2018 shell lng outlook · reserves: our use of the term “reserves” in this presentation means...
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Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018
DEFINITIONS & CAUTIONARY NOTE
2
Reserves: Our use of the term “reserves” in this presentation means SEC proved oil and gas reserves. Resources: Our use of the term “resources” in this presentation includes quantities of oil and gas not yet classified as SEC proved oil and gas reserves. Resources are consistent with the Society of Petroleum Engineers (SPE) 2P + 2C definitions.
Operating costs are defined as underlying operating expenses, which are operating expenses less identified items. Organic free cash flow is defined as free cash flow excluding inorganic capital investment and divestment proceeds. Clean CCS ROACE (Return on Average Capital Employed) is defined as defined as the sum of CCS earnings attributable to shareholders excluding identified items for the current and previous three quarters, as a percentage of the average capital employed for the same period. Capital employed consists of total equity, current debt and non-current debt. Capital investment comprises capital expenditure, exploration expense excluding well write-offs, new investments in joint ventures and associates, new finance leases and investments in Integrated Gas, Upstream and Downstream securities, all of which on an accruals basis. In 2016, the capital investment was impacted by the acquisition of BG Group plc. which are included in “Change in non-controlling interest” within “Cash flow from financing (CFFF) activities”. Divestments comprises proceeds from sale of property, plant and equipment and businesses, joint ventures and associates, and other Integrated Gas, Upstream and Downstream investments, reported in “Cash flow from investing activities (CFFI)”, adjusted onto an accruals basis and for any share consideration received or contingent consideration recognised upon divestment, as well as proceeds from the sale of interests in entities while retaining control (for example, proceeds from sale of interest in Shell Midstream Partners, L.P.), This presentation contains the following forward-looking Non-GAAP measures: Organic Free Cash Flow, Free Cash Flow, Capital Investment, CCS Earnings, CCS Earnings less identified items, Gearing, Underlying Operating Expenses, ROACE, Capital Employed and Divestments. We are unable to provide a reconciliation of the above forward-looking Non-GAAP measures to the most comparable GAAP financial measures because certain information needed to reconcile the above Non-GAAP measure to the most comparable GAAP financial measure is dependent on future events some which are outside the control of the company, such as oil and gas prices, interest rates and exchange rates. Moreover, estimating such GAAP measures consistent with the company accounting policies and the required precision necessary to provide a meaningful reconciliation is extremely difficult and could not be accomplished without unreasonable effort. Non-GAAP measures in respect of future periods which cannot be reconciled to the most comparable GAAP financial measure are calculated in a manner which is consistent with the accounting policies applied in Royal Dutch Shell plc’s financial statements. The financial measures provided by strategic themes represent a notional allocation of ROACE, capital employed, capital investment, free cash flow, organic free cash flow and underlying operating expenses of Shell’s strategic themes. Shell’s segment reporting under IFRS 8 remains Integrated Gas, Upstream, Downstream and Corporate.
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 subsidiaries in general or to those who work for them. These expressions are also used where no useful purpose is served by identifying the particular company or companies. ‘‘Subsidiaries’’, “Shell subsidiaries” and “Shell companies” as used in this presentation refer to companies 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 “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 a venture, partnership or company, after exclusion of all third-party interest.
This presentation contains forward-looking statements 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 ‘‘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 20-F for the year ended December 31, 2016 (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 26, 2018. 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. This presentation may contain references to Shell’s website. These references are for the readers’ convenience only. Shell is not incorporating by reference any information posted on www.shell.com. We may have used certain terms, such as resources, in this presentation that 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 plc
SHELL LNG OUTLOOK 2018
Queensland Curtis LNG Facility, Australia
3
The energy challenge
Growing economies need more and cleaner energy
Policy actions for clean energy support gas and LNG
Gas plays growing role to meet energy challenge
Gas supports renewables
OECD leading the move to gas and renewables for power generation
Strong China gas demand driven by growth outside power
LNG is the fastest growing gas supply source
LNG provides new form of energy security
Unprecedented LNG capacity expansion 45% complete
Global LNG market continues to defy expectations
29 mt increase in LNG imports in 2017
LNG accommodates China growth and seasonal demand
Spot prices continue to reflect strong demand for LNG
Physical and financial liquidity increases as market evolves
Fast, flexible FSRUs continue to increase LNG imports
Demand for LNG in transport grows globally
Lack of supply investment risks future global LNG market growth
LNG buyers and their needs are changing
LNG buyers signing shorter and smaller contracts
Liquefaction investment needed to meet demand growth
01 EXTERNAL ENVIRONMENT CREATING MORE OPPORTUNITIES FOR GAS AND LNG
02 STRONG LNG FUNDAMENTALS EXCEEDED EXPECTATIONS IN 2017
03 SUPPLY INVESTMENT REQUIRED TO MEET LONG-TERM DEMAND GROWTH
CONTENTS
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018
EXTERNALENVIRONMENTCREATING MOREOPPORTUNITIES FORGAS AND LNG
4
01
Oman LNG facility
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018 EXTERNAL ENVIRONMENT CREATING MORE OPPORTUNITIES FOR GAS AND LNG
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Growing Population
According to the World Bank, global population isexpected to increase fromaround 7 billion today toover 9 billion by 2050,with 66% living in cities.
