SHELL ENERGY TRANSITION REPORT 1 SHELL AND THE ENERGY TRANSITION CONTENTS Chair’s message and Chief Executive Officer’s introduction Executive summary 1. Towards a low-carbon future 2. Shell Scenarios 3. Our resilience in the medium term, to 2030 4. Changing our portfolio in the long term, after 2030 5. Shell’s actions today 6. Working with others Closing Comment 3 CHAIR’S MESSAGE Chad Holliday, Chair This report is an important step in answering a question We also support the goal to improve access to energy There are many uncertainties ahead. No doubt we will I’m often asked by investors, politicians, reporters, and for the 1.1 billion people on earth who are still without have setbacks along the way, but when that happens even friends. How can Shell survive, let alone thrive, as electricity, and the 3 billion who cook using solid we are determined to pick ourselves up and move on the world transitions to lower-carbon energy? fuels that pollute their air and reduce the quality of quickly. The key will be to engage, learn and adapt to people’s lives. find and realise new opportunities. And the same spirit As you will read here, we see several possible paths of innovation that has been the foundation of Shell’s towards a lower-carbon energy system. And we believe Shell can play a part here by offering new energy success for more than a century will continue to fuel we have a strategy that is flexible enough to keep in step supplies to communities that are underserved, and our success in the future. with the changes in the energy system as they unfold. by providing cleaner energy solutions in the form of electricity generated from a combination of natural gas In the three years since I became Chair of Shell, I have This strategy is based on creating strong returns for our and renewable energy. seen great progress. Under Ben’s leadership, we have shareholders and continuing to provide the world with improved free cash flow and returns to shareholders. We the oil and gas it needs for decades to come. It is based Preparing for the future acquired BG Group, speeding up our growth in natural on exploring new business models and technologies to Today’s Shell has many strengths: we have a global gas and deep water to help meet demand for oil and help us find the clear commercial winners in a lower- energy supply and trading network; we have the gas in the decades ahead. We have set bold climate- carbon world. biggest branded retail network in the world; we are a related ambitions to prepare our company for the world leader in natural gas, the cleanest-burning fossil future, and we have created a New Energies business, Contributing to society fuel when burnt to produce electricity; and we have that is focusing on new, lower-carbon fuels and power. Thriving through the energy transition also means some of the best engineering and project management working with society. The United Nations’ sustainable expertise around. I like to think that our New Energies business is development goals provide an excellent roadmap, with sowing different seeds in different places. Over time, their pledges to end poverty, protect the planet and We are preparing for the future by using those we will see where the best and most profitable crops ensure prosperity for all by 2030. strengths while investing in new areas of energy, start to grow. Then we will give the winners all the whether that is wind or solar power, charging points nourishment they need to flourish. 1 Throughout this report, Shell expresses Shell is helping advance some of these goals. We for electric vehicles or lower-carbon biofuels. Net Carbon Footprint in grams of carbon have set an ambition to reduce the Net Carbon These are the many reasons why the Board of Directors dioxide (CO ) equivalent per megajoule 2 Footprint1 of our energy products by around half by the Building new skills of Royal Dutch Shell is confident that the company will consumed. This includes methane and other greenhouse gas emissions. It covers middle of the century. And we will review our progress Over the course of the coming decades, as the world continue to thrive and navigate the opportunities, and emissions directly from Shell operations, every five years to make sure we are in step with society moves increasingly towards lower-carbon energy, we risks, of the energy transition ahead. those caused by third parties who supply energy for that production and those from as it moves towards the Paris Agreement goal of limiting will have to learn new skills at Shell. And the ways we consumption of these products by end-users. global warming. work will have to evolve. CHAD HOLLIDAY Chair 5 changes in the world. A rising global population and We have many ways to achieve this ambition. They and a greater use of renewable energy to power rising standards of living should continue to drive include reducing emissions from our own operations, and homes and businesses. growth in demand for energy for decades to come. changing the mix of products we sell to our customers. However, these steps will not be enough on their At the same time, there is a transition under way to a This will drive change across our portfolio. It is likely own. This is a long-term journey. There are tough lower-carbon energy system with increasing customer to mean more renewable power, biofuels, and electric challenges ahead that society will need to address choice and potential price volatility. vehicle charging points; supplying more natural gas because the transition will require enormous levels for power, industry and transport; helping further of investment, and profound changes in consumer Increased transparency advance technology to capture and store carbon safely behaviour. This report helps answer questions from shareholders, underground; and helping develop natural carbon governments and non-governmental organisations sinks like forests and wetlands to help compensate for Shell is also on a journey. We cannot know exactly about what the energy transition means for Shell. It those emissions that society will find harder to avoid. how this transition will play out, or how long it will follows talks with the Financial Stability Board’s Task take. But it could mean significant changes for Shell in Force on Climate-related Financial Disclosures, that is We are already making investments in these areas. the long term. We will learn, and adapt our approach calling on companies to be more open about climate- And we expect to do more. We also expect to over time. related risks and opportunities. continue to invest in sustaining oil and gas supply to meet growing demand for energy around the world. Understanding what climate change means for our I see this move towards greater transparency as an company is one of the biggest strategic questions on excellent opportunity to demonstrate Shell’s strength Achieving society’s goals my mind today. In answering that question, we are and resilience in this period of profound change. I am hopeful that the world can achieve the goals of determined to work with society and our customers. the Paris Agreement. I believe society has the scientific We will help, inform and encourage progress towards Ben van Beurden, CEO This report has two main aims: to show our financial knowledge, and that it is technically possible to the aims of the Paris Agreement. And we intend to and portfolio resilience in the short and medium term achieve a world where global warming is limited to continue to provide strong returns for shareholders CHIEF EXECUTIVE OFFICER’S to 2030, and to explain how we are preparing to well below two degrees Celsius. well into the future. INTRODUCTION adapt for the longer term. We have set three strategic ambitions for Shell. They In fact, many changes are happening already. We see BEN VAN BEURDEN all provide a strong foundation for managing the risks As you will read here, we assess the financial a rising number of electric vehicles in some countries, CEO and opportunities linked to the transition to a lower- resilience of Shell’s business until the end of the next carbon energy system. decade against a range of oil prices, which we have determined based on assumptions about economic Our first ambition is to provide a world-class investment growth, government policies, consumer choices and case, which means being the number one company in technology developments. our sector in terms of total shareholder return. This will give us the financial capacity to invest in areas where And we use our scenarios analysis to look further we see growth, and to withstand volatility in oil and into the future, where there is far more uncertainty. In gas prices, as well as in downstream manufacturing this future, consumer choice, government policy and and marketing margins. technological advances will influence the development of the energy system in ways that will be far reaching The second is to thrive through the transition to lower- but impossible to predict with precision. carbon energy by meeting society’s need for more and cleaner energy. This means providing the mix of Lower-carbon mix products our customers need as the energy system If society is to meet the aims of Paris, we believe it will evolves. It means investing in assets that will remain have to stop adding to the stock of CO2 from energy financially resilient in the energy system of the future. in the atmosphere by 2070. That will require the world to significantly reduce the amount of CO2 produced for The third is to sustain Shell’s societal licence to each unit of energy used by 2050.