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Royal Dutch Shell 2

01 02 03
Gas and LNG have a key role to LNG shows its resilience and Complementary spot and term
play in a decarbonising world flexibility in 2020 contract structures and cleaner
pathways to drive LNG growth
2020 saw new net-zero emissions (NZE) While COVID-19 derailed expected forecasts, LNG demand is expected to grow steadily with a
announcements at both national and regional LNG demand still grew with trade reaching 360 supply-demand gap estimated to emerge in the
levels. Natural gas can help lower overall million tonnes in 2020. The industry reacted swiftly middle of the current decade. With an increasing
emissions, whether in partnership with renewables to changing market conditions, diverting cargoes number of buyers and suppliers, the industry has
to deliver a reliable energy choice or to power to shifting demand centres and through adjusting evolved to offer a wider choice of commercial
hard-to-electrify sectors. 65% of the growth in supply. Prices remained volatile, hitting a record structures to meet changing needs. Against a
natural gas use in the next twenty years is low before rebounding to record high in early backdrop of increasing NZE targets, the industry will
expected to come from non-power sectors. LNG is 2021. New LNG supply investment decisions need to further innovate to offer cleaner energy
expected to be the fastest growing source of ground to a halt due to the pandemic-driven supply.
natural gas. economic crisis.

Royal Dutch Shell February 2021 3

01 Gas and LNG have a key role to play
in a decarbonising world
Royal Dutch Shell
Three of the ten highest CO2 emitting countries announce
net-zero emissions (NZE) targets during 2020

NZE announcements globally South Korea 2030’s energy outlook

24 PM2.5
REDUCTION
coal-fired power
plants to switch

4%
to LNG -57%
10%
06
coal-fired power
plants to shutdown

2% 3%
29%
POPULATION
300%
2.172 billion increase in renewable
~25% of global capacity
population 1%
Source: Shell interpretation of Global Carbon Atlas, National Policy
announcements, UNFCC, Climate Action Tracker, World Bank, CDP and US
GDP Bureau of Economic Analysis and Ministry of Trade Industry and Energy South
Korea 2019 and 2020 data
$42,226 billion <1%
PM2.5: Particulate Matter 2.5 micrometres
<1%
~50% of global economy Europe is EU 27+3, (Norway, Switzerland, UK)

NZE – Announced 2020 NZE Announced % of global CO2 emissions

Royal Dutch Shell February 2021 5

Gas demand projected to grow and play
a key role in decarbonising sectors

Global energy demand growth by fuel type Global gas demand growth by sector Global gas demand growth by region
BCM BCM BCM

29% 9% 24%
20,000 5,000 5,000
26% 8% -12% 4% 20% -1% 9%
27%
33% 48%
35%
41%
16,000 4,000 4,000

12,000 3,000 3,000

Energy demand 1% CAGR Gas demand 1% CAGR Asia gas demand 3% CAGR
8,000 2,000 2,000

4,000 1,000 1,000

0 0 0

Source: Shell interpretation of Wood Mackenzie H1 2020 data

CAGR - Compound annual growth rate Res & comm: Residential and Commercial

Royal Dutch Shell February 2021 6

Gas is a reliable partner to renewable power and
provides flexibility to meet seasonal heating demand

Share of coal, gas & renewables in Spain power sector UK total electricity & gas demand
% Mt CO2e TWh
80% 140 5.0

4.5
70% 120
4.0
60%
100 3.5
50% 3.0
80
40% 2.5
60
2.0
30%
40 1.5
20%
1.0
10% 20
0.5
0% 0 0.0
2005 2008 2011 2014 2017 2020 2015 2016 2017 2017 2018 2019 2020 2020

Coal Gas Solar & wind Annual emissions (RHS) Gas Electricity

Source: Shell interpretation of Wood Mackenzie, IEA, Aurora Energy Research, National Grid, Grid Watch UK 2021 and Sustainable Gas Institute White Paper 5 2020 data