RisingDemand
Over a billion people continue to live without electricity while another billion struggle with unreliable supplies of electricity. According to the International Energy Agency (IEA) New Policies Scenario, global energy demand is expected to grow by 30% between 2015 and 2040.
OngoingSupply
As per IEA, it is expected that renewable energy could increase significantly by 2040. However, we will still need large amounts of oil and gas to provide the full range of energy products that the world needs.
Mitigating Climate Change
The world currently emits 32 billion tonnes ofenergy-related CO2 eachyear. To limit the rise in global temperature to 2°C, the IEA has calculated that energy related CO2 emissions need to fall to around 18 billion tonnes a year by 2040.
Improving AirQuality
The World Health Organization (WHO) has found that outdoor air pollution in both cities and rural areas is estimated to cause some 3 million premature deaths a year worldwide.
THE ENERGY CHALLENGE
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018 EXTERNAL ENVIRONMENT CREATING MORE OPPORTUNITIES FOR GAS AND LNG
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Bangladesh
China
India
Myanmar
PakistanSouth Korea
Thailand
Vietnam
0
200,000
400,000
600,000
800,000
0% 25% 50% 75% 100%
Extreme
High
Medium
Asia air quality index
Coal share in electricity mix (2017)
Change in energy demand (2017-2035), KTOE
Energy demand growth vs coal share Air quality index 2017
GROWING ECONOMIES NEED MORE AND CLEANER ENERGY
Source: Shell interpretation of Wood Mackenzie and Verisk Maplecroft Q4 2017 data
Population size
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018 EXTERNAL ENVIRONMENT CREATING MORE OPPORTUNITIES FOR GAS AND LNG
POLICY ACTIONS FOR CLEAN ENERGY SUPPORT GAS AND LNG
GLOBAL
G20 endorses the role of natural gas in energy transition
IEA credits levelling of global CO2 emissions to coal displacement
Increasing recognition of environmental benefits
REGIONAL
More than 10 countries announce coal phase-out ambitions - 25% of coal power capacity in EU
EU confirms reforms to strengthen EU Emissions Trading Scheme
EU policies supporting coal phase out
NATIONAL
Policies favour gas and renewables
LOCAL
Berlin closes local coal-fired power plants to improve air quality
Beijing meets ambitious 2017 air quality targets, supported by coal to gas switching
Policymakers targeting air quality
7
China reforms gas market to increase competitiveness of delivered gas
South Korea’s 8th Basic Plan for Energy prioritises renewables and gas, while not sanctioning new nuclear and coal
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018 EXTERNAL ENVIRONMENT CREATING MORE OPPORTUNITIES FOR GAS AND LNG
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Source: Shell interpretation of Wood Mackenzie Q4 2017 data
0
4,000
8,000
12,000
16,000
20,000
46% 18% 14% 10% 7% 6%
0
1,000
2,000
3,000
4,000
5,000
45% 27%
20% 7%
BCM
Global energy demand growth by fuel
BCM
Global gas demand growth by sector Global gas demand growth by region
Energy demand:
1% CAGR
Gas demand:
2% CAGR
0
1,000
2,000
3,000
4,000
5,000
38% 33% 14% 2% 13%
BCM
CAGR - Compound Annual Growth Rate
GAS PLAYS GROWING ROLE TO MEET ENERGY CHALLENGE
Asia gas demand:
3% CAGR
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018 EXTERNAL ENVIRONMENT CREATING MORE OPPORTUNITIES FOR GAS AND LNG
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Source: Shell interpretation of Wood Mackenzie Q4 2017, IHS Markit and CAISO data
10,000
15,000
20,000
25,000
30,000
0 4 8 12 16 20 24
Mar-13 Mar-17
Flexible gas generation complements solar to provide reliable power generation in California
Net load, MWh
Flexible LNG supply balances hydro generation to provide reliable power in Brazil
Reservoir level BCM/Month
0.00
0.25
0.50
0.75
1.00
0%
25%
50%
75%
