Shell 6 SHELL LNG OUTLOOK 2019 Government policies being implemented encouraging a cleaner energy mix
South Korean taxes to Chinese Government EU carbon pricing supported favour gas over coal policies target by policy changes Gas share Tax $/MMBtu BCM €/CO2 tn 2 400 12% 10% 30
25 1.5 300 7% 9% 20
1 200 6% 15 4% 10 0.5 100 3% 5
0 0 0% 0 2013 2014 2015 2016 2017 2018 2019 2010 2018 2020 Jan-17 Jun-17 Nov-17 Apr-18 Sep-18 (Target)
Coal Gas Gas demand Gas share €/CO2 tn
Source: Shell interpretation of IHS Markit and ICE Q4 2018 data and announced public policy
Royal Dutch Shell 7 SHELL LNG OUTLOOK 2019 Gas demand growth not reliant on the power sector
Global gas demand growth by sector 2016 - 2018 Global gas demand growth by sector
BCM BCM 3,600 5,000 25% 5% 29% 41% 4,000
3,500 3,000
2,000 3,400
1,000
3,300 0 2016 Power Non 2017 Power Non 2018 2018 Power Industry Res & Transport 2035 power power comm Gas demand 2% CAGR
Source: Shell interpretation of Wood Mackenzie Q4 2018 data Res & Comm – Residential and Commercial
Royal Dutch Shell 8 SHELL LNG OUTLOOK 2019 Gas provides required flexibility for power generation
LNG complements wind and solar New power generation needed to replace ageing plants Spain (Dec-2017) Nuclear capacity online by start date LNG supplied (GWh/h) Power generation (GWh/h) Capacity GW 50 20 35 +40yrs old 30-40yrs old 30 40 25 30 20 10 20 15 10 10 5 0 0 0 1969 1974 1979 1984 1989 1994 1999 2004 2010 2015 01-Dec 06-Dec 11-Dec 16-Dec 21-Dec 26-Dec 31-Dec
Wind Solar LNG supply (GWh/h) North America South America Africa Europe Russia Asia
Source: Shell interpretation ENTSOG, REE, World Nuclear Association 2017 and 2018
Royal Dutch Shell 9 SHELL LNG OUTLOOK 2019 Coal-to-gas switching in China achieves blue skies and reduces
CO2 emissions
Air quality improvements in Beijing 176 MT CO2 saving from China’s air quality programme in 2018 3 Air quality ug/m PM 2.5 Gas demand (BCM) CO2 MT/yr 200 20 0 180 18 160 16 -5 140 14 -10 120 12 100 10 -15 80 8 60 6 -20 40 4 -25 20 2 0 0 -30 Feb-09 Jun-10 Oct-11 Feb-13 Jun-14 Oct-15 Feb-17 Jun-18
ug/m3 PM2.5 Beijing gas demand
Source: Shell interpretation of IHS Markit, Beijing Gas Group and US Embassy Beijing (US State Department) 2018 data
Royal Dutch Shell 10 SHELL LNG OUTLOOK 2019 LNG flexibility mitigates demand shocks and meets seasonal needs
Meeting heating demand in UK in 2018 Meeting seasonal cooling demand in Kuwait
LNG supplied (mcm/d) Total gas demand (mcm/d) MT Average monthly temperature °C 100 450 0.6 45 400 40 80 350 35 300 0.4 30 60 250 25 200 20 40 150 0.2 15 20 100 10 50 5 0 0 0 0 1-Feb 15-Feb 1-Mar 15-Mar 29-Mar 12-Apr 26-Apr 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
LNG supply Total gas demand (RHS) LNG imports Temperature ◦C
Source: Shell interpretation of National Grid, IHS Markit, Weather Channel 2018 data
Royal Dutch Shell 11 SHELL LNG OUTLOOK 2019 New countries choosing LNG for various benefits
BANGLADESH PANAMA GIBRALTAR
Natural gas meets over half Replacing oil-fired power generation Replacing oil-fired power generation of total energy demand Complement renewable power generation Innovative small-scale LNG solution Declining domestic gas production Strategic location of Panama Canal Increases diversity of supply LNG meeting existing and new gas demand offers opportunities for LNG bunkering
Source: Shell interpretation of Woodmac Q4 2018 Data
Royal Dutch Shell 12 SHELL LNG OUTLOOK 2019 Economic and environmental benefits increasing the use of LNG in road transport
China LNG fuelled heavy-duty transport Europe moving to LNG fuelled heavy-duty transport
Number of LNG trucks and buses in 1000 Number of LNG trucks 400 6000 5,500 LNG HD trucks 4000 LNG buses 4000 200 2000 1532
0 0 2012 2013 2014 2015 2016 2017 2018 2016 2017 2018
