Shell scenarios, modelling and decision-making

Royal Dutch Shell September 8, 2017
Royal Dutch Shell plc
September 8, 2017
Shell scenarios, modelling and decision making
#makethefuture

Royal Dutch Shell September 8, 2017 2
Cautionary note This presentation contains data from Shell’s New Lens Scenarios. The New Lens Scenarios are a part of an ongoing process used in Shell for 40 years to challenge executives’ perspectives on the
future business environment. We base them on plausible assumptions and quantifications, and they are designed to stretch management to consider even events that may only be remotely possible.
Scenarios, therefore, are not intended to be predictions of likely future events or outcomes and investors should not rely on them when making an investment decision with regard to Royal Dutch
Shell plc securities.
It is important to note that Shell’s existing portfolio has been decades in development. While we believe our portfolio is resilient under a wide range of outlooks, including the IEA’s 450 scenario, it
includes assets across a spectrum of energy intensities including some with above-average intensity. While we seek to enhance our operations’ average energy intensity through both the
development of new projects and divestments, we have no immediate plans to move to a net-zero emissions portfolio over our investment horizon of 10-20 years.
The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate legal 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 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 “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 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’’, ‘‘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
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 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
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 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 presentation and should be considered by the reader. Each forward-looking statement speaks only as of the
date of this presentation, September 8, 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 presentation. This presentation may contain references to Shell’s website. These references are for the readers’ convenience only. Shell is not incorporating by reference any information posted
on www.shell.com. We may have used certain terms, such as resources, in this presentation 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.

Georges Menane
VP Investor Relations Europe
Royal Dutch Shell

Summary
Re-shaping Shell - on track
 Divestments: >$25 billion completed, announced or
advanced progress
 Projects delivery for 2018 on track
 Capital investment – discipline, efficiency and flexibility
 Operational excellence and driving down costs
Leader: value +
influence
Reducing our
carbon
intensity
Shared value
with society
World-class
investment case

Supporting
Shell’s World
Class Investment
IR Programme
 LNG Outlook
 Provide information to demonstrate the
robustness of our Integrated Gas cash engine
 Chemicals event
 Raise the appreciation and understanding of
our Chemicals business
 Scenarios, modelling and strategy presentation
 Explain how different scenarios inform strategy
Task force on climate-related financial disclosure (TCFD)
 Shell supports TCFD
 Ongoing engagement with taskforce
 Challenges with regulatory perspective
 Considering next steps
 Modelling ability helps us understand qualitative risks
www.shell.com/investor

Guy Outen
EVP Strategy & Portfolio
Royal Dutch Shell

Exploring
alternative
futures
▪ Energy system was
complicated
▪ Energy transition and
digital: major disruptors
▪ Past does not predict the
future
▪ Forecasts are inappropriate
▪ Radically uncertain future
▪ Complex future: needs
agility
 Scenario thinking
 Decision-making
▪ Scenarios are a distinctive
Shell capability
From complicated to complex
SCENARIOS
FORECAST
The Present The Path The Future
7

Outcome 1
Outcome 2
Outcome 3
Outcome 4
Outcome 5
Multiple futures
8
Scenarios are
neither
forecasts nor
plans
 Scenarios are not forecasts; neither are they our business plan
 Shell considers multiple, bespoke scenarios relevant to decisions
 Scenarios usage ranges from evaluation of individual opportunities, to portfolio choices, to overarching strategy
development
Scenarios stretch our
perspectives
CO2 Solutions
Social
Networks
Education
LNG market
Terrorism
Gas Price
Oil Price
CO2 Cap
Inter-regional tension
Resource ‘wars’
Climate Change
Technology
2nd Gen
eBusiness
Recession
Russia
CCS
Dutch disease
Surprise
Surprise
EU
China
USA
Unconventional gas
GCC
GCC
Demographics
Today
ASSUMPTIONS
Multiple forces may push towards or pull away from the envisaged futures
MACRO-RISKS & UNCERTAINTIES

Shell’s strategy
#makethefuture
Scenario thinking supports
robust strategy + portfolio
decision-making
Winning
Capabilities
Aspired
Future
Aspired
Portfolio
 World-class investment case
 Leader: value + influence
 Reducing our carbon intensity
 Shared value with society
 Customer Centricity
 Commercial Value Delivery
 Technology Commercialisation
 Project Delivery
 Operational Excellence
Cash
Engines
Future
Opportunities
Growth
Priorities
Leader: value +
influence
Reducing our
carbon
intensity
Shared value
with society
World-class investment
case