Royal Dutch Shell February 2021 7

Gas enables reduction of industrial emissions
Iron and steel sector benefitting from coal-to-gas switching

Benefits of using gas in the iron & steel sector 2020 industrial energy use and
emissions in India
100%
90%
80% 36%
70%
60%

-36% -85% -90% -100% 50%

40%
EMISSIONS EMISSIONS EMISSIONS 30%
73%
20%
Coal-to-gas switching Carbon capture Biogas & BECCS
10%
36% CO2 emissions saving & storage 86% CO2 emissions reduction using 0%
through the use of natural gas, 85-90% CO2 emissions saving electric arc furnace (EAF)*
hydrogen and LNG for direct Potentially negative when using Energy consumption (Mtoe) Energy emissions (MtCO2)
reduced iron (DRI) steel production biogas / bioenergy + CCS

Coal Oil Gas Electricity Bioenergy

Source: Shell interpretation of IEA ETP, Wood Mackenzie, worldsteel data 2020 data
* If electricity is sourced from renewable generation BECCS: Bioenergy carbon capture & storage Mtoe: Million tonnes of oil equivalent MTCO2: Million tonnes CO2

Royal Dutch Shell February 2021 8

Uptake of gas in the road transport sector
Demand increasing as number of LNG-fuelled vehicles increase

LNG-fuelled trucks & buses (China) LNG-fuelled trucks (Europe)

In 2020, China’s road transport # of vehicles # of trucks
sector consumed nearly
13 million tonnes 600,000 15,000

of LNG 500,000
12,000

400,000
3,000+ 9,000
LNG stations in China 300,000

300+ 6,000
in 21 countries across Europe 200,000

3,000
100,000
7.9 million tonnes
of LNG demand projected for road 0 0
transport in Europe by 2030 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
40% of which is expected to
be met with bio-LNG
Trucks Buses

Source: Shell interpretation of NGVA 2020, Less Better, SCI China, CARTAC and other industry 2019 and 2020 data

Royal Dutch Shell February 2021 9

Marine sector LNG demand grows as global
bunkering infrastructure develops rapidly

LNG fuelled ships & consumption LNG bunker vessels A choice of LNG enabling access
# of ships MT # of vessels
to green financing
450 4.0 50
2017

Millions
45 Brittany Ferries
400 3.5 LNG-powered ferry Honfleur
40
350
3.0
35 2018
300 Sovcomflot
2.5 30
250 9 LNG-powered Aframax tankers
2.0 25
200 2019
20
1.5 MOL
150
15 18,600 cubic metre bunkering vessel
1.0
100 10
2020
50 0.5 5 Van Oord
0 0.0 0 3 LNG-powered dredging vessels

2021
Hapag Lloyd
6 LNG-powered containerships
On order In operation LNG consumption (RHS) On order In operation

Source: Shell interpretation of DNV GL 2020 data and various news reports

Royal Dutch Shell February 2021 10

LNG to play a pivotal role in meeting gas demand
growth, particularly in Asia

Global gas supply by source LNG imports by region

BCM BCM
39%
5,000 1,000
14%
46% Asia LNG demand 4% CAGR

4,000 LNG demand 800

3.5% CAGR

3,000 600

2,000 400

1,000 200

0 0
2020 Domestic Pipeline LNG 2040 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
production imports imports

Asia Europe Americas Rest of world

Source: Shell interpretation of Wood Mackenzie H1 2020 data CAGR: Compound annual growth rate

