SHELL LNG OUTLOOK 2019 - SAFETY4SEA · SHELL LNG OUTLOOK 2019 6 Source: Shell interpretation of...

Royal Dutch Shell

SHELL LNG OUTLOOK2019

Royal Dutch Shell

SHELL LNG OUTLOOK 2019

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.

2

Cautionary Note

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3

Content

Growing recognition of the role of gas and LNG as the world tackles poor air quality and climate change

Asian LNG imports exceed expectations again in 2018 absorbing continued supply growth

Near term supply growth expected to be absorbed by Europe and Asia – continued need for investment in supply to meet long-term demand growth

01 02 03

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01 Bunkering of world’s first LNG fuelled cruise ship, AIDAnova

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5

The energy challenge

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Growing population

Risingdemand

Need for energy solutions

Mitigating climate change

Improving air quality

According to United Nations estimates, the current world population of 7.6 billion is expected to reach 8.6 billion in 2030, 9.7 billion in 2050 and 11.2 billion in 2100. Nearly a billion people still live without electricity while another billion struggle with unreliable supplies of electricity.

By 2070 the world is likely to be using at least 50% more energy than it does today as population grows and people seek to improve their quality of life.

According to the International Energy Agency (IEA), renewable generation is expected to underpin the growth of electricity from 18% to 50% of energy supply by 2050. The remaining energy demand that is difficult to electrify will still require cleaner solutions.

The world currently emits 33 billion tonnes of energy-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. The challenge is not just to reduce emissions, but to do this while providing more reliable energy supplies.

Updated World Health Organization (WHO) estimates reveal an alarming death toll of 7 million people every year caused by outdoor and household air pollution. According to WHO, global air pollution is linked to inefficient energy use in every sector of human activity including coal-fired power plants, industry, agriculture and transport.

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6

Source: Shell interpretation of Wood Mackenzie Q4 2018 data CAGR - Compound annual growth rate

Global energy demand growth by fuel type Gas growth in the energy mix 2018-2035

BCM

Gas and renewables to play a critical role in meeting the energy challenge

0

4,000

8,000

12,000

16,000

20,000

Energy demand 1% CAGR

41% 30% 15% 6% 4% 4%

0% 10% 20% 30% 40%

Global

North America

Europe

China

India

Gas share % in the energy mix2018 2035

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7

Source: Shell interpretation of IHS Markit and ICE Q4 2018 data and announced public policy

South Korean taxes to favour gas over coal

Tax $/MMBtu

Government policies being implemented encouraging a cleaner energy mix

Chinese Government policies target

BCM

EU carbon pricing supported by policy changes

€/CO2 tn

0

0.5

1

1.5

2

2013 2014 2015 2016 2017 2018 2019

Coal Gas

4%

7%

10%

0%

3%

6%

9%

12%

0

100

200

300

400

2010 2018 2020(Target)

Gas demand Gas share

0

5

10

15

20

25

30

Jan-17 Jun-17 Nov-17 Apr-18 Sep-18

€/CO2 tn

Gas share

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8

Source: Shell interpretation of Wood Mackenzie Q4 2018 data Res & Comm – Residential and Commercial

Global gas demand growth by sector 2016 - 2018 Global gas demand growth by sector

BCM

Gas demand growth not reliant on the power sector

3,300

3,400

3,500

3,600

2016 Power Nonpower

2017 Power Nonpower

20180

1,000

2,000

3,000

4,000

5,000

2018 Power Industry Res &comm

Transport 2035

Gas demand 2% CAGR

41% 29%

25% 5%

BCM

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9

Source: Shell interpretation ENTSOG, REE, World Nuclear Association 2017 and 2018

LNG complements wind and solar Spain (Dec-2017)

New power generation needed to replace ageing plantsNuclear capacity online by start date

LNG supplied (GWh/h) Capacity GWPower generation (GWh/h)

Gas provides required flexibility for power generation

0

10

20

30

40

50

0

10

20

01-Dec 31-Dec26-Dec21-Dec16-Dec11-Dec06-Dec

0

5

10

15

20

25

30

35

1969 1974 1979 1984 1989 1994 1999 2004 2010 2015

North America South America Africa Europe Russia Asia

+40yrs old 30-40yrs old

Wind Solar LNG supply (GWh/h)

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10

Source: Shell interpretation of IHS Markit, Beijing Gas Group and US Embassy Beijing (US State Department) 2018 data

