Slides

1. Copyright of Shell International B.V.
MODELLING AND QUALITATIVE
SCENARIOS
Wim Thomas
Chief Energy Advisor, Shell International BV
OECD - NAEC Seminar
Learning with Futures using
Narratives and Numbers
1 December 2014

2. Copyright of Shell International B.V.
DEFINITIONS AND 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 2P and 2C 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.
Resources plays: our use of the term ‘resources plays’ refers to tight, shale and coal bed methane oil and gas acreage.
The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate 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 in which Royal Dutch Shell either directly or indirectly has control, by having either a majority of the voting rights or the right to exercise a controlling influence. The companies in which Shell has significant influence but not control are referred to as “associated companies” or “associates” and companies in which Shell has joint control are referred to as “jointly controlled entities”. In this presentation, associates and jointly controlled entities are also referred to as “equity-accounted investments”. 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’’, ‘‘intend’’, ‘‘may’’, ‘‘plan’’, ‘‘objectives’’, ‘‘outlook’’, ‘‘probably’’, ‘‘project’’, ‘‘will’’, ‘‘seek’’, ‘‘target’’, ‘‘risks’’, ‘‘goals’’, ‘‘should’’ 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 potential litigation and regulatory measures as a result of climate changes; (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. 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 factors that may affect future results are contained in Royal Dutch Shell’s 20-F for the year ended 31 December, 2013 (available at www.shell.com/investor and www.sec.gov ). These factors also should be considered by the reader. Each forward-looking statement speaks only as of the date of this presentation, 27 November, 2014. Neither Royal Dutch Shell 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. There can be no assurance that dividend payments will match or exceed those set out in this presentation in the future, or that they will be made at all.
We use certain terms in this presentation, such as discovery potential, that the United States Securities and Exchange Commission (SEC) guidelines strictly prohibit us from including in 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. You can also obtain this form from the SEC by calling 1-800-SEC-0330.

3. Copyright of Shell International B.V.
OVERVIEW
Success in the future depends not on the success of future decisions but on the future success of decisions taken today
Introduction
Shell’s scenario methodology
From storyline to quantification
3

4. Copyright of Shell International B.V.
WHY DO WE USE SCENARIOS?
Relevant to our business
Develop or test strategies and plans
Search for resilience
Identify threats & opportunities and develop options
Make risky decisions more transparent
Focus on the ‘near future’, i.e. strategy & policy agenda next 1-3 years NOT on scenario horizon
Ask “what if” questions, not necessarily give answers
Challenge assumptions and mental models
Enrich debate and identify ‘certainties’
?
4

5. Copyright of Shell International B.V.
LONG RISK HORIZONS
0
5
10
15
20
Years from discovery to first sales
Sakhalin II, Russia
2010
Gas Project Lead-time
5
SAKHALIN II LNG PLANT
LUNSKOYA PLATFORM

6. Copyright of Shell International B.V.
OUR LEARNING TO DATE
Scenarios can help generate vision and strategy
Proper use requires ‘good’ scenarios and receptive organisation & culture
All scenarios need to be ‘focused’, plausible, recognisable, challenging and consequential
Must be underpinned by rigorous analysis and quantification
Integrate into the strategy process for flexibility in the strategic plan
Scenarios can be used for better project evaluation
BUT
Actual events often fall outside scenario range
A good “forecast” now and then helps credibility
Scenarios can be misused to justify bad judgement, strategy or timing
DO NOT FORGET
Communication, communication, communication
… after 40 years we are still learning
6

7. Copyright of Shell International B.V.
SHELL’S SCENARIO METHODOLOGY

8. Copyright of Shell International B.V.
UNDERSTANDING THE INTERACTIONS
Politics
Environment
Technology
Society
Economics
8

9. Copyright of Shell International B.V.
WHAT REALLY MATTERS?
Outside the Box:
Things that matter and that people in the business don’t know about
Important/Impact
Inside the Box:
Things that matter and that people in the business know that matter
Critical Issues
9

