Outlook 2020

Royal Dutch Shell

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2
01 Seoul
02 Nigeria LNG
03 LNG-powered cruise ship

Gas continues to provide more and
cleaner energy solutions
The last decade has seen rapid growth in energy
demand and corresponding greenhouse gas
emissions which have created the need for more and
cleaner energy options. A combination of new
policy, favourable economics and partnership with
renewables is driving the momentum for coal-to-gas
switching.
Overview
Royal Dutch Shell
2019 was a year of record LNG
supply growth
2019 saw record LNG supply growth as the recent
wave of new LNG liquefaction projects nears
completion. Most of this growth was absorbed by
Europe. Year-on-year growth in Asian imports slowed
from highs of 2017 and 2018, but Asia still remains a
growth region. Increased liquidity, new spot trading
mechanisms and a wider variety of indices being used
for long-term contracts point towards LNG becoming
an increasingly flexible commodity.
Record supply investment
due to confidence in long-term
LNG demand growth
2019 was also a year of record final investment
decisions (FIDs), with 71 million tonnes of new capacity
being sanctioned, indicating belief in long-term LNG
demand. Increasing uncontracted and flexible supply is
set to offer more options for customers in the future.
February 2020 3
01 Queensland Curtis LNG

Gas continues to provide more

and cleaner energy solutions

Royal Dutch Shell February 2020 4

Growing population and rising living standards drive
demand for energy with lower emissions

90 7.7 18 40

Annual population increase (mln)

80

Energy consumption (mktoe)

16 35

Global population (bln)

7.5
70 14

CO2 emissions (MT)

30
60 7.3 12
50 25
7.1 10
40 20
8
30 6.9 15
6

CO2
20 10
6.7 4
10
2 5
0 6.5
0 0

Growing Rising energy

population
Rest of world population
Global population (RHS)
demand & emissions
Asia population
Rest of world energy Asia energy
(RHS)
Global emissions (MtCO2)

85% 700
600

Air quality (PM 2.5)

75%
500
Urbanisation level

65% 400

55% 300
200
45% 100
35% 0

25%

Increased Unsafe air

urbanisation OECD East Asia & Pacific quality Average WHO safe level (10)

South Asia 2019 range

Source: Shell’s interpretation of Wood Mackenzie H1, World Bank, The World Air Quality Index 2019 data

Royal Dutch Shell February 2020 5

Renewables and gas expected to replace coal in the
global energy mix

Global energy demand growth by fuel type Gas and coal share in the energy mix 2019-2040
BCM
20,000 16% 5% -10% 9%
37%
43%
India India 2030 gas target
16,000

China China 2030 gas target

12,000

Energy demand 1% CAGR Europe

8,000

North America
4,000

Global
0
0% 10% 20% 30% 40% 50% 60%
Share in the energy mix
Gas Coal 2019 2040

Source: Shell interpretation of Wood Mackenzie H1 2019 data CAGR - Compound annual growth rate

Royal Dutch Shell February 2020 6

Coal-to-gas switching helping level global CO2 emissions

CO2 change Coal-to-gas switching CO2 savings Equivalent to

CO2 GT, 2010=0 CO2 MT, 2010=0
over 50% of
5 0
4
CO2 emissions
-100
3 from South America for a full year
2 -200

1
-300
CO2
0 EMISSIONS
-400
-1
-2 -500
-57%
-3
-600
-4
-5 -700
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

*Advanced economies Rest of world Global United States China Europe

India Rest of world Global**

Source: Shell interpretation of Wood Mackenzie, IEA World Energy Outlook, IEA Carbon Report 2019 data **Power sector coal-to-gas switching in Advanced economies only
*Advanced economies include United States, European Union, Australia, Canada, Chile, Iceland, Israel, Japan, South Korea, Mexico, Norway, New Zealand, Switzerland & Turkey

Royal Dutch Shell February 2020 7

Record coal phase-out and generation reduction in 2019
Opportunity for more displacement of coal in the power sector

Net change in global coal Global coal phase-out capacity Power capacity by fuel
generation announcements by date GW
TWh GW
80 1,200
600

400 60 900

200
40 600

0
20 300

-200
0 -
2015 2016 2017 2018 2019 India China Europe North Rest of
-400
America world
2001 2004 2007 2010 2013 2016 2019
2020s 2030s 2040s Coal Gas Coal 2040 Gas 2040