Using scenarios
Recognising a range of
uncertain outcomes
*This is an example diagram of graphic representations that are considered by the Board. Not based on Shell’s actual portfolio.
 Consider a range of plausible futures
 Explore social, political + economic factors
 Determine context for business environment
 Model the Future World’s energy systems
Future worlds
 Consider existing and new energy value chains
 Elements within the value chain
 Assess investment attractiveness over time
 Consider the Future Worlds
Value chain assessment*
 Explore potential future
worlds
 Understand potential value
chain impacts
Pace of demand growth
Paceofnewtechnology
1
2
3
4
5
Value Chains
FutureWorld
10

Framework for
decision making
in uncertainty
 Build from ‘Future Worlds’ +
value chain analysis
 Consider “minimise
maximum regret”
 Make investment and
portfolio decisions
Strategy and aspired future
Consider multiple futures
in decision-focused scenarios
Business environment/
value chain understanding
Apply lenses
to support the ‘hard’
input to decisions
From individual decisions to
shaping the aspired portfolio
Clarity of objectives
Analytic tools
External environment and
disruptors
Decisions based on ‘hard’ and
‘soft’ inputs
Multiple lenses
Current
portfolio
Aspired
portfolio
Energy transition

Wim Thomas
Chief Energy Adviser
Royal Dutch Shell

Introduction
How scenarios inform
modelling
 Scenarios explore “how the
world will work” in the future,
and is an essential front-end
input in modelling
 Different parts of the world
will develop in their own
ways and at different paces
 Technology innovation enables
new options
 Resource availability can be
a constraint
 Deal with disruptions and
non-linear relationships
 Modelling helps to demonstrate
the plausibility of the scenarios
The future is not an
extrapolation of the past
Mountains/Oceans
Demand
Supply
Resources
Translating the societal-
political-economic
scenarios in the
“So what for energy?”

Shell models
Models underpin scenarios
and strategic analysis

World Energy
Model (WEM):
Estimates global
energy demand
dynamically
▪ Estimates energy demand holistically
▪ Underpinned by demand, choice and supply modules
▪ Uses resource constraints, build rates and prices to balance supply and demand
▪ Covers other elements such as efficiency and learning curves, and outcomes like CO2
emissions from energy use
Balances demand choices
with supply
100
Years
100
Countries & Regions
(Incl. 82 countries individually)
18
Energy
Sources
14
Sectors
10
Energy
Carriers

WEM:
Key drivers
for demand
75 specific scenario-based
inputs, considered by:
 Sector
 Carrier
 Energy source
 Geography
Population Economic growth Environmental pressures
Technology Resource availability People’s choices

WEM:
Energy Ladders
Estimate energy
service needs
▪ Different development curves
by country, by sector
▪ Developing nations tend to
use less energy due to more
efficient technologies
available now than in the past
for developed nations
▪ Non-linear relationship
between GDP growth and
energy use
▪ Energy demand accelerates
once industrialisation starts
▪ Demand growth eases as
some uses approach
saturation and the economy
diversifies from industrial to
service sector activity
*UK and USA 1870 – 2016; Japan 1953 – 2016; Non-OECD1971-2016
**Logarithmic scale
▪ Looks at what energy
service is needed
▪ For example heating or
cooling degree days,
passenger road km
Primary energy/ (GJ/capita/year)
GDP (PPP) capita (2010 USD)**
1,000 10,000 100,000
0
100
200
300
400
CAN
USA
AUSSWE
KOR
FRA
DEU
GBR
JPN
MYS
ITA
ESP
BRA
IND
CHN
The Energy Ladder 1960 – 2016*
The relationship between income and energy use

WEM:
Choice module
Determining the
energy mix
 Acknowledges different user
preferences for technologies
and solutions
 Choices change in response
to prices, taxes, subsidies,
availability, convenience,
values and energy security or
policy considerations
 Not all choices will be based
on lowest cost options
 Different energy choices are
not perfect substitutes
 Consumers choose which
energy carrier to deliver
their service needs
 Producers decide which
primary energy sources to
use to satisfy consumer
demand
10 Carriers14 Sectors
Industry&
services
Residential
Freight
Transport
Passenger
transport
14 Sectors 10 Carriers 18 Energy Sources
Ship
Rail
Road
Air
Ship
Rail
Road
Air
Heating &
Cooking
Lighting &
Appliances
Heavy
Other
Services
Non-energy
ENDUSERCHOICES
PRODUCERCHOICES
Electricity
(Centralised /
Distributed
Liquid Fuels
Heat
(Centralised/
Distributed)
Gaseous
Fuels
Solid Fuels
Biomass
(Traditional/C
ommercial)
Hydrogen
Oil
Natural Gas
Coal
Hydro-electricity
Biofuels – 1st Gen
Biofuels – 2nd Gen
Biofuels – Marine
Biofuels – Traditional
Biofuels – Commercial
Waste
Geothermal – Hydrothermal
Geothermal – Engineered
Solar – Photovoltaic
Solar – Thermal
Wind
Tidal
Wave
Nuclear