Air quality improvements in Beijing 176 MT CO2 saving from China’s air quality programme in 2018

Air quality ug/m3 PM 2.5 CO2 MT/yrGas demand (BCM)

Coal-to-gas switching in China achieves blue skies and reducesCO2 emissions

02468101214161820

020406080

100120140160180200

Feb-09 Jun-10 Oct-11 Feb-13 Jun-14 Oct-15 Feb-17 Jun-18

ug/m3 PM2.5 Beijing gas demand

-30

-25

-20

-15

-10

-5

0

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Source: Shell interpretation of National Grid, IHS Markit, Weather Channel 2018 data

Meeting heating demand in UK in 2018 Meeting seasonal cooling demand in Kuwait

LNG supplied (mcm/d) MTTotal gas demand (mcm/d) Average monthly temperature °C

LNG flexibility mitigates demand shocks and meets seasonal needs

0

50

100

150

200

250

300

350

400

450

0

20

40

60

80

100

1-Feb 15-Feb 1-Mar 15-Mar 29-Mar 12-Apr 26-Apr

LNG supply Total gas demand (RHS)

0

5

10

15

20

25

30

35

40

45

0

0.2

0.4

0.6

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

LNG imports Temperature ◦C

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12

New countries choosing LNG for various benefits

Natural gas meets over half of total energy demand

Declining domestic gas production

LNG meeting existing and new gas demand

Replacing oil-fired power generation

Complement renewable power generation

Strategic location of Panama Canal offers opportunities for LNG bunkering

Replacing oil-fired power generation

Innovative small-scale LNG solution

Increases diversity of supply

Source: Shell interpretation of Woodmac Q4 2018 Data

BANGLADESH PANAMA GIBRALTAR

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13

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

Economic and environmental benefits increasing the use of LNG in road transport

200

400

2012 2013 2014 2015 2016 2017 2018

LNG HD trucks

LNG buses

0

6.7 MT of LNG consumed in China for road transport in 2018

2,552 LNG fuel stations in 2018

1532

4000

5,500

0

2000

4000

6000

2016 2017 2018

Co-financed by EU, BioLNGEuroNet is building 39 LNG stations, 2000 LNG trucks and a BioLNG production plant

280,000 LNG trucks expected by 2030

155 LNG fuel stations in 2018

Source : Shell analysis of Woodmac, SCI, and NGVA data

Royal Dutch Shell


14

Source: Shell interpretation of Wood Mackenzie Q4 2018 data

Global gas supply by source

BCM

LNG continues to be the fastest-growing gas supply source

LNG imports by region

BCM

LNG imports in Asia

BCM

0

1,000

2,000

3,000

4,000

5,000

2018 Domesticproduction

Pipelineimports

LNGimports

2035

62% 4% 34%

Gas demand 2% CAGR

0

200

400

600

800

1,000

2018 Asia Europe Americas Mid-East & Africa

2035

LNG demand 4% CAGR

59%

22% 10%

9%

0

120

240

360

480

600

2018 China JKT SouthAsia

SouthEast Asia

2035

Asia LNG demand 3% CAGR

32% -8%

35%

41%

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02 Russia's first LNG plant on Sakhalin

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16

Source: Shell interpretation of IHS Markit Q4 2018 data

LNG trade volume LNG liquefaction capacity additions

MTPA (DES) MT (DES) Share online

More than 70% of the current wave of LNG capacity additions online

319

0

100

200

300

400

2005 2007 2009 2011 2013 2015 2017 20190%

20%

40%

60%

80%

100%

0

10

20

30

40

50

2015 2016 2017 2018 2019 2020 2021Capacity additions (2018 forecast) Capacity additions (actual/2019 forecast)

Share online (nameplate capacity)

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17

Source: Shell interpretation of IHS Markit, Wood Mackenzie and Poten & Partners 2017 and Q4 2018 data YoY: Year on Year

Net exports YoY Net imports YoY

MT (DES) MT (DES)

Asian LNG demand continues to exceed expectations

-10

0

10

20

30

Total Total Australia USA Russia Rest ofworld

2017 2018

Previous forecast (consensus)

Actuals

-10

0

10

20

30

Total Total North Asia NWEurope

S Europe Rest ofworld

2017 2018

Previous forecast (consensus)Actuals

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18

Source: Shell interpretation of IHS Markit, Wood Mackenzie and Poten & Partners 2017 and Q4 2018 data

Net imports: 2018 YoY

MT (DES)

