Shell LNG Outlook - February 2017
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Transcript of Shell LNG Outlook - February 2017
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LNG Outlook
1
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Definitions & cautionary note
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. Discovered and prospective resources: Our use of the term “discovered and prospective resources” are consistent with SPE 2P + 2C + 2U definitions.Organic: Our use of the term Organic includes SEC proved oil and gas reserves excluding changes resulting from acquisitions, divestments and year-average pricing impact. Shales: Our use of the term ‘shales’ refers to tight, shale and coal bed methane oil and gas acreage.Underlying operating cost is defined as operating cost less identified items. A reconciliation can be found in the quarterly results announcement.
The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate legal entities. In this release “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 release 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 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 a venture, partnership or company, after exclusion of all third-party interest. This release 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 release, 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. There can be no assurance that future dividend payments will match or exceed previous dividend payments. All forward-looking statements contained in this release 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, 2015 (available at www.shell.com/investor and www.sec.gov). These risk factors also expressly qualify all forward looking statements contained in this release and should be considered by the reader. Each forward-looking statement speaks only as of the date of this release, February 20, 2017. 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 release.With respect to operating costs synergies indicated, such savings and efficiencies in procurement spend include economies of scale, specification standardisation and operating efficiencies across operating, capital and raw material cost areas.We may have used certain terms, such as resources, in this release 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.
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0
5000
10000
15000
20000
45% 18% 15% 13% 2% 7%
4
Global energy demand growth by fuel (bcm)
Source: Shell interpretation of Wood Mackenzie Q4 2016 data
0
1000
2000
3000
4000
5000
45% 26%
22% 7%
Global gas demand growth by sector (bcm)GLOBAL GAS DEMAND GROWTH BY REGION (BCM)
2015 Asi
a
Ameri
cas
Middle Ea
st
Rest
of worl
d20
300
1000
2000
3000
4000
5000
39% 25%
15% 21%
Global gas demand growth by region (bcm)
Gas playing a prominent role in meeting growing energy demand
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Gas provides competitive, flexible, cleaner energy
Average Time Required To Come Online, MinutesSupporting renewable generation growth
Capital Cost Of Power Plants KW/yrGas plants are cheaper to build & operate
$0
$2,000
$4,000
$6,000
$8,000
$0$50$100$150$200$250$300$350$400
lb/MWh grossAddressing local air quality concerns
SO2 NOx PM2.50
0.10.20.30.40.50.60.70.8
Negligible emissions from gas
Coal Emissions, Supercritical Pulverized Coal Boiler
Natural Gas CCGTOvernight Capital Cost ($/kW)
Fixed Operation & Maintenance Cost ($/kW-yr) RHS
Time to synchronise with grid
Time to reach full load
Negligible emissions from gas
Coal
Gas CCGT
Gas Large OCGT
0 50 100 150 200 250 300 350 400
300
15
85
80
22
Source: IEA, NETL 2015-Cost & Performance baseline for Fossil Energy Plants, NETL; Life Cycle Greenhouse Gas, DECC
Life-cycle GHG Emissions: kg CO2e/MWh,100-year Global Warming Potential
Average Natural Gas Fleet, baseload
Coal Average Fleet, baseload0
200400600800
10001200
518
1,133
Facilitating climate change objectives
54% lower than coal emissions
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Policymakers increasingly choose gas
Leaders’ Communique pledged to ‘enhance collaboration on solutions that promote natural gas’ as ‘a less emission-intensive fossil fuel’
170+ members agreed sulphur limit in shipping fuel of 0.5% from 2020 LNG as a fuel contains virtually zero sulphur vs. 3.5% specification for global marine fuel today
13th Five Year Plan targets 45 bcm of incremental gas consumption by 2020. China has suspended more than 100 coal-fired plants either approved or under construction“We have given priority to move towards a gas based economy. Effort must be made to increase natural gas production while also creating import infrastructure to meet the growing domestic demand.’’ Prime Minister Modi