Source : Shell analysis of Woodmac, SCI, and NGVA data
280,000 LNG trucks 6.7 MT of LNG expected by 2030 consumed in China for road transport in 2018 155 LNG fuel stations in 2018
2,552 LNG fuel Co-financed by EU, BioLNG stations in 2018 EuroNet is building 39 LNG stations, 2000 LNG trucks and a BioLNG production plant Royal Dutch Shell 13 SHELL LNG OUTLOOK 2019 LNG continues to be the fastest-growing gas supply source
Global gas supply by source LNG imports by region LNG imports in Asia
BCM BCM BCM 5,000 34% 1,000 600 41% 62% 4% 9% 10% 4,000 800 22% 480 35% 59% 32% -8% 3,000 600 360
2,000 400 240
1,000 200 120
0 0 0 2018 Domestic Pipeline LNG 2035 2018 Asia Europe Americas Mid-East 2035 2018 China JKT South South 2035 production imports imports & Africa Asia East Asia
Gas demand 2% CAGR LNG demand 4% CAGR Asia LNG demand 3% CAGR
Source: Shell interpretation of Wood Mackenzie Q4 2018 data
Royal Dutch Shell 14 02 Russia's first LNG plant on Sakhalin Asian LNG imports exceed expectations again in 2018 absorbing continued supply growth Royal Dutch Shell SHELL LNG OUTLOOK 2019 More than 70% of the current wave of LNG capacity additions online
LNG trade volume LNG liquefaction capacity additions
MTPA (DES) MT (DES) Share online 400 50 100% 319 40 80% 300
30 60% 200 20 40%
100 10 20%
0 0 0% 2005 2007 2009 2011 2013 2015 2017 2019 2015 2016 2017 2018 2019 2020 2021 Capacity additions (2018 forecast) Capacity additions (actual/2019 forecast) Share online (nameplate capacity)
Source: Shell interpretation of IHS Markit Q4 2018 data
Royal Dutch Shell 16 SHELL LNG OUTLOOK 2019 Asian LNG demand continues to exceed expectations
Net exports YoY Net imports YoY
MT (DES) MT (DES) 30 30 Previous forecast (consensus) Previous forecast (consensus) Actuals Actuals 20 20
10 10
0 0 Total Total Australia USA Russia Rest of Total Total North Asia NW S Europe Rest of world Europe world -10 -10 2017 2018 2017 2018
Source: Shell interpretation of IHS Markit, Wood Mackenzie and Poten & Partners 2017 and Q4 2018 data YoY: Year on Year
Royal Dutch Shell 17 SHELL LNG OUTLOOK 2019 LNG imports increased by 27 MT in 2018
Net imports: 2018 YoY
MT (DES) Previous forecast (consensus) Actuals 16
12
8
4
0
-4
UK
Italy
UAE
USA
India
Chile
Israel
Egypt
Brazil
Malta
Spain
China
Japan
Turkey
France
Kuwait
Jordan
Poland
Greece
Taiwan Mexico
Finland
Sweden
Belgium
Canada
Norway
Panama
Pakistan
Portugal
Jamaica
Thailand
Lithuania
Dom Rep Dom
Malaysia
Indonesia
Colombia
Argentina
Singapore
PuertoRico
Bangladesh
Netherlands South Korea South
Source: Shell interpretation of IHS Markit, Wood Mackenzie and Poten & Partners 2017 and Q4 2018 data
Royal Dutch Shell 18 SHELL LNG OUTLOOK 2019 LNG imports continued to enable China to meet its growing need for cleaner energy
China energy demand growth by fuel China gas demand growth by sector China gas supply growth by source
BCM BCM BCM 7% 53% 3,700 280 38% 280 16% 6% 35% 44% 3,650 260 260 21% 26% 24% 11% 3,600 240 240 19%
3,550 220 220
3,500 200 200
Source: Shell interpretation of IHS Markit Q4 2018 data
Royal Dutch Shell 19 SHELL LNG OUTLOOK 2019 LNG provides energy security for India
India gas demand growth by sector India gas supply growth by source India city gas distribution areas
BCM BCM Number of geographical areas 55 55 250
50 50 200
45 45 150
40 40 100
35 35 50
30 30 0 2017 Power Industry Res & 2018 2017 Domestic LNG 2018 Existing Under Awarded in To be comm Imports construction 2018 awarded in 2019
Source: Shell interpretation of PPAC and PNGRB Q4 2018 data
Royal Dutch Shell 20 SHELL LNG OUTLOOK 2019 Marine LNG poised for growth
2018 QUARTER 1 QUARTER 4