WEM:
Example outputs
A myriad of different
“slices” through the
output data set
possible
These are not forecasts, but example outputs of scenarios that have been modelled
Source: Shell New Lens Scenarios
EJ/year (energy carrier)
World: Total Final Consumption by sector: Mountains
EJ/year (energy source)
World: Total Primary Energy by source: Mountains
EJ/year (energy source)
World: Total Primary Energy: Oceans
China: Total Final Consumption by source Electricity: Oceans
▪ The WEM considers the
global energy system as
one
▪ What happens in China
reverberates throughout
the rest of the world

WEM:
Example outputs
Comparing two
scenarios for
consumer choices of
what type of energy
they want to use
World: Total Final Consumption – by carrier
Decarbonisation and efficiency
go hand-in-hand with
electrification of the energy
system
 Mountains explores the widespread success of shale gas and strong government policy to reduce oil use in
Transport and use of CCS to reduce CO2 emissions
 Oceans explores a highly economically efficient world and strong uptake of Renewables to reduce CO2 emissions

WEM:
Example outputs
Comparing two
scenarios for primary
energy mix as a result
of different policy,
GDP, resources and
innovation
assumptions
World: Total Primary Energy
Of the New Lens Scenarios,
Mountains’ drivers result in
‘earliest’ peak oil demand;
Oceans’ drivers result in ‘latest’
peak oil supply
 Mountains explores the widespread success of shale gas and strong government policy to reduce oil use in
Transport and use of CCS to reduce CO2 emissions
 Oceans explores a highly economically efficient world and strong uptake of Renewables to reduce CO2 emissions

Global Energy
Resources
database
Essential for
projecting the future
energy mix
 Assessment as at 2015
 Oil, gas and coal expected remaining
resources
 Renewables annual production potential
 Used for Shell scenarios
 Data will be available for download
Note: Figures for fossil energy and renewables are not directly comparable. The figures for fossil energy are for the stock of resources in place, whereas the renewable figures represent an annual rate of production.
Sources: Oil & Gas: Wood Mackenzie, Rystad Energy, IHS, International Energy Agency, US Energy Information Administration, Canadian National Energy Board, US Geological Survey and Shell analysis; Coal: Bundesanstalt für Geowissenschaften und
Rohstoffe (BGR) and Shell analysis; Renewables: Ecofys studies commissioned by Shell
Comprehensive overview of all
available primary and
renewable energy resources
per country
Insights:
 Sufficient renewable resources, but unequal
distribution
 Sufficient fossil resources for a decarbonised and
efficient world, but potential for stresses otherwise

Global Supply
Model (GSM)
Estimates oil and
gas production
 Estimates production at resource category and country level until 2100
 Each resource category develops through its own resource maturation chain
 Cost of supply curves control how much resource is economic to mature at a given price
 Includes an environmental footprint module
Includes:
▪ Top down analysis for yet-
to-find resources
▪ Bottom-up analysis for
undeveloped and
developed resources
▪ Depletion of existing
production and
▪ Reserves growth due to
technology
Yet-to-finds
Discovered Volumes
Developed Reserves Production
Undeveloped

GSM:
Example outputs
Projecting oil and gas
supply by type,
region and resource
category
Bln boe per year
World: Total Oil Production (inc LPG/Condensate)
Mmb/d
North America: Total Oil Production (inc LPG/Condensate)
TCF per year
World: Total Gas Production – by gas type
TCF per year
Europe: Total Gas Production – by location
Production varies with oil
price, technology progress and
(geo)political assumptions

Example outputs:
Modelling
disruption
potential of
Electric vehicles
(EV)
An aggressive EV scenario
This is not a forecast, this is one example scenario
Million vehicles/year
Key assumptions:
 Battery costs continue to decline
 Regulation strengthens (e.g. ban internal combustion engine (ICE) vehicles in cities)
 OEM vehicle manufacturers assumed to continue to develop ICE efficiencies
Global vehicle sales
Million vehicles
Global vehicle fleet
EV share in new sales may
grow from 1% today to reach
10% by 2025, displacing less
than 0.8 mboe/d Plug-in hybrid EV (PHEV) Battery EV (BEV)Internal combustion engine (ICE)

