2. Royal Dutch Shell
Cautionary note
2
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3. Royal Dutch Shell February 2021 3
01
LNG demand is expected to grow steadily with a
supply-demand gap estimated to emerge in the
middle of the current decade. With an increasing
number of buyers and suppliers, the industry has
evolved to offer a wider choice of commercial
structures to meet changing needs. Against a
backdrop of increasing NZE targets, the industry will
need to further innovate to offer cleaner energy
supply.
02 03
2020 saw new net-zero emissions (NZE)
announcements at both national and regional
levels. Natural gas can help lower overall
emissions, whether in partnership with renewables
to deliver a reliable energy choice or to power
hard-to-electrify sectors. 65% of the growth in
natural gas use in the next twenty years is
expected to come from non-power sectors. LNG is
expected to be the fastest growing source of
natural gas.
While COVID-19 derailed expected forecasts,
LNG demand still grew with trade reaching 360
million tonnes in 2020. The industry reacted swiftly
to changing market conditions, diverting cargoes
to shifting demand centres and through adjusting
supply. Prices remained volatile, hitting a record
low before rebounding to record high in early
2021. New LNG supply investment decisions
ground to a halt due to the pandemic-driven
economic crisis.
Gas and LNG have a key role to
play in a decarbonising world
LNG shows its resilience and
flexibility in 2020
Complementary spot and term
contract structures and cleaner
pathways to drive LNG growth
5. Royal Dutch Shell
Three of the ten highest CO2 emitting countries announce
net-zero emissions (NZE) targets during 2020
February 2021 5
GDP
$42,226 billion
~50% of global economy
POPULATION
2.172 billion
~25% of global
population
NZE announcements globally
Source: Shell interpretation of Global Carbon Atlas, National Policy
announcements, UNFCC, Climate Action Tracker, World Bank, CDP and US
Bureau of Economic Analysis and Ministry of Trade Industry and Energy South
Korea 2019 and 2020 data
PM2.5: Particulate Matter 2.5 micrometres
Europe is EU 27+3, (Norway, Switzerland, UK)
29%
2%
<1%
1%
<1%
4%
3%
% of global CO2 emissions
NZE Announced
10%
NZE – Announced 2020
South Korea 2030’s energy outlook
06
coal-fired power
plants to shutdown
24
coal-fired power
plants to switch
to LNG -57%
PM2.5
REDUCTION
300%
increase in renewable
capacity
6. Royal Dutch Shell
0
1,000
2,000
3,000
4,000
5,000
Gas demand 1% CAGR
35%
27%
29%
Gas demand projected to grow and play
a key role in decarbonising sectors
February 2021 6
Source: Shell interpretation of Wood Mackenzie H1 2020 data
CAGR - Compound annual growth rate Res & comm: Residential and Commercial
Global energy demand growth by fuel type
BCM
Global gas demand growth by sector
BCM
Global gas demand growth by region
BCM
0
4,000
8,000
12,000
16,000
20,000
Energy demand 1% CAGR
41%
33%
26% 8% -12% 4%
0
1,000
2,000
3,000
4,000
5,000 24%
9%
20%
Asia gas demand 3% CAGR
48%
-1%
9%
7. Royal Dutch Shell
Gas is a reliable partner to renewable power and
provides flexibility to meet seasonal heating demand
February 2021 7
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
Share of coal, gas & renewables in Spain power sector
% Mt CO2e
UK total electricity & gas demand
TWh
0
20
40
60
80
100
120
140
0%
10%
20%
30%
40%
50%
60%
70%
80%
2005 2008 2011 2014 2017 2020
Coal Gas Solar & wind Annual emissions (RHS)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2015 2016 2017 2017 2018 2019 2020 2020
Gas Electricity
8. Royal Dutch Shell
Gas enables reduction of industrial emissions
Iron and steel sector benefitting from coal-to-gas switching
February 2021 8
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
Benefits of using gas in the iron & steel sector 2020 industrial energy use and
emissions in India
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Coal Oil Gas Electricity Bioenergy
36%
73%
Carbon capture
& storage
-36%
EMISSIONS
Coal-to-gas switching Biogas & BECCS
-85% -90%
EMISSIONS
-100%