LNG imports increased by 27 MT in 2018

-4

0

4

8

12

16

Egyp

t

UA

E

Spai

n

Jord

an

Japa

n

Arg

entin

a

Mal

aysi

a

Gre

ece

Lith

uani

a

Chi

le

Nor

way

Kuw

ait

USA

Finl

and

Swed

en

Jam

aica

Israe

l

Dom

Rep

Italy

Can

ada

Portu

gal

Pana

ma

Col

ombi

a

Mal

ta

Taiw

an

Mex

ico

Puer

to R

ico

UK

Indo

nesi

a

Braz

il

Turk

ey

Sing

apor

e

Bang

lade

sh

Pola

nd

Fran

ce

Thai

land

Net

herla

nds

Belg

ium

Indi

a

Paki

stan

Sout

h Ko

rea

Chi

na

Previous forecast (consensus) Actuals

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19


China energy demand growth by fuel

BCM

LNG imports continued to enable China to meet its growing need for cleaner energy

China gas demand growth by sector

BCM

China gas supply growth by source

BCM

3,500

3,550

3,600

3,650

3,700

19%

24%

35% 6%

16%

200

220

240

260

280

11%

44%

38%

200

220

240

260

280

26%

21%

7% 53%

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20

Source: Shell interpretation of PPAC and PNGRB Q4 2018 data

India gas demand growth by sector

BCM

LNG provides energy security for India

India gas supply growth by source

BCM

India city gas distribution areas

Number of geographical areas

30

35

40

45

50

55

2017 Power Industry Res &comm

201830

35

40

45

50

55

2017 Domestic LNGImports

20180

50

100

150

200

250

Existing Underconstruction

Awarded in2018

To beawarded in

2019

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21

Source: Shell interpretation of DNV-GL & Woodmac *Other vessels includes fishing vessels, dredgers, etc.

Projections for LNG in MarineMTPA

Marine LNG poised for growth

010203040

2020 2025 2030 2035

0 10 20 30 40 50

Bulk carriersCar carriers

Car passenger ferriesContainer ships

Crude oil tankersCruise ships

Multi - gas tankersGeneral cargo ships

Offshore supply shipsOil/Chemical tankers

Other vessels*RoPax

Ro-Ro cargo shipsTugs

In operation

On order

QUARTER 1

Mitsui OSK order LNG bunker barge to serve Total-CMA-CGM deal

World's first LNG-fuelled bulk carrier charter delivered

Carnival orders 9th

LNG fuelled Cruise ship

QUARTER 4

Crowley takes delivery of second LNG-powered container/roll on-roll off (ConRo) ship

Bunkering of the first LNG fuelled Aframaxtanker by Shell Cardissa

H-Line Shipping ordered two LNG fuelled bulk carriers

World’s first LNG powered cruise ship sets sail

Kairos, the 7,500 m³ bunker vessel started operations

Adnoc and Inpex sign agreement to explore LNG bunkering opportunities in UAE

Public Gas Corp of Greece signed a grant agreement with EU for construction of the first LNG bunkering vessel

QUARTER 2

Shell agrees to charter two LNG poweredtankers from AET

MPA awards grants for two LNG bunker barges for Singapore

QUARTER 3

First Japanese LNG bunker vessel ordered

Hapag Lloyd announces it will convert a container vessel to operate on LNG

2018

LNG fuelled vessels

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22


Average contract length Total LNG contract volumes by seller type

Years MT

Resurgence of longer term contracts supports new supply projects

0

4

8

12

16

20

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 20180

200

400

600

800

1000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Portfolio Project

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23

Source: Shell interpretation of Japanese customs data (Japan LNG import), S&P Global Platts (JKM), ICE (NBP, Brent, ARA coal), NYMEX (Henry Hub)

Global Energy prices Asian spot price

$/MMBtu JKM as % Brent

Spot prices remained robust

0

5

10

15

20

25

2010 2011 2012 2013 2014 2015 2016 2017 2018Energy price range Henry Hub BrentNBP JKM (Platts) JLCCoal (ARA)

0%

5%

10%

15%

20%

25%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Range 2012-2017 2017 2018

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24

Source: Shell interpretation of IHS Markit Q4 2018, S&P Global Platts and the ICE data