LNG fuelled vessels Mitsui OSK order LNG bunker barge Crowley takes delivery Tugs to serve Total-CMA-CGM deal of second LNG-powered Ro-Ro cargo ships container/roll on-roll off (ConRo) ship RoPax In operation World's first LNG-fuelled bulk Other vessels* On order carrier charter delivered Bunkering of the first Oil/Chemical tankers LNG fuelled Aframax Offshore supply ships Carnival orders 9th tanker by Shell Cardissa General cargo ships LNG fuelled Cruise ship Multi - gas tankers H-Line Shipping Cruise ships QUARTER 2 ordered two LNG Crude oil tankers fuelled bulk carriers Container ships Shell agrees to charter two Car passenger ferries LNG powered World’s first LNG powered Car carriers tankers from AET cruise ship sets sail Bulk carriers Kairos, the 7,500 m³ bunker 0 10 20 30 40 50 MPA awards grants for two LNG bunker barges vessel started operations for Singapore MTPA Projections for LNG in Marine Adnoc and Inpex sign 40 agreement to explore LNG 30 QUARTER 3 bunkering opportunities 20 in UAE 10 First Japanese LNG 0 bunker vessel ordered 2020 2025 2030 2035 Public Gas Corp of Greece signed a grant agreement Hapag Lloyd announces with EU for construction of it will convert a container Source: Shell interpretation of DNV-GL & Woodmac *Other vessels includes fishing vessels, dredgers, etc. the first LNG bunkering vessel vessel to operate on LNG
Royal Dutch Shell 21 SHELL LNG OUTLOOK 2019 Resurgence of longer term contracts supports new supply projects
Average contract length Total LNG contract volumes by seller type
Years MT 20 1000
16 800
12 600
8 400
4 200
0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Portfolio Project
Source: Shell interpretation of IHS Markit Q4 2018 data
Royal Dutch Shell 22 SHELL LNG OUTLOOK 2019 Spot prices remained robust
Global Energy prices Asian spot price
$/MMBtu JKM as % Brent 25 25%
20 20%
15 15%
10 10%
5 5%
0 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Energy price range Henry Hub Brent NBP JKM (Platts) JLC Coal (ARA) Range 2012-2017 2017 2018
Source: Shell interpretation of Japanese customs data (Japan LNG import), S&P Global Platts (JKM), ICE (NBP, Brent, ARA coal), NYMEX (Henry Hub)
Royal Dutch Shell 23 SHELL LNG OUTLOOK 2019 Spot market gains momentum with volume growth
Spot LNG Supply Spot LNG deliveries ICE JKM LNG (Platts) futures
Cargoes Share spot Cargoes Share spot Cargoes 1000 Lots 1600 30% 1600 30% 600 180
500 150 1200 1200 20% 20% 400 120
800 800 300 90
10% 10% 200 60 400 400 100 30
0 0% 0 0% 0 0
2010 2011 2012 2013 2014 2015 2016 2017 2018
2010 2011 2012 2013 2014 2015 2016 2017 2018
2010 2011 2012 2013 2014 2015 2016 2017 2018 JKT China South Asia Australia USA Qatar Middle East Europe Americas Other Re-exports % spot % spot
Source: Shell interpretation of IHS Markit Q4 2018, S&P Global Platts and the ICE data
Royal Dutch Shell 24 SHELL LNG OUTLOOK 2019 An evolving global LNG market
JKM price versus freight rate LNG demand growth by region
$/MMBTu K$/Day MT 20 200 15
15 150 10
5 10 100
0 5 50
-5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 0 0 2010 2012 2014 2016 2018 2016 2017 2018
JKM price Freight (RHS) Asia Europe South America Middle East
Source: Shell interpretation of S&P Global Platts data and IHS Markit Q4 2018 data
Royal Dutch Shell 25 03 Shell Cardissa fuelling Gagarin Prospect, the world’s first crude oil tanker to be powered by LNG Near term supply growth expected to be absorbed by Europe and Asia – continued need for investment in supply to meet long-term demand growth Royal Dutch Shell SHELL LNG OUTLOOK 2019 New supply expected to be absorbed by Asia as well as Europe in 2019
LNG supply growth range by country LNG demand growth range by region
MTPA MTPA 35 35
30 30
25 25
20 20
15 15
10 10
5 5
0 0
-5 -5 Australia USA Russia Rest of world Asia Europe Americas Middle East & Africa