100%
North & South hydro reservoir levels (LHS) LNG imports (RHS)
GAS SUPPORTS RENEWABLES
Hour of the day
Net load equals total generation minus solar and wind output; 7 day sample
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018 EXTERNAL ENVIRONMENT CREATING MORE OPPORTUNITIES FOR GAS AND LNG
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SHELL LNG OUTLOOK 2018 EXTERNAL ENVIRONMENT CREATING MORE OPPORTUNITIES FOR GAS AND LNG
Source: Shell interpretation of International Energy Agency (IEA) data
OECD electricity output by source
0%
10%
20%
30%
40%
50%
60%
1975 1980 1985 1990 1995 2000 2005 2010 2015
Natural Gas Coal Nuclear
Hydro Other renewables Biofuels and waste
Oil
Share
Non-OECD electricity output by source
0%
10%
20%
30%
40%
50%
60%
1975 1980 1985 1990 1995 2000 2005 2010 2015
Natural gas Coal Nuclear
Hydro Other renewables Biofuels and waste
Oil
Share
OECD LEADING THE MOVE TO GAS AND RENEWABLES FOR POWER GENERATION
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SHELL LNG OUTLOOK 2018 EXTERNAL ENVIRONMENT CREATING MORE OPPORTUNITIES FOR GAS AND LNG
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China demand growth by sector, 2017
0
10
20
30
40
50
0
50
100
150
200
250
2001 2003 2005 2007 2009 2011 2013 2015 2017
Gas demand (LHS) Change YoY (RHS)
China gas demand
BCM
Source: Shell interpretation of IHS Markit, China National Bureau of Statistics and Chinese customs data; latest estimates for 2017
STRONG CHINA GAS DEMAND DRIVEN BY GROWTH OUTSIDE POWER
200
210
220
230
240
250
2016 Electricity Industrial Res, comm& heat
Transport 2017
BCMA BCM
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018 EXTERNAL ENVIRONMENT CREATING MORE OPPORTUNITIES FOR GAS AND LNG
Source: Shell interpretation of Wood Mackenzie Q4 2017 data
BCM
LNG imports by region
12
LNG IS THE FASTEST GROWING GAS SUPPLY SOURCE
CAGR - Compound Annual Growth Rate
0
1,000
2,000
3,000
4,000
5,000
2017 Domesticproduction
Pipelineimports
LNG imports 2035
62% 7%
31%
BCM
Global gas supply by source
LNG demand:
4% CAGR
0
200
400
600
800
1,000
2017 Asia Europe Americas Middle East& Africa
2035
55%16%
15%13%
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018
Royal Dutch Shell plc
EXTERNAL ENVIRONMENT CREATING MORE OPPORTUNITIES FOR GAS AND LNG
13
LNG SOLVES GAS MARKET UNCERTAINTIES:
▪ Declining domestic production▪ Pipeline disruptions▪ Falling nuclear utilisation and reliability▪ Hydroelectric seasonality, renewable intermittency▪ Weather disruptions
▪ Geopolitics▪ Timing of new supply▪ Existing plant output▪ Changing trade patterns▪ Gas supply and demand uncertainty
LNG PROVIDES NEW FORM OF ENERGY SECURITY
LNG RESILIENT TO ITS OWN UNCERTAINTIES:
Queensland Curtis LNG Facility, Australia
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018
STRONG LNG FUNDAMENTALS EXCEEDED EXPECTATIONS IN 2017
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02
SHELL LNG OUTLOOK 2018
LNG bunker vessel ‘Cardissa’
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018 STRONG LNG FUNDAMENTALS EXCEEDED EXPECTATIONS IN 2017
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Source: Shell interpretation of IHS Markit Q4 2017 data
LNG trade
293
0
100
200
300
400
2005 2007 2009 2011 2013 2015 2017 2019
MTPA (DES) MTPA (FOB)
LNG liquefaction capacity additions
0%
25%
50%
75%
100%
0
10
20
30
40
50
2015 2016 2017 2018 2019 2020
Nameplate capacity additions Share online (nameplate capacity)
UNPRECEDENTED LNG CAPACITY EXPANSION 45% COMPLETE
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018 STRONG LNG FUNDAMENTALS EXCEEDED EXPECTATIONS IN 2017
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Source: Shell interpretation of IHS Markit, Wood Mackenzie and Poten & Partners 2016 and Q4 2017 data
-10
0
10
20
30
Total imports North Asia South Europe Rest of world North WestEurope