Spot LNG Supply

Cargoes

Spot market gains momentum with volume growth

Share spot

Spot LNG deliveries

Cargoes Share spot

ICE JKM LNG (Platts) futures

Cargoes 1000 Lots

0%

10%

20%

30%

0

400

800

1200

1600

2010

2011

2012

2013

2014

2015

2016

2017

2018

Australia USA Qatar

Other Re-exports % spot

0%

10%

20%

30%

0

400

800

1200

1600

2010

2011

2012

2013

2014

2015

2016

2017

2018

JKT China South AsiaMiddle East Europe Americas% spot

0

30

60

90

120

150

180

0

100

200

300

400

500

600

2010

2011

2012

2013

2014

2015

2016

2017

2018

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25

Source: Shell interpretation of S&P Global Platts data and IHS Markit Q4 2018 data

JKM price versus freight rate LNG demand growth by region

$/MMBTu MTK$/Day

An evolving global LNG market

0

50

100

150

200

0

5

10

15

20

2010 2012 2014 2016 2018

JKM price Freight (RHS)

-5

0

5

10

15

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2016 2017 2018

Asia Europe South America Middle East

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Near term supply growth expected to be absorbed by Europe and Asia –continued need for investment in supply to meet long-term demand growth

03 Shell Cardissa fuelling Gagarin Prospect, the world’s first crude oil tanker to be powered by LNG

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27

Source: Shell interpretation of IHS Markit, Wood Mackenzie, Poten & Partners Q4 2018 data

LNG supply growth range by country LNG demand growth range by region

MTPA MTPA

New supply expected to be absorbed by Asia as well as Europein 2019

-5

0

5

10

15

20

25

30

35

Australia USA Russia Rest of world-5

0

5

10

15

20

25

30

35

Asia Europe Americas Middle East &Africa

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28


Europe gas supply outlook Gas supply by source in 2019

BCMA BCMA

Europe needs more imports to offset declining domestic gas production

0

100

200

300

400

500

600

2010 2015 2020 2025

Domestic production Norway pipeline Algeria pipelineOther pipeline Russian pipeline LNG

400

450

500

550

600

2018 Domesticproduction

Algeriapipeline

Otherpipeline

Russianpipeline

LNG 2019

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29


Coal and gas-fired generation capacity and utilisation European power switching economics

GW $/MMbtu €/tn CO2

European power sector is also capable of absorbing more LNG

0

10

20

30

0

3

6

9

12

Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19

Range of coal-to-gas switching TTF Gas $/MMBTU

ARA Coal $/MMBTU European carbon price (RHS)

0%

20%

40%

60%

80%

100%

0

50

100

150

200

250

2010 2011 2012 2013 2014 2015 2016 2017 2018

Coal Capacity Gas Capacity Coal Utilization Gas Utilization

Royal Dutch Shell


30

Source: Shell interpretation of IHS Markit and Wood Mackenzie Q4 2018 data

2018 Regasification capacity and utilisation

Asia has significant potential to take more LNG volumes

2018 Gas-fired power generation capacity and utilisation

2018 Coal-fired power generation capacity and utilisation

0%

20%

40%

60%

80%

100%

Unutilised Capacity Utilised CapacityHighest utilisation (past 10yrs)

0%

20%

40%

60%

80%

100%

Unutilised Capacity Utilised Capacity

Highest utilisation (past 10yrs)

0%

20%

40%

60%

80%

100%

Unutilised Capacity Utilised CapacityLowest utilisation (past 10yrs)

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

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31


China Regas capacity additions India Regas capacity additions

MT MT

China and India can double import infrastructure in 5 years

0

20

40

60

80

100

120

140

160

2018 2019 2020 2021 2022Existing Under construction Proposed

0

10

20

30

40

50

60

70

2018 2019 2020 2021 2022Existing Under construction Proposed

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32

Source: Shell interpretation of IHS Markit, Wood Mackenzie, FGE and Poten & Partners Q4 2018 data

Emerging LNG supply-demand gap Investment in liquefaction capacity

MTPA MT

Supply investment still needed to meet continued LNG demand growth

0

100

200

300

400

500

600

700

2000 2005 2010 2015 2020 2025 2030 2035

2018 outlook range

LNG supply in operation LNG supply under construction Demand forecast range

0

10

20

30

40

2010 2012 2014 2016 2018 2020* 2022*Year of investment decision

* Assumption- 5 years FID to be onstream

FIDs needed for high demand FIDs needed for low demand

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33

SummarySHELL LNG OUTLOOK 2019

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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


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

SHELL LNG OUTLOOK 2019 - SAFETY4SEA · SHELL LNG OUTLOOK 2019 6 Source: Shell interpretation of...

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