EMISSIONS
36% CO2 emissions saving
through the use of natural gas,
hydrogen and LNG for direct
reduced iron (DRI) steel production
85-90% CO2 emissions saving
86% CO2 emissions reduction using
electric arc furnace (EAF)*
Potentially negative when using
biogas / bioenergy + CCS
Energy consumption (Mtoe) Energy emissions (MtCO2)
9. Royal Dutch Shell
Uptake of gas in the road transport sector
Demand increasing as number of LNG-fuelled vehicles increase
February 2021 9
Source: Shell interpretation of NGVA 2020, Less Better, SCI China, CARTAC and other industry 2019 and 2020 data
LNG-fuelled trucks & buses (China)
# of vehicles
LNG-fuelled trucks (Europe)
# of trucks
0
3,000
6,000
9,000
12,000
15,000
2016 2017 2018 2019 2020
0
100,000
200,000
300,000
400,000
500,000
600,000
2016 2017 2018 2019 2020
Trucks Buses
In 2020, China’s road transport
sector consumed nearly
13 million tonnes
of LNG
7.9 million tonnes
of LNG demand projected for road
transport in Europe by 2030
40% of which is expected to
be met with bio-LNG
3,000+
LNG stations in China
300+
in 21 countries across Europe
10. Royal Dutch Shell
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
0
50
100
150
200
250
300
350
400
450
Millions
Marine sector LNG demand grows as global
bunkering infrastructure develops rapidly
10
LNG fuelled ships & consumption
# of ships MT
LNG bunker vessels
# of vessels
On order In operation LNG consumption (RHS)
0
5
10
15
20
25
30
35
40
45
50
On order In operation
Source: Shell interpretation of DNV GL 2020 data and various news reports
A choice of LNG enabling access
to green financing
Brittany Ferries
LNG-powered ferry Honfleur
MOL
18,600 cubic metre bunkering vessel
Van Oord
3 LNG-powered dredging vessels
Hapag Lloyd
6 LNG-powered containerships
Sovcomflot
9 LNG-powered Aframax tankers
2017
2018
2019
2020
2021
February 2021
11. Royal Dutch Shell
LNG to play a pivotal role in meeting gas demand
growth, particularly in Asia
February 2021 11
Source: Shell interpretation of Wood Mackenzie H1 2020 data CAGR: Compound annual growth rate
Global gas supply by source
BCM
LNG imports by region
BCM
0
200
400
600
800
1,000
2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
Asia Europe Americas Rest of world
Asia LNG demand 4% CAGR
0
1,000
2,000
3,000
4,000
5,000
2020 Domestic
production
Pipeline
imports
LNG
imports
2040
46%
14%
LNG demand
3.5% CAGR
39%
13. Royal Dutch Shell
0
5
10
15
20
25
30
35
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
LNG shows resilience and flexibility in
a rapidly changing environment
February 2021 13
JKM (Japan Korea Marker) Dutch TTF US Henry Hub
◼ Warm
winter in
northern
hemisphere
◼ High
inventory
levels across
regions
◼ China in
lockdown
due to
COVID-19
◼ Chinese
cargoes
diverted to
Korea and
India
◼ Japan, Korea and other
east Asian countries go
into lockdown
◼ Asian cargoes
diverted to Europe
◼ India and rest of
South Asia in
lockdown
◼ Europe
absorbs more
LNG due to
favourable coal-
to-gas switching
economics
◼ Chinese demand
starts to recover
◼ Negative
netbacks
prompt US
shut-ins
◼ Supply
disruption
in other
basins
◼ Europe LNG
imports slow
down
◼ Asian LNG
demand
recovers as
lockdowns ease
◼ Hurricane Laura
shuts down
Cameron and
Sabine Pass LNG
◼ Prices start recovering as
demand grows with continued
supply outage
◼ US netbacks favourable
again, US LNG exports pick up
◼ Winter buying amidst
supply disruption
causes global LNG price
to rise further
◼ Record price spike as extreme
weather continues
◼ Tight shipping market due to
increased Atlantic supply to Asia
◼ Panama Canal delays
◼ Prices go down
as weather
moderates
◼ Record cold
weather in
Asia calls for
more LNG
$/MMBTU
Source: Shell interpretation of ICE, CME, S&P Global Platts 2020 and 2021 data
14. Royal Dutch Shell
2020 started with a well-supplied
global gas and LNG market
February 2021 14
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
LNG liquefaction capacity additions
MT
Winter* average temperature
Degrees Celsius
Gas/LNG storage level**
% utilisation
0
3
6
9
12
Europe China Japan South
Korea
US