Royal Dutch Shell February 2021 11

02 LNG shows its resilience and flexibility in 2020

Royal Dutch Shell

LNG shows resilience and flexibility in
a rapidly changing environment
$/MMBTU
35 ◼ Record price spike as extreme
◼ Japan, Korea and other ◼ Negative ◼ Asian LNG weather continues
east Asian countries go netbacks demand ◼ Tight shipping market due to
into lockdown prompt US recovers as increased Atlantic supply to Asia
30 Asian cargoes shut-ins lockdowns ease ◼ Panama Canal delays
◼

diverted to Europe ◼ Hurricane Laura

shuts down
25 China in Cameron and ◼ Winter buying amidst ◼ Prices go down
Warm ◼
Sabine Pass LNG
◼
lockdown supply disruption as weather
winter in India and rest of
due to ◼ causes global LNG price moderates
northern South Asia in
COVID-19 to rise further
20 hemisphere lockdown ◼ Supply
High ◼ Chinese Record cold
◼
Europe disruption ◼

inventory cargoes ◼
weather in
absorbs more in other
levels across diverted to Asia calls for
LNG due to basins
15 Korea and Prices start recovering as more LNG
regions
◼
favourable coal- ◼ Europe LNG
India demand grows with continued
to-gas switching imports slow
supply outage
economics down
◼ US netbacks favourable
10 ◼ Chinese demand again, US LNG exports pick up
starts to recover

0
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21

JKM (Japan Korea Marker) Dutch TTF US Henry Hub

Source: Shell interpretation of ICE, CME, S&P Global Platts 2020 and 2021 data

Royal Dutch Shell February 2021 13

2020 started with a well-supplied
global gas and LNG market

LNG liquefaction capacity additions Winter* average temperature Gas/LNG storage level**
MT Degrees Celsius % utilisation
40 12 100%

80%
30 9

60%

20 6
40%

10 3
20%

0 0 0%
2015 2016 2017 2018 2019 2020 2021 2022 2023 Europe China Japan South US Europe Japan South Korea US
Korea

10-year range 2020 Average 5-year range 2019

Source: Shell interpretation of IHS Markit, PIRA, AGSI, METI, KESIS and EIA 2020 data
*Winter months are from October through March. 2020 winter average from October 2019 to March 2020
**As of 31st December 2019

Royal Dutch Shell February 2021 14

LNG demand continued to grow despite a global pandemic
China and India lead demand recovery

GDP, gas & LNG growth Net LNG imports: 2020 y-o-y 2020 share of demand
in 2020 MT growth by region
% %
1% 8 15%
Total LNG trade: 360 MT
6
0%
10%
4
-1%
2 5%
-2% 0
0%
-2
-3%
-4
-5%
-4%

-5% -10%
Q1 Q2 Q3 Q4 Total
China India Japan
Real GDP Gas consumption LNG import ◼ Asia ◼ Europe ◼ Americas ◼ Middle East
South Korea Europe Global

Source: Shell interpretation of IHS Markit, customs, Kpler and International Monetary Fund 2020 data
LNG importers with minimal year-on-year change are not included in this chart

Royal Dutch Shell February 2021 15

China gas demand growth remained resilient in 2020
Record Chinese LNG imports in December 2020

China domestic gas production & LNG demand China gas supply & demand
BCM BCM
35 35% 330

30 30%
310
25 25%

20 20%
290
15 15%
8% gas demand growth
10 10%
270
5 5%

0 0% 250

Domestic production Pipeline imports LNG imports Share of LNG

Source: Shell interpretation of IHS Markit and Chinese customs 2020 data
Res & Comm: Residential and commercial Domestic Prod: Domestic Production

Royal Dutch Shell February 2021 16

Lower-priced LNG results in 11% increase in Indian imports
LNG supplements reduced domestic gas production

India domestic gas production & LNG imports India gas supply & demand
BCM % Share BCM
7 100% 58

6
80% 56
5

60% 54
4

3
40% 52

2
20% 50
1

0 0% 48

Domestic production LNG imports Share of LNG (RHS)

Sources: Shell interpretation of Petroleum Planning and Analysis Cell (PPAC), Central Electricity Authority (CEA), IHS Markit and Kpler 2020 data

Royal Dutch Shell February 2021 17

Flexibility in European gas supply sources helped
with global LNG balance

Europe gas supply & demand Europe gas demand growth y-o-y Europe gas & LNG import growth
BCM % BCM
550 10% 8
Others
Algeria
5% 6