Source: Shell interpretation of national government policy announcements, Carbon Brief, Global Energy Monitor, GlobalData plc and Wood Mackenzie 2019 data

Royal Dutch Shell April 2019 8

Use of coal and other solid fuels outside the power
sector also impacts air quality

Coal and solid fuel use in the Coal and solid fuel use in res & Air quality index 2018
industrial sector comm* sector
BCMe BCMe

China China

India India

United States Nigeria

Brazil Indonesia

Indonesia Pakistan

Japan United States

South Korea South Africa

Thailand Vietnam

Kazakhstan Poland

Vietnam Brazil

0 200 400 600 800 0 50 100 150 200

Coal Other solid fuels Coal Other solid fuels

Risk

Source: Maplecroft 2018 and Shell interpretation of Wood Mackenzie data H1 2019 Extreme High Medium Low
*Res & comm: residential and commercial sector and also includes use in cooking and heating BCMe – Billion Cubic Metres equivalent

Royal Dutch Shell February 2020 9

Growth of renewables favours gas in the power mix

Average thermal load factors South Australia electricity supply December 2019
Thermal load factors MW
90% 4000
3500
80%
3000
<1%
70% 2500
<1%
60% 2000
7%
2% 1500
50%
1000

40% 1%
500
10%
0
30% 28%
-500
20% 11%
-1000
2013

2019
2010
2011
2012

2014
2015
2016
2017
2018
2001

2003

2008
2009
2000

2002

2004
2005
2006
2007

California UK Spain India Batteries Renewables Gas Net interconnector

Share of wind and solar in generation mix

Source: Shell interpretation of Wood Mackenzie H1, national data and OpenNEM 2019 data

Royal Dutch Shell February 2020 10

Challenges to the role of gas in the energy
transition
Industry to address Driven by influencers

Methane emissions Future pathways Cost control Public perception

Need for improved measurement and Credible routes to deploy clean gas at Need to drive cost reductions to Gas faces a challenge from those
reporting and continual reduction in scale such as carbon capture and make natural gas more affordable arguing to remove all fossil fuels from
methane emissions storage (CCS) and biogas are needed for customers, ensuring it remains the global energy mix. However, the
highly competitive compared to supply of reliable energy cannot all
other energy sources be met by renewables– at least not
Emissions from coal and gas Biogas production yet.
Tonnes of CO2 e/toe BCM
5 400 Policies Gas is a fuel for today and
To accelerate change, tomorrow. It can act as a partner for
4 300 renewable sources to offer reliable,
governments need to introduce
3 long-term policies that enable flexible and cost-effective access to
200 development of lower-carbon and more and cleaner energy at scale,
2
renewable sources of energy, and all stakeholders must work
100
1 supported by technologies like harder to ensure public support for
0 CCS. Also, carbon-pricing gas to play its full role.
0
Coal Gas
mechanisms can help reduce
2018 2025 2030 2035 2040
emissions and encourage the use
Methane CO2 OECD Non-OECD of cleaner sources of energy.

Source: Shell interpretation of IPCC Emissions factors and IEA World Energy Outlook data 2019

Royal Dutch Shell February 2020 11

Gas to play a key role in reducing emissions from
hard-to-electrify sectors

Global gas demand growth by sector Share of gas demand growth by sector 2019-2040
BCM Gas demand sectors

9%
5,000 23%
28% Power
40%
4,000

Industry
3,000

Gas demand 2% CAGR Res & comm

2,000

1,000
Transport

0
2019 Power Industry Res & comm Transport 2040 -20% 0% 20% 40% 60% 80% 100% 120%

Asia Europe FSU Americas Mid-East & Africa LNG bunker

Source: Shell interpretation of Wood Mackenzie H1 2019 data

Royal Dutch Shell February 2020 12

Asia set to be the key growth region for LNG

Global gas supply by source LNG imports by region LNG imports into Asia
BCM BCM BCM

40% 9%
5,000 1,000 8% 750 48%
15% 9%
45% 74%

4,000 800 600

28%

600 450 23% 1%

3,000

2,000 400 300

1,000 Gas demand 2% CAGR 200 LNG demand 4% CAGR Asia LNG demand 4% CAGR
150

0 0 0
2019 Domestic Pipeline LNG 2040 2019 Asia Europe Americas Mid-East 2040 2019 China JKT South Rest of 2040
production imports imports & Africa Asia Asia