10. Copyright of Shell International B.V.
Surface implicit assumptions
Drivers
ELEMENTS OF SCENARIO BUILDING
Dynamics
Framework
1 2 3 4
Quantification

Pre-determined
?
Uncertainties
Frames of reference
Scenarios
relevant to decisions
10
Time Horizon
Problematique
Surface conflicts and dilemmas
?
Dominant mental models

11. Copyright of Shell International B.V.
VARIETY OF METHODS
Inductive
Scenario 1
Scenario 2
Scenario 3
Official future
Forecast
Alternative scenario
Incremental
Normative
Vision
Scenario 1
Scenario 2
Scenario 3
Scenario 4
Deductive
Uncertainty 1
Uncertainty 2
11

12. Copyright of Shell International B.V.
HOW FAR AHEAD DO WE SEE?
Event/Problem
focused
Short term
(2 years)
Medium term
(5-15 years)
Long term
(20 years)
Very
long term
(50 years)
Country/
business
focused
Business
focused
Issue
focused
(September 11th)
Subprime crisis
Deepwater Horizon
(Your Company)
(Mobility,
Cities)
(Energy systems)
Global
Scenarios
Long Term Energy Scenarios
Focussed Scenarios
12

13. Copyright of Shell International B.V.
FEATURES OF A GOOD SCENARIO
Plausible
Recognisable from signals in the present
Internally consistent
Challenging
Consequential
… stories describing paths to different futures
Predictions
Projections
Preferences

X
13

14. Copyright of Shell International B.V.
SHELL’S WORLD ENERGY DEMAND MODEL
TOTAL FINAL CONSUMPTION
100
100
YEARS
COUNTRIES & REGIONS (INC. 82 COUNTRIES INDIVIDUALLY)
14
SECTORS
10
ENERGY CARRIERS
18
ENERGY SOURCES
USA
CONVERSION TECHNOLOGIES
TOTAL PRIMARY ENERGY DEMAND
ENERGY SUPPLY
REST OF EUROPE WEST OTHER
HEAVY INDUSTRY
SOLID HYDROCARBON FUELS
OIL
CHINA
REST OF EUROPE EAST OTHER
AGRICULTURE & OTHER INDUSTRY
LIQUID HYDROCARBON FUELS
NATURAL GAS
RUSSIA
REST OF EU NEW 13
GASEOUS HYDROCARBON FUELS
COAL
SERVICES
PASSENGER TRANSPORT – SHIP
PASSENGER TRANSPORT – RAIL
PASSENGER TRANSPORT – ROAD
PASSENGER TRANSPORT – AIR
FREIGHT TRANSPORT – SHIP
FREIGHT TRANSPORT – RAIL
FREIGHT TRANSPORT – ROAD
FREIGHT TRANSPORT – AIR
RESIDENTIAL – HEATING & COOKING
RESIDENTIAL – LIGHTING & APPLIANCES
NON ENERGY USE
INDIA
BALTIC STATES
ELECTRICITY – COMMERCIAL
NUCLEAR
JAPAN
REST OF CENTRAL ASIA
ELECTRICITY – DISTRIBUTED SOLAR PV
HYDRO-ELECTRICITY
GERMANY
REST OF EAST ASIA
BIO-FUELS – 1ST GEN
FRANCE
REST OF SE ASIA
BIO-FUELS – 2ND GEN
UNITED KINGDOM
REST OF MIDDLE EAST
BIOMASS – TRADITIONAL
CANADA
REST OF SOUTH ASIA
BIO-FUELS – MARINE
REST OF NORTH AFRICA
REST OF ARABIAN PENINSULA
REST OF AFRICA
OMAN
REST OF SOUTHERN AFRICA
REST OF NORTH AMERICA
REST OF WEST AFRICA
REST OF SOUTH AMERICA
REST OF CENTRAL AMERICA & CARIBBEAN
REST OF OCEANIA
AZERBAIJAN
PERU
MOROCCO
MOZAMBIQUE
ANGOLA
ECUADOR
LUXEMBOURG
YEMEN
HYDROGEN
HEAT – COMMERCIAL
HEAT – DISTRIBUTED SOLAR THERMAL
BIOMASS – COMMERCIAL
BIOMASS – TRADITIONAL
BIOMASS – COMMERCIAL
WASTE
GEOTHERMAL – HYDROTHERMAL
GEOTHERMAL – ENGINEERED
SOLAR – PHOTOVOLTAIC
WIND
TIDAL
WAVE
14