10-year range 2020 Average
0%
20%
40%
60%
80%
100%
Europe Japan South Korea US
5-year range 2019
0
10
20
30
40
2015 2016 2017 2018 2019 2020 2021 2022 2023
15. Royal Dutch Shell February 2021 15
February 2021 15
LNG demand continued to grow despite a global pandemic
China and India lead demand recovery
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
2020 share of demand
growth by region
%
Net LNG imports: 2020 y-o-y
MT
-4
-2
0
2
4
6
8
-10%
-5%
0%
5%
10%
15%
Q1 Q2 Q3 Q4 Total
China India Japan
South Korea Europe Global
Total LNG trade: 360 MT
-5%
-4%
-3%
-2%
-1%
0%
1%
Real GDP Gas consumption LNG import ◼ Asia ◼ Europe ◼ Americas ◼ Middle East
GDP, gas & LNG growth
in 2020
%
16. Royal Dutch Shell
China gas demand growth remained resilient in 2020
Record Chinese LNG imports in December 2020
February 2021 16
Source: Shell interpretation of IHS Markit and Chinese customs 2020 data
Res & Comm: Residential and commercial Domestic Prod: Domestic Production
China domestic gas production & LNG demand
BCM
China gas supply & demand
BCM
0%
5%
10%
15%
20%
25%
30%
35%
0
5
10
15
20
25
30
35
Domestic production Pipeline imports LNG imports Share of LNG
250
270
290
310
330
8% gas demand growth
17. Royal Dutch Shell
Lower-priced LNG results in 11% increase in Indian imports
LNG supplements reduced domestic gas production
February 2021 17
Sources: Shell interpretation of Petroleum Planning and Analysis Cell (PPAC), Central Electricity Authority (CEA), IHS Markit and Kpler 2020 data
India domestic gas production & LNG imports
BCM % Share
India gas supply & demand
BCM
0%
20%
40%
60%
80%
100%
0
1
2
3
4
5
6
7
Domestic production LNG imports Share of LNG (RHS)
48
50
52
54
56
58
18. Royal Dutch Shell
Flexibility in European gas supply sources helped
with global LNG balance
February 2021 18
Source: Shell’s interpretation of ENTSOG, Wood Mackenzie and European TSO 2020 data
LDC – Local distribution company R&C: Residential and commercial
Europe gas supply & demand
BCM
Europe gas demand growth y-o-y
%
Europe gas & LNG import growth
BCM
Russia
Algeria
Others
R&C
Industry
450
500
550
-6
-4
-2
0
2
4
6
8
Russia pipeline LNG imports Algeria pipeline
-20%
-15%
-10%
-5%
0%
5%
10%
Industrial LDC Power Others Total
19. Royal Dutch Shell
Supply response to changing market conditions
US supply added volume and flexibility
February 2021 19
Source: Shell interpretation of Kpler, EIA and Wood Mackenzie 2020 data
Major LNG exporters
MT
US LNG exports
MT Bcf/d
Non-US LNG supply
MT
-8%
-4%
0%
4%
8%
0
10
20
30
40
Oceania SE Asia
Middle East Europe & Russia
Africa South America
Y-o-Y growth (RHS)
60
70
80
90
100
0
1
2
3
4
5
6
7
LNG exports Dry gas production (RHS)
-
2
4
6
8
Australia US Qatar
Russia Africa
20. Royal Dutch Shell
Global LNG prices hit a record low before rebounding
to hit a record high in January 2021
February 2021 20
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
Asia spot price
JKM as % of Brent
US LNG export margins*
$/MMBTU
-2
0
2
4
6
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
TTF netback JKM netback
2019
2020
0%
10%
20%
30%
40%
50%
60%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Range 2015-2019 2019 2020 2021
21. Royal Dutch Shell
A combination of structural issues and
singular events caused the price rally
February 2021 21
Source: Shell interpretation of IHS Markit, Wood Mackenzie and S&P Global Platts 2020 and 2021 data
North Asia temperature
Degrees Celsius
China heating demand
BCMA
0%
10%
20%
30%
-25
-20
-15
-10
-5
0
5
10
1-Dec
8-Dec
15-Dec
22-Dec
29-Dec
5-Jan
12-Jan
19-Jan
26-Jan
5 year range 2020-2021
20%
22%
24%
26%
28%
30%
0
80
160
240
320
400
Gas storage capacity
Share of storage in total gas demand
Regional supply & demand
MTPA
0
20
40
60
80
100
120
140
Atlantic supply
Pacific demand net of Pacific supply
Total gas demand
Share of residential, commercial
and district heating in total demand
22. Royal Dutch Shell
Asian LNG demand recovery projected to continue in 2021
LNG exports from the US expected to offer flexible supply
February 2021 22
Source: Shell interpretation of IHS Markit and Wood Mackenzie 2020 data
