Shell plc

Cautionary note

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Shell plc

February 20222

01

Natural gas plays
a significant rolein progressing
NZE ambitions

Around the world, more countries announced
net-zero emissions targets, adding pressure todecarbonise energy systems. As a reliable,
available and lower-emissions energy source,
gas has an important role in supporting thistransition, both as a partner to renewables forgrid stability and an immediate option to lower
emissions in hard-to-electrify sectors.
Multiple outlooks differ on the share of gas in thelong-term energy mix, but there is agreement that
it will continue to be needed. Decarbonising gas
and liquefied natural gas (LNG) value chainsand developing cleaner pathways will
strengthen their role in the energy transition.
Shell plc

02

2021 showedfragility andinterdependence ofthe energy system

03

Energy security,emissions and economic
growth in Asia to drive
future LNG demand

A faster than expected economic reboundfollowing the lifting of pandemic lockdowns,
extended European winter and drought
conditions in Brazil accelerated demand for
LNG in 2021, a year which also saw gas supply
constraints. Prices remained pressured all year,
reaching record levels towards the end of theyear with European gas storage levels at
historical lows and continued uncertainty around
Russian gas supplies. Rising coal prices andcarbon prices added further pressure.

LNG has a key role to play as a reliable andlower-emission energy source, particularly in Asia,
replacing declining domestic gas production,
enabling coal-to-gas switching and supporting
economic growth. The volatility in energy prices
in 2021 shows how the energy market candestablise quickly without sufficient reliablesupply. The global LNG market is expected toremain tight in the near term, with a supplydemand gap forecast to emerge in the middle ofthe current decade.

China overtook Japan as the world’s largest
LNG importer while US led growth in LNG
exports.

2021 saw increased momentum in efforts todecarbonise the LNG value chain, a crucial
factor for its long-term role in the energy mix.
February 20223

01
Shell plc

Natural gas plays a significant role inprogressing NZE ambitions

88% of global emissions now coveredby country net-zero ambitions
Top carbon emitters set 2030 emissions targets
NZE target
2030
2040
2045

2030 emissions targets
CHINA
Carbon peaking by 2030
Policy aimed at limiting the increase in coalconsumption and building gas power plants,
encouraging use of gas in industry and LNG for
vehicles and ships.

2050
2060
2070
No
target98% of LNG imports now under NZE ambitions

INDIA
Cut carbon emissions by
1 billion tonnes by 2030*
Plans focus on increasing zero carbon generation
by 500GW, reducing carbon intensity by 45% andincreasing LNG’s share of gas demand to 70%.

Source: Shell interpretation of Net Zero Tracker, IHS Markit and Global Carbon Atlas 2021 and 2022 data.
Recent national policy announcements have been added * base year

Shell plc

February 2022

5

Decarbonisation requires early action
Switching to gas can lower emissions today

Power

Transport

Hydrogen use

Switching just 20% of coal-fired
power in Asia to gas can potentiallysave:

Switching 10% of heavy goods
vehicles and 10% of shipping fleet
to run on gas can potentially save:Moving global energy mix to
5% hydrogen of which 30% isblue hydrogen can potentially save:

EQUIVALENT TO ALL
EMISSIONS FROMGERMANY

CO2
EMISSIONS

680

Indicative annual gas demand
310 BCMMTPA

EQUIVALENT TO
16.3 MILLION CARS TAKEN
OFF THE ROAD

Indicative annual gas demand
120 BCMCO2
EMISSIONS75
MTPA

EQUIVALENT TOEMISSIONS FROM MORE
THAN 70 COUNTRIESCO2EMISSIONS

475
MTPA

Indicative annual gas demand
350 BCM

Source: Shell interpretation of IHS Markit Sustainable Flame Study 2021

Shell
Shell
plcplcFebruary 2022

6

The role of gas in a changing energy system
Gas scenarios 2020-2040

Gas demand by sector in 2040

5000

5000

BCM

BCM

4500

Use of gas in a
decarbonised world

4000

4000

Industry
Blue Hydrogen
BiogasGas + CCUS
Feedstock

3000

3500
2000
3000

Electricity
Gas fired powerbacking up renewables
Gas + CCUS

Buildings
Blue Hydrogen
Gas + CCUS
Hybrid systems

1000

2500

0

2000
2020

2030

2040

IEA SPSIEA APSIEA NZE

WM ETOWM AET 2

WM AET 1.5

2020
Electricity

IEA SPS
Industry

IEA APS
Transport

IEA NZE
Buildings

Source: Shell’s interpretation of IEA World Energy Outlook 2021 and Wood Mackenzie 2021 data

Transport
Blue Hydrogen Biogas
LNG + offsets

Wood Mackenzie’s Energy Transition Outlook (ETO) and Accelerated Energy Transition (AET); IEA’s Stated Policies Scenario (SPS), Announced Pledges Scenario (APS) and
Net Zero Emissions Roadmap (NZE).