France and Canada announced plans to phase out coal fired generation by 2023 and 2030 respectively. They join Austria, Belgium, Britain, Denmark and Portugal in pledging to close coal fired generation by the end of the next decade
EU Liquefied Natural Gas Strategy acknowledged critical role of gas in support of energy security, increasing competitiveness and greenhouse gas emissions targets
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2008
2009
2010
2011
2012
2013
2014
2015
2016
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
0
20
40
60
80
100
120
Gas to Coalratio PM 2.5
Emission reduction policies drive increased gas demand
UK: Lower CO2 emissions Beijing: Improving air quality
Apr-15
May-15
Jun-15Jul
-15
Aug-15
Sep-1
5Oct-
15
Nov-15
Dec-15
Jan-16
Feb-1
6Mar-
16Apr-
16
May-16
-
2
4
6
8
10
12
0
2
4
6
8
10
12UK Power DynamicsTWh MtCO2e
£18/t CO2e floor kicked in
Action Plan for Air
Pollution Prevention
Beijing Olympic Games
Closure of coal
boilers
Germany: Static CO2 emissions
-
5
10
15
20
25
30
0
5
10
15
20
25
30German Power DynamicsTWh MtCO2e
Power CO2 Emissions
WHO PM 2.5
guidance
Coal generation PM 2.5 Gas vs. coal consumption ratio
Power CO2 Emissions
Coal generationGas
generationGas generation
Source: Aurora Energy Research; Embassy of the USA – Beijing, China; National Bureau of Statistics of China
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2015 2016 2017 2018 2019 20200
10
20
30
40
50
0%
20%
40%
60%
80%
100%Annualized capacity additionsShare online
MTPACapacity additions
One-third of new LNG supply growth already online LNG volume set to expand 50% from 2014 to 2020
8
Source: Shell interpretation of IHS (LNG Waterborne Trade, Liquefaction Projects Database) and Wood Mackenzie Q4 2016 data
100
150
200
250
300
350
400
265
MTPADelivered volume
Note: only includes projects online by 2016 or currently under construction
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Braz
il
Unite
d Ki
ngdo
m
Japa
n
Belg
ium
Mex
ico
Arge
ntin
a
Neth
erla
nds
Mal
aysia
Cana
da
Dom
inica
n Re
pu...
Thai
land
Turk
ey
Colo
mbi
a
Jam
aica
Unite
d St
ates
Portu
gal
Puer
to R
ico
Gree
ce
Israe
l
Sing
apor
e
Italy
Chile
Sout
h Ko
rea
Lithu
ania
Taiw
an
Pola
nd
Indo
nesia
Kuwa
it
Spai
n
Unite
d Ar
ab E
mi..
.
Fran
ce
Jord
an
Paki
stan
Indi
a
Egyp
t
Chin
a
-4
-2
0
2
4
6
8
2016 import growth dominated by China, India & new entrants
Net imports vs 2015 = +17.0 million tonnes
Million tonnes
Source: Shell interpretation of IHS (LNG Waterborne Trade) data, delivered volumes; red denotes new entrants (2015-2016)
Existing demandNew entrants
9
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Total exports Australia US Rest of World
-5
0
5
10
15
20
Growth in LNG demand absorbed increase in supply
Source: Shell interpretation of IHS data, delivered volumes
Net exports: 2016 YoY Net imports: 2016 YoYMillion tonnes
10
Million tonnes
Total imports Rest of World Northwest Europe
-5
0
5
10
15
20
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J F M A M J J A S O N D0%
5%
10%
15%
20%
25%
Series1 Range 2010-2014 2015 2016
Robust spot prices reflect the market’s ability to absorb new supply
11
Global LNG prices ($/MMBTU) Asia spot (JKM as % Brent)
2000 2002 2004 2006 2008 2010 2012 2014 20160
5
10
15
20
25
Energy price range Henry Hub Brent NBP JKM (Platts)Japan LNG Import Coal (ARA)
Source: Japanese customs data (Japan LNG import), Platts (JKM), ICE (NBP, Brent, ARA coal), NYMEX (Henry Hub)
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2008
2009
2010
2011
2012
2013
2014
2015
2016
0%
20%
40%
60%
80%
100%
A-rated B-ratedNon-investment grade
Trend to shorter and smaller contracts with emerging buyers
12
Average contract length, years Average contract volume, MTPA LNG buyer credit ratings
Investment grade
2008
2009
2010
2011
2012
2013
2014
2015
2016
0.0
0.5
1.0
1.5
2.0
2.5
2008
2009
2010
2011
2012
2013
2014
2015
2016
0
4
8
12
16
20
Source: Shell interpretation of IHS (Energy LNG Sales Contracts Database), Moody’s and Fitch data
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New FIDs required to meet demand growth after 2020
LNG supply/demand gap
13
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
0
100
200
300
400
500
LNG supply in operation
LNG supply under construction
Demand forecasts
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
0
10
20
30
40
50MTPA
Overview of LNG FIDsMTPA
Source: Shell interpretation of Wood Mackenzie Q4 2016, IHS, Poten, Gas Strategies and PFC.