Source: Shell interpretation of Wood Mackenzie H1 2019 data

Royal Dutch Shell February 2020 13

02 Gibraltar – small-scale LNG import terminal

2019 was a year of record

LNG supply growth

Royal Dutch Shell February 2020 14

Current wave of LNG capacity additions coming to an end
85% now online

LNG liquefaction capacity additions LNG trade volume growth

MT MTPA (DES)
40 40

30 30

20 20

10 10

0 0
2015 2016 2017 2018 2019 2020 2021 2022 2015 2016 2017 2018 2019 2020 2021 2022

2019 LNG trade volume: 359 MTPA

Source: Shell interpretation of IHS Markit 2019 data

DES: delivered ex-ship

Royal Dutch Shell February 2020 15

Record LNG supply growth absorbed mainly in Europe

LNG supply growth range by country LNG demand growth range by region
MTPA MTPA
40 40

30 30

20 20

10 10

0 0

-10 -10
Australia USA Russia Rest of world Asia Europe Americas Middle East & Africa

Previous forecast range 2019 Actuals 2019

Source: Shell interpretation of IHS Markit, Wood Mackenzie, Poten & Partners Q4 2018 and 2019 data

Royal Dutch Shell February 2020 16

LNG imports rise by 40 million tonnes in 2019
China continues to be among top three global LNG growth markets

Net imports: 2019 YoY

MTPA (DES)
10

-2

-4

-6

-8

Previous forecast (consensus) Actuals

Source: Shell interpretation of IHS Markit, Wood Mackenzie and Poten & Partners 2018 and 2019 data
Note: Sweden, Canada, Colombia, Norway, Finland, Malta, Israel, Jamaica, Puerto Rico, Kuwait, Brazil, Panama, Poland and Dominican Republic are not included in the above chart as change is minimal

Royal Dutch Shell February 2020 17

LNG imports continue to meet China’s growing need
for cleaner energy

China gas demand vs domestic production China LNG and pipeline gas imports
BCMA BCMA

400 100
12% 34%

300 75

200 50
16% 18%
7%

100 25

0 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Gas demand Domestic production Pipeline import LNG import

Source: Shell interpretation of NDRC 2019 data

Royal Dutch Shell February 2020 18

European LNG imports increased by 74% in 2019 with
declining domestic production and pipeline imports …

Gas balance Domestic gas production Algerian and Russian pipeline sales
BCMA BCMA BCMA
550 250 250

200 200

500
150 150

100 100
450

50 50

400 0 0
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019

UK NL Norway Algeria Russia

Source: Shell interpretation of Wood Mackenzie, S&P Global Platts and Gazprom Export LLC 2019 data
Russian sales volumes adjusted to reflect standard calorific value (40MJ/m 3 at 15°C)

Royal Dutch Shell February 2020 19

… and increased coal-to-gas switching in the power sector
and storage due to mild winter

Coal-to-gas switching range Coal generation vs gas generation Year-end gas inventory
$/MMBtu €/tonne CO2 TWh BCM
12 35 100 100

30
9 75 75
25

20
6 50 50
15

10
3 25 25
5

0 0 0 0

2015

2016

2017

2018

2019
Jan-16

Jan-17
Jul-16

Jul-17

Jan-18

Jan-19
Jul-18

Jul-19

Sep-16
Feb-17
Jun-15

Dec-17
May-18
Apr-16

Aug-19
Jan-15

Jul-17
Nov-15

Oct-18
Mar-19
Range of coal-to-gas switching TTF gas
Gas generation Coal generation NW Europe Southern Europe
ARA coal European carbon price (RHS) CEE Storage capacity

Source: Shell interpretation of IHS Markit, Wood Mackenzie and Gas Infrastructure Europe (Aggregated Gas Storage Inventory) 2019 data

Royal Dutch Shell February 2020 20

Growing industrial gas demand and declining domestic
gas spurs LNG demand in South and South-east Asia

Gas demand growth by sector Gas supply growth by sector 2019 LNG imports by country
BCMA BCMA BCMA Growth
270 8% 5% 270 109% 40 > 100%
66%

260 22% 260 30 75%

-9%

250 250 20 50%

240 240 10 25%

230 230 0 0%
2018 Power Industry Res & Transport 2019 2018 Domestic LNG 2019
comm production

LNG Imports Growth %

Source: Shell interpretation of Wood Mackenzie and IHS Markit 2019 data

Royal Dutch Shell February 2020 21

Higher nuclear availability and mild winters reduced
imports into Japan and South Korea