15. Copyright of Shell International B.V.
SHELL’S OIL & GAS SUPPLY MODEL
YET TO FINDS
PRODUCTION
DEVELOPED RESERVES
UNDEVELOPED
DISCOVERED VOLUMES
15

16. Copyright of Shell International B.V.
OIL 32%
GAS 22%
COAL 28%
BIOMASS 10%
NUCLEAR 5%
RENEWABLES 3%
FUELS 82%
ELECTRICITY
18%
RESIDENTIAL 24%
INDUSTRY & SERVICES 50%
TRANSPORT 26%
Shell’s World Energy Model sees the global energy system as one integrated ‘balloon’, expanding and contracting with population and economic development. Developments in one part of the world or value chain will interact elsewhere, allowing competitive and policy forces to play out coherently throughout the system.
TODAY’S ENERGY SYSTEM SETS THE CONTEXT FOR THE FUTURE
16

17. Copyright of Shell International B.V.
FROM STORYLINE TO QUANTIFICATION

18. Copyright of Shell International B.V.
SIX KEY DRIVERS OF THE ENERGY SYSTEM
18

19. WE ARE ENTERING
AN ERA OF VOLATILITY & TRANSITIONS
Political & social instability
Demographic transitions- urbanisation
Emerging resources Shale gas & oil
Challenged environmental boundaries
Building a ‘mini-lateral’ world
Intensified economic cycles
19

20. MOUNTAINS
A VIEW FROM THE TOP
Concentration of power – elites drive policy
Global economic growth moderates
Nationalist world
The Gas Backbone – the global shale revolution
Nuclear renaissance
Renewables sluggish
‘Clean’ energy: CCS takes off by 2030
1200
1000
800
600
400
200
0
EJ/yr
2000
2010
2020
2030
2040
2050
2060
World Total Primary Energy
Oil
Biofuels
Natural Gas
Biomass Gasified
Coal
Biomass/Waste
Biomass Traditional
Nuclear
Hydro
Geothermal
Solar
Wind
20
Social stability, the long view

21. OCEANS
A VIEW OF THE HORIZON
World Total Primary Energy
Rising aspirations drive people power
Reform unleashes market forces and economic growth
A fast adaptors, open borders world
Energy supply struggles to keep pace with demand
Unconventional gas proves disappointing outside of NA
Rise of renewables
A late ‘Green’ world
Oil
Biofuels
Natural Gas
Biomass Gasified
Coal
Biomass/Waste
Biomass Traditional
Nuclear
Hydro
Geothermal
Solar
Wind
EJ/yr
1200
1000
800
600
400
200
0
2000
2010
2020
2030
2040
2050
2060
21
Churn, innovation, reform

22. 22
GLOBAL ENERGY-RELATED CO2 EMISSIONS
?
Normative scenario
theoretically feasible but seemingly implausible
plausible but unfeasible?
Exploratory scenarios
OVERSHOOT, DAMAGE … REPAIR?

23. 23
NATIONAL CONTRAST
TOTAL PRIMARY ENERGY IN OCEANS
USA
China
Oil
Natural Gas
Coal
Nuclear
Hydro-electricty
Biofuels
Biomass/Waste
Biomass Traditional
Geothermal
Solar
Wind
Other Renewables
2000
2010
2020
2030
2040
2050
2060
0
20
40
60
80
100
120
140
160
180
200
EJ/Year (energy Source)
2000
2010
2020
2030
2040
2050
2060
0
20
40
60
80
100
120
140
160
180
200

