Re-shaping Shell, to create a world-class investment case Chemicals Investor Briefing John Abbott Downstream Director Graham van t Hoff EVP Chemicals Royal Dutch Shell plc October 13, 2017 #makethefuture Royal Dutch Shell October 13, 2017
John Abbott Downstream Director Royal Dutch Shell plc Royal Dutch Shell October 13, 2017
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 thirdparty 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. Forwardlooking 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. No assurance is provided 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, 2016 (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 presentation, October 13, 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. Royal Dutch Shell October 13, 2017 3
Energy challenge Growing population Global population will increase from around 7.4 billion today to nearly 10 billion by 2050, with 67% living in cities Rising demand Global energy demand will likely be almost 60% higher in 2060 than today, with 2 billion vehicles on the road (800 million today) Ongoing supply Renewable energy could triple by 2050, but we will still need large amounts of oil and gas to provide the full range of energy products we need Growing global demand for energy as population and living standards increase Mitigating climate change Net-zero emissions is a potentially achievable societal ambition Source: UN Population Fund; UN World population Prospects (2015 revision); World Urbanisation Prospects (2014 revision); IEA, Energy Technology Perspectives 2015; Shell New Lens Scenarios Royal Dutch Shell October 13, 2017 4
Strategy Let s make the future Leader: value + influence World-class investment case FCF/share + ROCE growth Conservative financial management STRATEGIC Focus portfolio on resilient positions Invest in advantaged projects Value chain integration Reducing our carbon intensity Shared value with society OPERATIONAL Reset cost and capital spending First class execution projects and operations Unrelenting focus on HSSE and licence to operate Royal Dutch Shell October 13, 2017 5
Driving strategy in multiple time horizons Cash engines: today Funds dividends + balance sheet Growth priorities: 2016+ Cash engines 2020+ Future opportunities: 2020+ Material value + upside Competitive + resilient Affordable growth in advantaged positions Path to profitability Strong free cash flow and returns FCF + ROACE pathway Managed exposure CONVENTIONAL OIL + GAS INTEGRATED GAS DEEP WATER CHEMICALS SHALES NEW ENERGIES OIL PRODUCTS Relentless portfolio high-grading Royal Dutch Shell October 13, 2017 6
Downstream Cash engine Growth priority Marketing Refining & Trading Chemicals Further strengthen our financial performance Upgrading our portfolio Returns + free cash flow improvement Chemicals growth priority Differentiated products Brand leverage + customer offer Selective growth Full integration with trading Improve retained assets Reducing refining capacity Advantaged feedstock from Upstream and refining Strong product portfolio with proprietary technology Focused growth into differentiated leading positions Royal Dutch Shell October 13, 2017 7
Graham van t Hoff Executive Vice President - Chemicals Royal Dutch Shell October 13, 2017
Agenda 01 Chemicals demand 02 Position of Shell Chemicals within the industry 03 Shell Chemicals strategy 04 Execution 05 Financial performance 06 Growth projects 07 Q&A Royal Dutch Shell October 13, 2017 9
Solar impulse: 90% of the aircraft s structure made from chemical technology Royal Dutch Shell October 13, 2017 10
Chemicals Growth priority Chemicals demand outlook Petrochemicals* demand in kt per annum 500,000 400,000 300,000 Asia 52% 200,000 Shell produces key petrochemical building blocks Limited impact of recycling Chemicals enabling CO2 reduction Asia 37% 100,000 0 2000 2005 2010 2015 2020 2025 2030 N. America S. America Europe Middle East Asia Others * Cracker base chemicals (Aromatic derivatives, Ethylene, Propylene and Isobutylene). Source: IHS/Shell analysis Royal Dutch Shell October 13, 2017 11
Chemicals Eight core markets Share of chemicals volume, 2015 24% 23% 20% 10% Consumer Clothing, furniture, toys Construction PVC pipes, plywood, insulation Packaging Bottles, food packaging, crates Agriculture Fertiliser Diverse end-uses drive chemical demand Electronics Phone casings, resins 7% 7% 6% 2% Transportation Durables & industrial Energy and water Upholstery, car body parts Wiring, cables, hoses Fuel additives, water treatment SOURCE: McKinsey Global Institute, IHS, Shell analysis Royal Dutch Shell October 13, 2017 12