Power generation mix Winter* average temperature LNG imports

Degree Celsius MTPA
10 100

2019 26% 41% 25% 7%

South Korea

9 75

2018 23% 42% 27% 6%

8 50

2019 7% 29% 38% 18%

Japan

7 25

2018 5% 30% 39% 17%

6 0
0% 20% 40% 60% 80% 100% 2015-16 2016-17 2017-18 2018-19 2019-20 Japan South Korea

Nuclear Coal Gas Oil Renewables Others 2018 2019

Source: Shell interpretation of IHS Markit, Japan Ministry of Economy, Trade and Industry, Korea Energy Economics Institute 2019 data
Power generation mix includes January through October data. *Winter months are from October through March.2020 includes YTD data

Royal Dutch Shell February 2020 22

US supply adds volume and flexibility to the global LNG
market

US LNG exports by destination US LNG deliveries to Asia

MT MT China % of total US deliveries

5 2.50 35%

30%
4 2.00
25%

3 1.50
20%

15%
2 1.00

10%
1 0.50
5%

0 0.00 0%
2016 2017 2018 2019 2016 2017 2018 2019

Americas Asia Europe Africa China Japan South Korea Other Asia China %

Source: Shell interpretation of IHS Markit, US Department of Energy 2019 data

Royal Dutch Shell February 2020 23

Global gas prices softened in 2019

Global gas prices Asia spot price US LNG export margins*

$/MMBtu JKM as % of Brent $/MMBtu

25 25% 7

6
20 20%
5

15 15%
4 2018

10% 3
10

2
5 5%
1 2019

0 0% 0
2015
2010

2012

2014

2016

2017
2013

2018

2019
2011

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
-1

Dated Brent JKM TTF Henry Hub Range 2013-2018 2018 2019 TTF Netback
netback JKM Netback
netback

Source: Shell interpretation of ICE, CME, S&P Global Platts 2019 data *Excludes liquefaction fee; netback calculated as: JKM and TTF minus
regasification and transportation cost minus 115% Henry Hub

Royal Dutch Shell February 2020 24

Increasingly liquid and transparent spot market

Spot LNG deliveries JKM eWindow/Market on Close ICE JKM LNG futures
Cargoes % of total market Cargoes Cargoes ‘000 Lots*
30% 1800 600
300
1500

250 1500 500

1250

20% 200 1200 400

1000

750 150 900 300

500 10% 100 600 200

250 50 300 100

0 0% 0 0 0
2011
2010

2012

2014

2015

2016

2017
2013

2018

2019

2011

2012

2014

2015

2016

2017
2013

2018

2019
2018 2019

JKT China South Asia

Bid Offer Trade
Middle East Europe Americas
% spot

Source: Shell interpretation of IHS Markit, S&P Global Platts and ICE 2019 data *About 300 lots is equal to 1 cargo

Royal Dutch Shell February 2020 25

Evolving contracting structures

Average volume and length of new New LNG contract volumes Share of new LNG contract volumes
contracts (by seller type) (by price indexation)
Years MTPA MT Share of total volume
16 2 1000 100%

800 80%
12 1.5

600 60%
8 1

400 40%

4 0.5
200 20%

0 0 0 0%
2010 2012 2014 2016 2018 2010 2012 2014 2016 2018 2010 2012 2014 2016 2018

Average length Average volume (RHS) Portfolio Project Oil-linked EU Gas Hub HH Hybrid JKM JLC

Source: Shell interpretation of Wood Mackenzie and IHS Markit 2019 data

Royal Dutch Shell February 2020 26

End of the current supply wave in 2020

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

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 2019 data

Royal Dutch Shell February 2020 27

Global LNG market equilibrium expected to be restored

LNG import growth by region

MT
15

10

-5
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2016 2017 2018 2019 2020 2021

Asia Europe Americas Middle East

Source: Shell interpretation of IHS Markit 2019 data

Royal Dutch Shell February 2020 28

03 LNG London bunkers a containership in Rotterdam

Record supply investment due to confidence

in long-term LNG demand growth

Royal Dutch Shell February 2020 29

Expected supply shortage in mid-2020s resulted in
record FIDs

Investment in liquefaction capacity by contract type LNG equity offtake by buyer type
MT MT