24. 24
SCENARIO CONTRAST
WORLD PASSENGER TRANSPORT
Mountains
Oceans
Combined with the impact of higher economic development, Oceans sprawling suburbs lead to higher travel needs than Mountains compact cities
Electricity and Hydrogen
Gaseous Hydrocarbon Fuels
Liquid Hydrocarbon Fuels & Biofuels
2000
2010
2020
2030
2040
2050
2060
0
10,000
20,000
30,000
40,000
50,000
60,000
Billion vehicle km
2000
2010
2020
2030
2040
2050
2060
0
10,000
20,000
30,000
40,000
50,000
60,000

25. 25
SCENARIO CONTRAST
OPEC AND NON-OPEC PRODUCTION
Mountains
Oil, condensate & NGL production
Oceans
Oil, condensate & NGL production
The effect of abundant gas and a slower growing global economy affect the call on OPEC in Mountains
OPEC
Non OPEC
0
10
20
30
40
50
60
2000
2010
2020
2030
2040
2050
2060
mboe / day
0
10
20
30
40
50
60
2000
2010
2020
2030
2040
2050
2060
mboe / day

26. Copyright of Shell International B.V.
Q & A

27. Copyright of Shell International B.V.
HOW DO SCENARIOS COMPARE WITH OTHERS’ OUTLOOKS?

28. Copyright of Shell International B.V.
Overall energy system balances on people’s needs, options, actions and reactions
0
200
400
600
800
1,000
1,200
2010
2015
2020
2025
2030
2035
2040
2045
2050
EJ / year
Year
Total Primary Energy - World - All Sources
Mountains
Oceans
WEO14 CP
WEO14 NP
WEO14 450
EIA13 Ref
EIA13 HighEG
XOM 2014
BP 2014
FSB Energy External Scenario Comparison Tool v3.4

29. Copyright of Shell International B.V.
We envisage the possibility of a significant different pathway for oil use
0
50
100
150
200
250
300
2010
2015
2020
2025
2030
2035
2040
2045
2050
EJ / year
Year
Total Primary Energy - World - Oil & Biofuels
Mountains
Oceans
WEO14 CP
WEO14 NP
WEO14 450
EIA13 Ref
EIA13 HighEG
XOM 2014
BP 2014
FSB Energy External Scenario Comparison Tool v3.4

30. Copyright of Shell International B.V.
Unconventional gas could make gas the dominant fuel in the 2030s … or perhaps not if fracking is opposed outside NA
0
50
100
150
200
250
2010
2015
2020
2025
2030
2035
2040
2045
2050
EJ / year
Year
Total Primary Energy - World - Gas
Mountains
Oceans
WEO14 CP
WEO14 NP
WEO14 450
EIA13 Ref
EIA13 HighEG
XOM 2014
BP 2014
FSB Energy External Scenario Comparison Tool v3.4

31. Copyright of Shell International B.V.
Is coal still king in future …?
0
50
100
150
200
250
300
350
2010
2015
2020
2025
2030
2035
2040
2045
2050
EJ / year
Year
Total Primary Energy - World - Coal
Mountains
Oceans
WEO14 CP
WEO14 NP
WEO14 450
EIA13 Ref
EIA13 HighEG
XOM 2014
BP 2014
FSB Energy External Scenario Comparison Tool v3.4

32. Copyright of Shell International B.V.
… or will nuclear see a revival …?
0
10
20
30
40
50
60
70
80
90
100
2010
2015
2020
2025
2030
2035
2040
2045
2050
EJ / year
Year
Total Primary Energy - World - Nuclear
Mountains
Oceans
WEO14 CP
WEO14 NP
WEO14 450
EIA13 Ref
EIA13 HighEG
XOM 2014
BP 2014
FSB Energy External Scenario Comparison Tool v3.4

33. Copyright of Shell International B.V.
… or is the age of Renewables upon us?
0
50
100
150
200
250
300
2010
2015
2020
2025
2030
2035
2040
2045
2050
EJ / year
Year
Total Primary Energy - World - Renewables & Biomass
Mountains
Oceans
WEO14 CP
WEO14 NP
WEO14 450
EIA13 Ref
EIA13 HighEG
XOM 2014
BP 2014
FSB Energy External Scenario Comparison Tool v3.4

34. Copyright of Shell International B.V.