LNG supply growth range by country
MTPA
LNG demand growth range by region
MTPA
-5
0
5
10
15
20
25
Australia US Russia Rest of world
-5
0
5
10
15
20
25
Asia Europe Americas Middle East & Africa
23. Royal Dutch Shell
LNG supply investment halts due to
pandemic-related economic crisis
February 2021 23
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
Oil & gas industry* capex spend
$billion
Investment in liquefaction capacity
MTPA
0
20
40
60
80
100
120
140
160
2015 2016 2017 2018 2019 2020
Initial
2020
budget
Adjusted
2020
budget
0
20
40
60
80
2010 2012 2014 2016 2018 2020
Project FIDs Forecast
-23%
25. Royal Dutch Shell
-20
-15
-10
-5
0
5
10
2020 2021 2022 2023 2024 2025 2026 2027
COVID-19 pandemic delays project construction timelines
Lasting impact expected on LNG supply not demand
February 2021 25
Source: Shell interpretation of Wood Mackenzie and IHS Markit 2020 data
Global LNG supply forecast
MTPA
EU LNG import forecast change
MTPA
Range of
forecast
changes
Construction
delays
FID delays
and
cancellations
300
400
500
600
700
800
2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
Pre-COVID-19 Post-COVID-19
26. Royal Dutch Shell
Supply-demand gap estimated to emerge in the
middle of the current decade as demand rebounds
February 2021 26
Source: Shell interpretation of IHS Markit, Wood Mackenzie, FGE and Poten & Partners 2020 and 2021 data
Qatar Petroleum LNG expansion announced in February 2021
LNG trade volume growth
MTPA
Emerging LNG supply-demand gap
MTPA
0
10
20
30
40
2015 2016 2017 2018 2019 2020 2021 2022 2023
0
200
400
600
800
2015 2020 2025 2030 2035 2040
Demand forecast range LNG supply in operation
LNG supply under construction (including Qatar Petroleum expansion)
27. Royal Dutch Shell
0
50
100
150
200
250
300
Japan China South Korea
Taiwan Southeast Asia South Asia
Europe Americas
Triggers exist for change in the global LNG market
More market participants with increasingly diverse needs
February 2021 27
Source: Shell interpretation of IHS Markit 2020 data
Long-term LNG contract expiries
MTPA
Total LNG contract volumes
by buyer type
MT
LNG importers
# of regasification capacity holders in Japan,
China, India and South Korea
0
200
400
600
800
1000
1200
Portfolio End-user
~110 MTPA
0
10
20
30
40
50
2010 2015 2020
Japan China India South Korea
28. Royal Dutch Shell
Current industry structure appears sustainable
No acceleration in the move to commoditisation
February 2021 28
Shell interpretation of IHS Markit, Wood Mackenzie, ICE, CME and S&P Platts 2020 and 2021 data
Spot LNG deliveries
MT % of total market
Spot deviation from term
% change from term price
Term contract indexation
% of total
0%
5%
10%
15%
20%
25%
30%
35%
0
20
40
60
80
100
120
2015 2016 2017 2018 2019 2020
% spot
-75%
-50%
-25%
0%
25%
50%
75%
100%
125%
150%
2010 2012 2014 2016 2018 2020
0%
25%
50%
75%
100%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Oil Henry Hub European hubs
JKM Hybrid
Balancing the global
LNG market
Supplementing base LNG
term contract supply
Dictated by domestic
seasonality
Price-conscious buyers with
limited term contracts
29. Royal Dutch Shell
NZE targets will need cleaner and innovative solutions
All levers needed to decarbonise LNG
February 2021 29
Source: Shell interpretation of IHS Markit, Wood Mackenzie and IEA 2020 data
LNG demand forecast by
net-zero emissions pledge
MTPA
LNG value chain emissions and mitigation options
% of GHG emissions
UPSTREAM PIPELINE LNG PLANT SHIPPING REGASIFICATION CONSUMPTION
0
100
200
300
400
500
600
700
800
NZE ambitions or targets None
Carbon
offsetting
Methane
management CH4
Electrification
Carbon Capture
& Storage (CCS)
CO2
Operational
efficiencies
Bio-LNG
30. Royal Dutch Shell
Summary
February 2021 30
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
◼ 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
◼ 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
◼ Current industry structure supports the changing needs of buyers
◼ Net-zero emissions targets will need cleaner and innovative energy solutions
03
02
01