Example outputs:
Oil demand
context
An aggressive EV scenario
Source: Shell WEM Disruption example
This is not a forecast, this is one example scenario
 Passenger road transport makes up around a third
of global oil use
Global LHCF consumption by Sector
Global LHCF consumption by Country
 Oil demand has fallen in OECD since 2005
 Non-OECD oil demand growth 2.5 times the
impact of OECD demand decline
 EV mainly impacts
passenger road transport (a
third of total oil demand)
 ICE efficiency has a much
bigger impact over this
period
 Overall demand continues
to grow underpinned by
non-OECD growth

Summary  ‘Complicated to complex’ context
 Understand multiple futures to frame decision-making
 Scenario thinking and holistic modelling is key
 Use multiple lenses, including ‘minimise maximum regret’
 Agile decision-making needed through energy transition

Materials
available online
www.shell.com/
scenariosenergymodels
29

Questions and Answers
Guy Outen
EVP Strategy & Portfolio
Wim Thomas

Biographies

Guy Outen
Executive Vice President
Strategy & Portfolio
Guy Outen was appointed Executive Vice President, Strategy & Portfolio for Royal Dutch Shell plc in 2014.
Guy has worked in various commercial, new business and finance roles across all parts of Shell’s business. From
2009 to 2013 he was the EVP Commercial, New Business & LNG. LNG became part of the separate Integrated Gas
business from 2013. Before 2009 Guy was EVP, EP Strategy & New Business and before that he was the Chief
Financial Officer for Gas & Power, Shell Group Chief Internal Auditor, the CFO for Shell Development Australia and
has also been responsible for Retail operating processes, split off and merged Shell Australia’s chemical operations
into the Montell JV, worked in Crude Oil Trading and a Coal JV.
Guy has an economics and commerce background, B.Com (Hons), M.Com, and is a Fellow CPA Australia.
Guy is married with three sons and enjoys sport, music and motorcycling.

Wim Thomas
Wim Thomas is Chief Energy Adviser and leads the Energy Analysis practice in Shell.
His team is also responsible for Shell’s long-term global energy scenarios, informing Group Strategy. He has been
with the Shell Group for some 33 years, with prior positions in drilling operations, subsurface reservoir management
and commercial and regulatory affairs in gas.
Wim is chairman of the UK national committee of the World Petroleum Council and is a former chairman of the
British Institute of Energy Economics. He holds a postgraduate degree in Maritime Technology from Delft University in
The Netherlands.
Wim has been in his current role for the past 14 years. He advises Shell companies on a wide range of energy
issues, including global supply and demand, regulations, energy policy, markets, pricing and industry structure.

Additional information

EnergyTransition
35
Board and future
business
environment
Diverse input in Board
meetings to stretch thinking
and inform decision making
Beliefs Uncertainties
Mega Trends Macroeconomics
Market
Digitalisation
Industry
Example:
 Sustained era of transition & volatility
 Emerging markets drive Global GDP increases
Example:
 Political tensions & regional instability
 Impact of digital technology
Example:
 Hydrocarbon demand growth + supply required
 Renewables contribution increases significantly
Example:
 Key pricing mechanisms
 Energy transitions impact
Example:
 Technology & scale alone insufficient
Example:
 Winning business models & capabilities

Shell scenarios
Identifying emerging
challenges to guide us
through change
Scenarios stretch our
perspectives and help us
to make crucial choices in
uncertain times
‘13: New Lens Scenarios
 ’14: New Lenses on
Future Cities
 ‘16: A Better Life with a
Healthy Planet:
Pathways to Net-Zero
Emissions
Changing sources of
influence & decision
making power
Era of volatile
energy
transitions
Social fragmentation &
cohesion dilemmas; re-
emergence of State impact
‘01: Energy Needs,
Choices and Possibilities:
Scenarios to 2050
‘08: Shell energy
scenarios to 2050
‘92: Global Scenarios ‘92-’20
‘95: Long Term Energy Scenarios
‘02: People and
Connections Scenarios
‘05: Global
Scenario’s to 2025
1965-1980
First scenarios
Trends
‘07: Signals &
Signposts
Globalisation, liberalisation,
technology diffusion; environmental
pressures; Asian growth
‘11: Signals &
Signposts
Publications
Internal unpublished scenarios focused on specific developments and challenges
36

WEM:
Countries
modelled
South America
Europe/Russia
Africa
Middle East
Asia/Pacific
North America
Darker-coloured countries are modelled individually. Lighter-coloured countries are modelled collectively as ‘Rest of’ regions, such as ‘Rest of West Africa’.

GSM:
Countries
modelled
South America
Europe/Russia
Africa
Middle East
Asia/Pacific
North America
Rest of the world

Shell scenarios, modelling and decision-making

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