FEEDSTOCKS CONSUMERS Chemicals Growth priority Positioning in the competitive landscape BASE CHEMICALS/ INTERMEDIATES PERFORMANCE SOLUTIONS Add Differentiation Pure Chemical Companies Access to advantaged feedstock Process technologies Big integrated sites Large scale Customised solutions Product-materials innovation Production close to markets Medium scale sites Royal Dutch Shell October 13, 2017 13
BIO BASE FEED NAPHTHA / HEAVY LIQUIDS (OIL) LPG ETHANE METHANE Chemicals Value chains FEEDSTOCKS BASE CHEMICALS INTERMEDIATES PERFORMANCE CONVERTER END PRODUCT Methanol Acetic Acid / VAM C1 Ammonia Urea Agriculture EO/MEG Polyester Fibres Consumer C2 Ethylene Alpha olefins HODer Surfactants Consumer Polyethylene Films Packaging Containers Packaging Polypropylene C3 Propylene Propylene Oxide Polyols Polyurethane foam Consumer Acrylic Acid Super Absorbents Consumer Butadiene Elastomers Automotive C4 Butenes Solvents Benzene Styrene Polystyrene Moulded panels Construction C6 Phenol Polycarbonate Electronics No Shell participation C8 Toluene NBZ / aniline MDI TDI Shell participation Xylene Paraxylene PTA Royal Dutch Shell October 13, 2017 14
Generic FEEDSTO CK Advantaged Chemicals Growth priority Positioning in the competitive landscape Competitors are actively acquiring or developing differentiation further down the value chains Active aggregation of technology and position Established Integrated Oil companies Moving towards specialties In-market advantage Base Chem/Intermediates Solutions Low cost operators PRODUCTS & MARKETS Source: company reports, Shell analysis Royal Dutch Shell October 13, 2017 15
Chemicals Strategy Advantaged Feedstock First Class Footprint Strong Product & Customer Portfolio Excellence Every Day & HSSE Access Advantaged Feedstock Monetize With Competitive Advantage A highly profitable hydrocarbon upgrader Technology Royal Dutch Shell October 13, 2017 16
Organisational design Board CEO Downstream Director EVP Chemicals Downstream integration Refining Chemicals Upstream & Integrated Gas Integrated Sites Trading & Supply Projects & Technology Royal Dutch Shell October 13, 2017 17
Advantaged Feedstock First class footprint Strong product & customer portfolio Excellence every day & HSSE Balanced feed portfolio - enhanced portfolio resilience Base chemicals cycles Indicative industry margins ($/mt) Oil Gas Feed Oil Gas Parity Feed Parity Feedstock portfolio has shifted to advantaged feed and more gas 33% 2007 67% Gas Liquid Key to robust profitability is keeping a balanced exposure to different regions, Feedstock disparity 1990 1996 2002 2008 2014 47% 2016 53% feedstocks, markets and therefore, margin sources Ethane cracker margin USGC Naphtha margin NEA Naphtha margin WE SOURCE: CMAI, IHS, Oil Shell Modelling Royal Dutch Shell October 13, 2017 18
Chemicals Focused and balanced footprint Portfolio consolidated from 133 locations in 1998 to 15 today Scotford Sarnia FEP & Stanlow Rheinland Advantaged Feedstock First class footprint Shell-CNOOC JV Petrochemical complex Strong product & customer portfolio Excellence every day & HSSE Moerdijk, Pernis Nanhai Capacity* is regionally balanced US Gulf coast Deer Park Geismar Norco Mobile 27 33 Singapore Bukom Jurong Durban Americas Europe Asia 40 Buenos Aires Small Chemical activities at group refineries Advantaged gas feed site Integrated Chemical/refinery mega sites/clusters China in-market * Base Chemicals Capacity (C2+C3+bz); Portfolio includes Shell operated (12) and non-operated (3) Royal Dutch Shell October 13, 2017 19
Advantaged Feedstock First class footprint Strong product & customer portfolio Excellence every day & HSSE Chemicals Market-leading process technologies Shell has been active in petrochemicals since 1929 Long history of product & technology development ~1,000 customers: Annual product sales: >17 million tonnes Long-term contracts and relationships with strong partners Shell Chemicals proprietary technology OMEGA (Monoethyleneglycol) SMPO (Styrene Monomer/Propylene Oxide/Polyols) SHOP (Higher Olefins and Detergent Alcohols) Underpinned by high DPC/PC (Diphenyl carbonate) performance proprietary catalysis systems Royal Dutch Shell October 13, 2017 20
Advantaged Feedstock First class footprint Strong product & customer portfolio Excellence every day & HSSE Chemicals Operating and safety performance Chemicals plants unplanned downtime % 12 10 8 6 4 2 0 2012 2013 2014 2015 2016 Unplanned downtime without big-hits Unplanned downtime big-hits impact Downtime as % of capacity Royal Dutch Shell October 13, 2017 21