80 80

60 60

40 40

20 20

0 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010-2017 2018 2019

Project SPA Equity offtake IOC NOC Other

Source: Shell interpretation of IHS Markit 2019 data

Royal Dutch Shell February 2020 30

Record FIDs delay expected supply-demand gap
LNG demand estimated to double by 2040

Emerging LNG supply-demand gap Demand drivers for LNG

MTPA MTPA

800 800
Demand forecast LNG demand
central range from bunker fuel

600 600 LNG demand due to

Potential
declining domestic gas
Qatar
production
expansion
400 400
LNG demand supplements
LNG supply under pipeline gas and/or
200 construction 200 domestic production

LNG supply in Demand as LNG is the

0 operation 0 sole gas supply source
2000 2005 2010 2015 2020 2025 2030 2035 2040 2000 2005 2010 2015 2020 2025 2030 2035 2040

Source: Shell interpretation of IHS Markit, Wood Mackenzie, FGE and Poten & Partners Q4 2019 data

Royal Dutch Shell February 2020 31

LNG bunkering demand accelerating

385 LNG ships currently in Confirmed LNG demand LNG bunker demand projection
operation/on order* # of ships MTPA MTPA

Car carriers 400 3.0 50

Ro-Ro cargo ships
350
Bulk carriers 2.5
40
General cargo ships 300
Tugs 2.0
250
RoPax 30
Other vessels 200 1.5
Crude oil tankers
150 20
Cruise ships 1.0
Offshore supply ships 100
Oil/Chemical tankers 10
0.5
50
Container ships
Car/Passenger ferries 0 0.0 0

2014
2010

2015
2016
2017
2012
2013

2018
2019
2011

2020

2022
2021
0 10 20 30 40 2020 2025 2030 2035 2040
Wood Mackenzie IHSMarkit
In operation On order In operation On order Consumption IEA (WEO 2019)

Source: Shell interpretation of DNV GL, Woodmac, IHS Markit & IEA 2018 and 2019 data
* Based on announcements with deliveries going out to 2027. Does not include 150 LNG-ready ships

Royal Dutch Shell February 2020 32

China gas demand expected to double

China gas demand by sector China supply by source

BCM BCM
700 700
7% 33%
48%
29%
600 600
38%

500 500 17%

19%
31%
26%
400 400 52%

300 300

200 200
2019 Power Industry Res & Transport 2040 2019 Domestic Pipeline LNG 2025 Domestic Pipeline LNG 2040
comm production imports imports production imports imports

Power of Siberia

Source: Shell interpretation of Wood Mackenzie 2019 H1 data

Royal Dutch Shell April 2019 33

Growing gas demand expected in South and South-east Asia
More LNG infrastructure investment needed

South Asia gas supply South-east Asia gas supply LNG demand and regasification capacity
growth by source growth by source MT
BCM BCM Bangladesh Pakistan
India
250 250 50 50 50

200 200 0 0 0
2019 2040 Regas 2019 2040 Regas 2019 2040 Regas

150 150

100 100 Thailand Malaysia Vietnam

50 50 50
50 50
0 0 0

0 0 2019 2040 Regas 2019 2040 Regas 2019 2040 Regas

2019 Domestic LNG 2040 2019 Domestic LNG 2040

production imports production imports Indonesia Rest of SE Asia
50 50

India Bangladesh Indonesia Malaysia Thailand LNG demand 0 0

Regas existing 2019 2040 Regas 2019 2040 Regas
Pakistan Sri Lanka Vietnam Others Regas under construction

Source: Shell interpretation of Wood Mackenzie and IHS Markit 2019 data

Royal Dutch Shell February 2020 34

01
Gas continues to provide more
and cleaner energy solutions
◼ 80% of energy demand growth expected to
be met by renewables and gas
◼ Coal-to-gas switching helping level global
CO2 emissions
◼ Record coal phase-out and generation
reduction in 2019
Summary
Royal Dutch Shell
02 03
2019 was a year of record Record supply investment
LNG supply growth due to confidence in long-term
LNG demand growth
◼ European LNG imports increased by 74% ◼ Expected supply shortage in mid-2020s
◼ Higher nuclear availability and mild winters resulted in record FIDs
reduced imports into Japan and South Korea ◼ Record FIDs delay expected supply demand
◼ End of the current supply wave in 2020 gap
◼ LNG demand estimated to double by 2040
◼ Global LNG market equilibrium expected
to be restored
February 2020 35