Previous consensus forecast (as of late 2016) Actuals
Net imports: 2017 YoYMillion tonnes (DES)
-10
0
10
20
30
Total exports Australia US Africa Rest of world
Previous consensus forecast (as of late 2016) Actuals
Million tonnes (DES)
Net exports: 2017 YoY
GLOBAL LNG MARKET CONTINUES TO DEFY EXPECTATIONS
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018 STRONG LNG FUNDAMENTALS EXCEEDED EXPECTATIONS IN 2017
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Source: Shell interpretation of IHS Markit, Wood Mackenzie and Poten & Partners data 2016 and Q4 2017
-4
0
4
8
12
16
UK
Egyp
t
UA
E
Indo
nesi
a
Arg
entin
a
Puer
to R
ico
Lith
uani
a
US
Nor
way
Col
ombi
a
Swed
en
Finl
and
Belg
ium
Can
ada
Chi
le
Japa
n
Jam
aica
Jord
an
Dom
Rep
Israe
l
Sing
apor
e
Braz
il
Mal
ta
Net
herla
nds
Pola
nd
Mal
aysi
a
Kuw
ait
Gre
ece
Thai
land
Mex
ico
Indi
a
Portu
gal
Italy
Taiw
an
Paki
stan
Fran
ce
Spai
n
Turk
ey
Kore
a
Chi
na
Previous consensus forecast (as of late 2016) Actuals
Net imports: 2017 YoY
Million tonnes (DES)
29 MT INCREASE IN LNG IMPORTS IN 2017
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018 STRONG LNG FUNDAMENTALS EXCEEDED EXPECTATIONS IN 2017
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0
10
20
30
40
2010 2011 2012 2013 2014 2015 2016 2017
LNG imports Contracted LNG supply
China LNG importsMillion tonnes
Source: Shell interpretation of IHS Markit Q4 2017, S&P Global Platts, ICE data and Wood Mackenzie Q4 2017 data
LNG ACCOMMODATES CHINA GROWTH AND SEASONAL DEMAND
0%
20%
40%
60%
80%
100%
Jan-16 Jul-16 Jan-17 Jul-17China Japan, Korea, Taiwan Rest of WorldOther Europe North West Europe
Demand seasonality
Share of cargoes
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018 STRONG LNG FUNDAMENTALS EXCEEDED EXPECTATIONS IN 2017
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Source: Japanese customs data (Japan LNG import), S&P Global Platts (JKM), ICE (NBP, Brent, ARA coal), NYMEX (Henry Hub)
JKM as % Brent
Asian spot price
0%
5%
10%
15%
20%
25%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Range 2010-2015 2016 2017
Global energy prices$/MMBTU
0
5
10
15
20
25
2010 2011 2012 2013 2014 2015 2016 2017 2018Energy price range Henry Hub BrentNBP JKM (Platts) Japan LNG ImportCoal (ARA)
SPOT PRICES CONTINUE TO REFLECT STRONG DEMAND FOR LNG
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018 STRONG LNG FUNDAMENTALS EXCEEDED EXPECTATIONS IN 2017
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Source: Shell interpretation of IHS Markit Q4 2017, S&P Global Platts and the ICE data
Spot LNG supplyCargoes
0%
5%
10%
15%
20%
25%
30%
0
200
400
600
800
1000
1200
2010
2011
2012
2013
2014
2015
2016
2017
Australia US QatarOther Re-exports % spot (RHS)
Share spot
Spot LNG deliveriesCargoes
0%
5%
10%
15%
20%
25%
30%
0
200
400
600
800
1000
1200
2010
2011
2012
2013
2014
2015
2016
2017
JKT China South AsiaMiddle East Europe Americas% spot (RHS)
Share spotICE JKM LNG (Platts) futures
Cargoes Lots (10,000 MMBTU)
PHYSICAL AND FINANCIAL LIQUIDITY INCREASE AS MARKET EVOLVES
0
9,000
18,000
27,000
36,000
45,000
54,000
0
30
60
90
120
150
180
2010
2011
2012
2013
2014
2015
2016
2017
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018 STRONG LNG FUNDAMENTALS EXCEEDED EXPECTATIONS IN 2017
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0%
2%
4%
6%
8%
10%
12%
14%
0
5
10
15
20
25
30
35
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Americas Europe ME & AfricaAsia FSRU share
Deliveries to FSRUsMTPA FSRU share
FSRU importing markets
Argentina Brazil China Colombia
Egypt Indonesia Israel Italy
Jamaica Jordan Kuwait Lithuania
Malta Pakistan Turkey UAE
Existing
Croatia Cyprus El Salvador Hong Kong
Ivory Coast South Africa Sri Lanka
Proposed
Source: Shell interpretation of IHS Markit Q4 2017 data
FAST, FLEXIBLE FSRUs CONTINUE TO INCREASE LNG IMPORTS
FSRU picture to be added