Source: Shell interpretation of IHS Markit, Wood Mackenzie, Poten & Partners Q4 2018 data
Royal Dutch Shell 27 SHELL LNG OUTLOOK 2019 Europe needs more imports to offset declining domestic gas production
Europe gas supply outlook Gas supply by source in 2019
BCMA BCMA 600 600
500 550 400
300 500
200 450 100
0 400 2010 2015 2020 2025 2018 Domestic Algeria Other Russian LNG 2019 production pipeline pipeline pipeline Domestic production Norway pipeline Algeria pipeline Other pipeline Russian pipeline LNG
Source: Shell interpretation of IHS Markit Q4 2018 data
Royal Dutch Shell 28 SHELL LNG OUTLOOK 2019 European power sector is also capable of absorbing more LNG
Coal and gas-fired generation capacity and utilisation European power switching economics
GW $/MMbtu €/tn CO2 250 100% 12 30
200 80% 9 20 150 60% 6 100 40% 10 3 50 20%
0 0% 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19
Range of coal-to-gas switching TTF Gas $/MMBTU Coal Capacity Gas Capacity Coal Utilization Gas Utilization ARA Coal $/MMBTU European carbon price (RHS)
Source: Shell interpretation of IHS Markit Q4 2018 data
Royal Dutch Shell 29 SHELL LNG OUTLOOK 2019 Asia has significant potential to take more LNG volumes
2018 Regasification capacity 2018 Gas-fired power generation 2018 Coal-fired power generation and utilisation capacity and utilisation capacity and utilisation MT 177 101 71 27 19 10 9 8 7 3 GW 87 36 81 26 16 33 15 20 13 12 GW 43 42 996 235 20 5 2 29 11 0.2 100% 100% 100%
80% 80% 80%
60% 60% 60%
40% 40% 40%
20% 20% 20%
0% 0% 0%
Unitilised Capacity Utilised Capacity Unutilised Capacity Utilised Capacity Unutilised Capacity Utilised Capacity Highest utilisation (past 10yrs) Highest utilisation (past 10yrs) Lowest utilisation (past 10yrs)
Source: Shell interpretation of IHS Markit and Wood Mackenzie Q4 2018 data
Royal Dutch Shell 30 SHELL LNG OUTLOOK 2019 China and India can double import infrastructure in 5 years
China Regas capacity additions India Regas capacity additions
MT MT 160 70
140 60 120 50 100 40 80 30 60 20 40
20 10
0 0 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 Existing Under construction Proposed Existing Under construction Proposed
Source: Shell interpretation of IHS Markit Q4 2018 data
Royal Dutch Shell 31 SHELL LNG OUTLOOK 2019 Supply investment still needed to meet continued LNG demand growth
Emerging LNG supply-demand gap Investment in liquefaction capacity
MTPA MT * Assumption- 5 years FID to be onstream 700 40
600 2018 30 500 outlook range 400 20 300
200 10 100
0 0 2000 2005 2010 2015 2020 2025 2030 2035 2010 2012 2014 2016 2018 2020* 2022* Year of investment decision
LNG supply in operation LNG supply under construction Demand forecast range FIDs needed for high demand FIDs needed for low demand
Source: Shell interpretation of IHS Markit, Wood Mackenzie, FGE and Poten & Partners Q4 2018 data
Royal Dutch Shell 32 SHELL LNG OUTLOOK 2019 Growing recognition of the role of gas and LNG as Summary the world tackles poor air quality and climate change Gas to supply the largest share of energy demand growth, supplying over 40% of additional demand by 2035 Coal-to-gas switching led to 78% improvement in Beijing winter air quality over the last five years
Asian LNG imports exceed expectations again in 2018 absorbing continued supply growth China became the world’s largest gas importer, with LNG imports doubling over two years JKM futures trading volume increased ten-fold since 2016
Near term supply growth expected to be absorbed by Europe and Asia – continued need for investment in supply to meet long-term demand growth 35 MT additional supply expected in 2019 2018 saw final investment decisions on 21 MT of new capacity compared to a total of 7 MT in the last two years combined
Royal Dutch Shell 33 Royal Dutch Shell