Chemicals Financial and competitive performance Earnings $ billion 3 2 Average: $104 $/barrel 120 80 Competitive performance ROACE 4Q rolling % 30 25 20 15 1 Average: $49 40 10 5 0 2010 2011 2012 2013 2014 2015 2016 17Q2 4Q Rolling Earnings Average Brent oil price (RHS) 0 0 13Q1 14Q1 15Q1 16Q1 17Q1 Shell DOW XOM LyondellBassell Average earnings 2010-2016 Ensure robust performance under different market conditions and grow base business Improve base business Expand current base portfolio Adding to portfolio - growth Earnings and ROACE on CCS basis, excluding identified items; Shell ROACE calculations for 2012 has been restated for the impact of IAS 19; source: company reports, Shell analysis Royal Dutch Shell October 13, 2017 22
Chemicals Growth projects Ethylene capacity Million metric tonnes 8 Bukom start-up Nanhai I USGC restructuring Nanhai II Pennsylvania cracker Under construction Geismar, USA 425,000 metric tonnes additional Alpha Olefins capacity 6 New liquids cracker and derivatives units Feedstock mix 4 Nanhai, China Capacity: ~1.2 million metric tonnes ethylene per annum 50/50 JV CNOOC Gas 2022 Liquid 2 0 2000 2005 2010 2015 2020 2025 Pennsylvania, USA Greenfield FID 2016 Capacity: ~1.5 million metric tonnes ethylene per annum and polyethylene derivatives 2006 Nanhai 2010 USGC go-light strategy 23 2010 Singapore 2016+ China + USA Royal Dutch Shell October 13, 2017 23
Chemicals Growth projects: AO4 Geismar expansion Fourth Alpha Olefins (AO4) unit - 425,000 tonnes additional capacity Capacity increases to 1.3 million mt Integrated with ethylene crackers at Deer Park and Norco Based on Shell s proprietary technology Geismar, LA Start up H2 2018 Leading AO4 site in the world Royal Dutch Shell October 13, 2017 24
Chemicals Growth projects: CNOOC & Shell Petrochemicals Company (CSPC) CSPC s Petrochemicals complex CSPC: 50/50 JV Shell & CNOOC Ethylene cracker unit: 1 million mt current capacity Xinjiang Qinghai Inner Mongolia Shaanxi Beijing Tianjin Shandong Heilongjiang Jilin Liaoning Phase 2 under construction Tibet Sichuan Hubei Hunan Jiangsu Shanghai Zhejiang Additional 1.2 million mt ethylene cracker Yunnan Fujian Guangdong Integrated with CNOOC s co-located Hainan refineries Deploys industry leading Shell proprietary technologies (i.e. SMPO, POD, EO/EG) Most competitive cracker in China Royal Dutch Shell October 13, 2017 25
Chemicals Growth projects: Pennsylvania Chemicals Ethane Catalyst, Shell Comonomer Falcon Pipeline 1.5 mtpa Ethylene Cracker Steam & Power Ethylene 3 polyethylene Units Facility Rail logistics Polyethylene Truck logistics Cracker bottom streams (C3+) Natural Gas Cogenerator Surplus power export (100 MW) Future Uniquely differentiated project in USA Royal Dutch Shell October 13, 2017 26
Chemicals Growth projects: Pennsylvania Chemicals Components of competitive advantage: Locally sourced and long-term contracted ethane with supply cost advantage > 70% of the North American polyethylene market sits within 700-mile radius Economic development, job creation and investment incentives from the State of Pennsylvania West Canada 1% 70% of North American PE Demand East Canada West North Central 5% New England Pacific 4% Mountain 6% East North Central 35% Shell site 21% 4% Share of PE demand 1% West South Central 6% 3% East South Central Chemicals industry production hub 14% South Atlantic Mid Atlantic Royal Dutch Shell October 13, 2017 27
Chemicals Organic growth Earnings + ROACE $ billion 4 % 20 Improve base business 15 Expand current base portfolio 2 10 Adding to portfolio 5 growth Targets aspiration per year mid- 20s: Earnings: ~$3.5-4 billion Cash flow: ~$5-6 billion Base capex: ~$1 - $1.5 billion 0 2009 2010 2011 2012 2013 2014 2015 2016 17Q2 4Q rolling Earnings ROACE (RHS) mid- 20's 0 Earnings and ROACE on CCS basis, excluding identified items; Shell ROACE calculations for 2012 has been restated for the impact of IAS 19 Royal Dutch Shell October 13, 2017 28
Chemicals - Key messages Putting safety first Leader: value + influence World-class investment case Strong heritage, scale and performance World-scale assets in strategic locations Process technology advantages Reducing our carbon intensity Shared value with society Royal Dutch Shell October 13, 2017 29
Questions & Answers John Abbott Director Downstream Graham van t Hoff Executive Vice President - Chemicals Royal Dutch Shell October 13, 2017
Royal Dutch Shell October 13, 2017