Under Construction & Development
Bahrain Bangladesh Chile Ghana
Russia Panama
FSRU moored off the port of Aqaba in Jordan
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018 STRONG LNG FUNDAMENTALS EXCEEDED EXPECTATIONS IN 2017
22
Diverse marine segments choosing LNG
LNG bunkering network developing globally
LNG road fuelling network developing in China (2000+ stations) and EU (100+ stations)
DEMAND FOR LNG IN TRANSPORT GROWS GLOBALLY
Barge Car Carrier Ferry LNG Heavy Duty Truck
truck
Container Ship Cruise Ship Tanker LNG Fuel Station
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018
SUPPLY INVESTMENT REQUIRED TO MEET LONG-TERM DEMAND GROWTH
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03SHELL LNG OUTLOOK 2018
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SHELL LNG OUTLOOK 2018 SUPPLY INVESTMENT REQUIRED TO MEET LONG-TERM DEMAND GROWTH
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Source: Shell interpretation of IHS Markit, Wood Mackenzie, FGE, BNEF and Poten & Partners Q4 2017 data
Investment in liquefaction capacity
0
10
20
30
40
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
MTPA (FOB)
LACK OF SUPPLY INVESTMENT RISKS FUTURE GLOBAL LNG MARKET GROWTH
Year of investment decision
Emerging LNG supply-demand gap
MTPA (DES)
0
100
200
300
400
500
600
2000 2005 2010 2015 2020 2025 2030 2035
LNG supply in operation LNG supply under construction Demand forecasts
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SHELL LNG OUTLOOK 2018 SUPPLY INVESTMENT REQUIRED TO MEET LONG-TERM DEMAND GROWTH
25
Source: Shell interpretation of Wood Mackenzie Q4 2017 data
Drivers of LNG demandMTPA (DES)
0
100
200
300
400
500
600
2000 2005 2010 2015 2020 2025 2030 2035
Other market drivers Declining domestic gas production
0%
20%
40%
60%
80%
100%
2010 2017
Traditional markets Liquid or liberalising markets
LNG buyers’ domestic gas competition
Share of LNG deliveries
LNG BUYERS AND THEIR NEEDS ARE CHANGING
Royal Dutch Shell plc
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Source: Shell interpretation of IHS Markit Q4 2017, Moody’s and Fitch data
0
4
8
12
16
20
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Average contract lengthYears
0.0
0.5
1.0
1.5
2.0
2.5
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Average contract volumeMTPA
New long-term contract credit rating
0%
20%
40%
60%
80%
100%
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
A-rated B-rated Non-investment gradeInvestment grade
LNG BUYERS SIGNING SHORTER AND SMALLER CONTRACTS
Share of contract volume
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018 SUPPLY INVESTMENT REQUIRED TO MEET LONG-TERM DEMAND GROWTH
Term sales to importers by supplier type
0%
20%
40%
60%
80%
100%
2008-2010 2015-2017Supply project Portfolio Trader
Intermediaries
27
LIQUEFACTION INVESTMENT NEEDED TO MEET DEMAND GROWTH
Source: Shell interpretation of IHS Markit Q4 2017 data
Share of total contract volume STALEMATE CONSTRAINING GROWTH OF LNG SUPPLY
FINANCIERSLook to ensure revenue certainty
END-USERSLook to avoid long-term contracts that are not in line with their competitive position
LNG BUYERSSeek smaller, more flexible purchases to remain competitive in downstreammarket
LNG PRODUCERSSeek long-term LNG sales to secure financing
MISMATCH BETWEEN
BUYER AND
SELLER NEEDS
Royal Dutch Shell plc
SHELL LNG OUTLOOK 2018
28
SUMMARY
SHELL LNG OUTLOOK 2018
Methane Shirley Elisabeth
External environment creating more opportunities for gas and LNG
▪ Multiple levels of policy support gas and LNG demand▪ Gas supports renewable power generation and provides cleaner
non-power energy supply
Strong LNG fundamentals exceeded expectations in 2017
▪ 11 % increase in LNG imports ▪ Physical and financial liquidity increases as market evolves
Supply investment required to meet long-term demand growth