Russia 4
0%
Industry
2
500 -5%
0
R&C
-10%
-2

-15% -4

450 -20% -6

Industrial LDC Power Others Total Russia pipeline LNG imports Algeria pipeline

Source: Shell’s interpretation of ENTSOG, Wood Mackenzie and European TSO 2020 data
LDC – Local distribution company R&C: Residential and commercial

Royal Dutch Shell February 2021 18

Supply response to changing market conditions
US supply added volume and flexibility

Major LNG exporters US LNG exports Non-US LNG supply

MT MT Bcf/d MT
8 7 100 40 8%

6
6 90 30 4%
5

4
4 80 20 0%
3

2
2 70 10 -4%
1

- 0 60 0 -8%

Oceania SE Asia

Australia US Qatar Middle East Europe & Russia

LNG exports Dry gas production (RHS) Africa South America
Russia Africa
Y-o-Y growth (RHS)

Source: Shell interpretation of Kpler, EIA and Wood Mackenzie 2020 data

Royal Dutch Shell February 2021 19

Global LNG prices hit a record low before rebounding
to hit a record high in January 2021

Asia spot price US LNG export margins*

JKM as % of Brent $/MMBTU
60% 6

50%
4
40%

30% 2

20% 2019
0
10%

2020
0% -2
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Range 2015-2019 2019 2020 2021 TTF netback JKM netback

Source: Shell interpretation of ICE, CME, S&P Global Platts 2020 and 2021 data
*Excludes liquefaction fee; netback calculated as: JKM and TTF minus regasification and transportation cost minus 115% Henry Hub

Royal Dutch Shell February 2021 20

A combination of structural issues and
singular events caused the price rally

Regional supply & demand China heating demand Gas storage capacity North Asia temperature
BCMA Share of storage in total gas demand Degrees Celsius
MTPA
140 400 30% 30% 10

120 5
320 28%
100 0
20%
80 240 26% -5

60 -10
160 24%
10%
40 -15
80 22%
20 -20

0 0 20% 0% -25

5-Jan
1-Dec

26-Jan
22-Dec
15-Dec

12-Jan
8-Dec

29-Dec

19-Jan
Total gas demand
Atlantic supply
Share of residential, commercial
Pacific demand net of Pacific supply 5 year range 2020-2021
and district heating in total demand

Source: Shell interpretation of IHS Markit, Wood Mackenzie and S&P Global Platts 2020 and 2021 data

Royal Dutch Shell February 2021 21

Asian LNG demand recovery projected to continue in 2021
LNG exports from the US expected to offer flexible supply

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 US Russia Rest of world Asia Europe Americas Middle East & Africa

Source: Shell interpretation of IHS Markit and Wood Mackenzie 2020 data

Royal Dutch Shell February 2021 22

LNG supply investment halts due to
pandemic-related economic crisis

Oil & gas industry* capex spend Investment in liquefaction capacity

$billion MTPA
160 80

140
-23%
Initial
120 60
2020
budget
100
Adjusted
80 2020 40
budget
60

40 20

20

0 0
2015 2016 2017 2018 2019 2020 2010 2012 2014 2016 2018 2020
Project FIDs Forecast

Source: Shell interpretation of IHS Markit and Wood Mackenzie 2020 data
*Industry represents estimated capital budgets of ExxonMobil, Shell, Chevron, Total, BP, Equinor and Eni, as calculated by Wood Mackenzie

Royal Dutch Shell February 2021 23

03 Complementary spot and term contract structures and
cleaner pathways to drive LNG growth
Royal Dutch Shell
COVID-19 pandemic delays project construction timelines
Lasting impact expected on LNG supply not demand