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Changing drivers of LNG demand growth
0
100
200
300
400
500LNG imports by role in meeting gas demand (MTPA)
Source: Shell interpretation of Wood Mackenzie Q4 2016 data* Denotes new or emerging LNG importing countries
Gas supply solely dependent on LNG
Japan Korea Taiwan
Puerto Rico Dominican
Republic
Jamaica* Panama*
Balances LNG supply
Northwest Europe
Bunker fuel
LNG demand driver
Atlantic
Countries/regions
Middle East Pacific
LNG complements domestic and pipeline supply
Southern Cone Eastern Europe Southern
Europe North America
China Singapore
Morocco* Jordan* Israel
India Thailand Indonesia Malaysia Pakistan*
LNG replaces declining domestic production into existing demand
Egypt* Kuwait UAE Colombia*
Bangladesh*
Bahrain* Philippines
* Vietnam*
14
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LNG to take larger share of European gas demand
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
0
100
200
300
400
500
600
LNGRussia pipeOther pipeAlgeriaNorway pipeIndigenous production
2035 demand forecast range:540-575 bcm
15
European gas supply (bcm)
Source: Shell interpretation of Wood Mackenzie Q4 2016, IHS, and Eurogas data
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Policy and macroeconomics driving gas demand growth in China
16
4%
2015
China’s share of global LNG demand
16%2030
China total primary energy demand5%
Gas Renewables Nuclear Oil Coal
2015
11%
2030
Gas supply by source 2030, bcm
LNG importsOther pipeline importsRussia pipeline imports
ShaleOther unconventional
Conventional
0 50 100 150 200
Source: Shell interpretation of Wood Mackenzie Q4 2016 data
Gas demand potential 2030, bcm
+1% GDP growth rate+1% gas demand CAGR
+1% gas in energy mix15% gas in energy mix
Demand forecast
400 450 500 550 600 650 0 / /
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Southeast Asia to become net LNG importer by 2035
17
Indonesia
2015 2025 20350
102030
0102030
2015 2025 20350
102030
0102030
2015 2025 20350
102030
2015 2025 20350
102030
2015 2025 2035-100
-50
0
50
100
LNG Export
LNG import
Net imports
Traditional exporters ramping up demandMTPAVietnam
Thailand
Philippines
SingaporeMalaysia
Source: Shell interpretation of Wood Mackenzie Q4 2016 data
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Potential demand upside from transport sector
Heavy duty and marine transport LNG industry LNG for transport -Forecast range
0
200
400
600
800
1000
1200
1400Heavy duty Marine
18
MTPA equivalent, 2025
Source: Shell interpretation of Wood Mackenzie and IHS
LNG contributes virtually zero sulphur emissions and has reduced particulates and NOx emissions, compared to heavy fuel oil.
LNG can help reduce the well-to-wheel emissions compared to conventional fuels.
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Summary
Strong growth in LNG supply in 2016, one-third of new supply online LNG demand growth from China, India and new entrants absorbed supply growth
in 2016 Continued LNG supply growth to 2020 Global demand for gas is expected to increase by 2% a year between 2015 and
2030; LNG is set to rise at twice that rate at 4 to 5%
Future LNG demand growth will be driven by: policy, floating storage regasification units, replacing declining domestic gas production, small scale LNG and transport
LNG and Russian gas imports required to balance European gas demand New investments required to meet growing LNG demand after 2020 LNG trade is changing to meet the evolving needs of buyers, including shorter-
term and lower-volume contracts19Copyright of Royal Dutch Shell plc