Global LNG supply forecast EU LNG import forecast change

MTPA MTPA
800 10

700 5

600 0

-5
500

Range of
-10 Construction forecast
400 changes
delays
FID delays
-15 and
300 cancellations
2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
-20
Pre-COVID-19 Post-COVID-19 2020 2021 2022 2023 2024 2025 2026 2027

Source: Shell interpretation of Wood Mackenzie and IHS Markit 2020 data

Royal Dutch Shell February 2021 25

Supply-demand gap estimated to emerge in the
middle of the current decade as demand rebounds

LNG trade volume growth Emerging LNG supply-demand gap

MTPA MTPA
40 800

30 600

20 400

10 200

0 0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2015 2020 2025 2030 2035 2040

Demand forecast range LNG supply in operation

LNG supply under construction (including Qatar Petroleum expansion)

Source: Shell interpretation of IHS Markit, Wood Mackenzie, FGE and Poten & Partners 2020 and 2021 data
Qatar Petroleum LNG expansion announced in February 2021

Royal Dutch Shell February 2021 26

Triggers exist for change in the global LNG market
More market participants with increasingly diverse needs

Long-term LNG contract expiries Total LNG contract volumes LNG importers
MTPA by buyer type # of regasification capacity holders in Japan,
MT China, India and South Korea
300 1200 50

250 1000
~110 MTPA 40

200 800
30
150 600
20
100 400

50 10
200

0 0 0
2010 2015 2020

Japan China South Korea

Taiwan Southeast Asia South Asia Portfolio End-user Japan China India South Korea
Europe Americas

Source: Shell interpretation of IHS Markit 2020 data

Royal Dutch Shell February 2021 27

Current industry structure appears sustainable
No acceleration in the move to commoditisation

Spot LNG deliveries Spot deviation from term Term contract indexation
Cargoes % of total market % change from term price % of total
120 35% 150% 100%

125%
100 30%
% spot 100%
75%
25%
80 75%
20% 50%
60 50%
15% 25%

40 0%
10%
-25% 25%
20 5% -50%

0 0% -75% 0%
2015 2016 2017 2018 2019 2020 2010 2012 2014 2016 2018 2020 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Balancing the global Price-conscious buyers with
LNG market limited term contracts Oil Henry Hub European hubs

Dictated by domestic Supplementing base LNG JKM Hybrid

seasonality term contract supply

Shell interpretation of IHS Markit, Wood Mackenzie, ICE, CME and S&P Platts 2020 and 2021 data

Royal Dutch Shell February 2021 28

NZE targets will need cleaner and innovative solutions
All levers needed to decarbonise LNG

LNG demand forecast by LNG value chain emissions and mitigation options
net-zero emissions pledge % of GHG emissions
MTPA
800

700

600 UPSTREAM PIPELINE LNG PLANT SHIPPING REGASIFICATION CONSUMPTION

Methane
500 CH4
management

400
Operational
efficiencies
300

200 Electrification

100 Carbon Capture

CO2
& Storage (CCS)
0
Carbon
offsetting
NZE ambitions or targets None
Bio-LNG

Source: Shell interpretation of IHS Markit, Wood Mackenzie and IEA 2020 data

Royal Dutch Shell February 2021 29

Summary

Gas and LNG have a key role to play in a decarbonising world

◼ Net-zero emissions announcements across the globe
◼ Gas and LNG can play a key role in decarbonising hard-to-electrify sectors

01
◼ Nearly half of gas demand growth in the next 20 years expected to come from Asia

LNG shows its resilience and flexibility in 2020

◼ LNG demand continued to grow despite the global pandemic and ensuing economic crisis
◼ Global LNG prices hit a record low before rebounding to hit a record high in January 2021

02
◼ New LNG supply investment decisions ground to a halt

Complementary spot and term contract structures and cleaner

pathways to drive LNG growth
◼ Supply-demand gap estimated to emerge in the middle of the current decade

03
◼ Current industry structure supports the changing needs of buyers
◼ Net-zero emissions targets will need cleaner and innovative energy solutions

Royal Dutch Shell February 2021 30