Shell plc

February 2022

7

Gas is there when the sun does not shine, wind does notblow or rain does not fall
Share of UK generation 2021
7 day rolling average

Hourly
70%

70%
50%

30%

40%

20%

30%

Nuclear

Gas

Imports

Hydro

Total demand

Residual demand

Gas

Wind

Hydropower

2021

2019

2018

2017

2020

Renewables

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2016

11 13 15 17 19 21 23

0.0

2013

0%

2012

9

0.2

2011

7

0.4

10%

0%
5

0.6

20%

10%

0

0.8

60%

2010

5

1.0

80%

40%

10

1.2

90%

50%
15

Monthly

200920

LNG MT

100%

60%

3

% hydropower available

Daily

25

1

Brazil hydro levels & LNG deliveries

2015

GW

2014

California electricity mix 24-04-2021

LNG deliveries

Source: Shell’s interpretation of California Independent System Operator, National Grid, Grid Watch UK, IHS Markit, ONS and ANP 2021 and 2022 data

Electricity sector
Shell plc

February 2022

8

Decarbonising power sources offers the largest
opportunity for reducing emissions in aluminium production
Global aluminium production by energy source

Global CO2
direct emissions
from aluminium
production

CO2 saving options
tCO2 eq/t Aluminium
25

20

46% potential
emissions savingsby switching to gas

15

10

478
MTPA

5

Coal
0

Gas
Hydro
Nuclear
Other
Size indicates production MT

Source: Shell’s interpretation of International Aluminium Institute 2020 and 2021 data
Note: GCC – Gulf Cooperation Council

Shell plc

S. America
N. America

China
Oceania

Asia
Eurasia

AfricaGCC

Coal fired

Electricity
Ancillary materials
Transport

Gas firedDirect process
Thermal energy

Industry sector
February 2022

9

Marine LNG – a choice for today and tomorrow
30% of new vessel orders are LNG-fueled*
LNG vessels & fuel uptake# of vessels

MTPA

700

6

600

403

5
4

400

251

300

3

LNG-fueled vessels
on water

200

2
1

2027

2025

2023

2021

2019

2017

2015

2013

2011

2009

2007

0

2003

0

On orderNet-zero emissions fuel options such as
BioLNG and synthetic LNG

40

Biomethane potential MTPA

35

Actual production MTPA

Bunkering locations
90
1.8

25

90
-

125
0.6

20

165
0.2

15
10

100

In operation

Fuel pathway

Gross tonnage (millions)30

LNG-fueled vessels
on order500

New ship orders by type**

LNG Consumption

5

105
0.4

27%

Container

19%

29%

Bulkers

Tankers

ships

49%

98%

CruisePassenger
car carriers

LNG

Other fuels

Infrastructure pathway
Existing LNG infrastructure can be used for
drop-in fuels (BioLNG and synthetic LNG)

Source: Shell interpretation of DNV GL 2020 data, World Fleet Register, Clarksons, Total Orderbook – Jan 2022 and various news reports*Gross tonnage**Only larger size vessels: containers >12000TEU, tankers > 85000DWT, bulkers > 65000DWT

Shell plc

Transport sector
February 2022

10

Gas is a scalable, flexible and competitive
solution for the buildings sector
Use of energy in buildings (China)*
Mtoe
600

Gas and electricity use (France)
TWh

CO2

EMISSIONS

621

400

MTPA

300

Can
potentiallybe saved
by a switch to
gas

200
100
0
Total

Electricty
Oil

Gas

Other renewables

Other solid fuelsElectricity

Heat

Hydro

Nuclear

3,972

18,134

700

2.5

600
2.0

500
400

1.5

300

1.0

200

0.5

100

0.0

0
2019

Coal

$/MWh
800

3.0

500

Indicative storage cost 2030

2020

Gas

Electricity

2021

Not scalable

Scalable

Source: Shell’s interpretation of Wood Mackenzie, ENTSO-E, ENTSO-G and Imperial College SGI 2021 and 2022 data
* 2021-

Shell plc

Buildings sector
February 2022

11

Asian gas demand to drive future LNG growth
LNG needed to replace declining domestic gas and coal-to-gas switching
LNG imports by region
MTPA
800

Demand drivers of LNG in Asia

Asian gas demand by supply source

BCM

BCM

800

1,500

77%
600

600
1,000

400

400

200

200

0

0

7%

16%

500

2020

2025

Asia

Europe2030

Americas

Source: Shell interpretation of Wood Mackenzie 2021 data

Shell plc

2035

Rest of world

2040

2020

2025

2030

2035

LNG bunker fuel
LNG complements domestic and pipeline supply
LNG replace declining domestic production
LNG is sole gas supply

2040

0
2020

Domestic

Pipeline

LNG

production

imports

imports

2040

Domestic production is net of LNG exports

12

02Shell plc

2021 showed fragility and interdependenceof the energy system

Gas and LNG prices hit record highs in 2021

Supply constraints◼ Several LNG projects underperform◼ Limited discretionary Russian gas

volumes◼ Decline in European gas production

Inventorybalances

Economic reboundGlobal gas price markers$/MMBTU

JKM prices spike with acolder than normal startof the year but ease as
inventories fill up in North
Asia◼ Faster than expected economic

rebound following the lifting of
pandemic lockdowns◼ Robust Chinese LNG demand

Pressured energy complex◼ Coal and carbon prices rally◼ Limited gas-to-oil switchingcapacity◼ New financial players incommodity markets

Prices rise steadily withincreasing Asian andSouth American LNG
demand amid supply
constraints

Low European inventories,
Russian gas uncertainty
and winter buyingpressure leads to extreme
price volatility

Prices reach record highs
to pull LNG cargoes into
Europe

60

40

20

0
Jan 21◼ European gas

inventories atmulti-year lows
◼ Major LNG
buyers stock up

Shell plc

Weather events◼ Prolonged 2020/2021 winter in Europe◼ Drought in Brazil – low hydro power◼ Lower wind energy in Europe

Apr 21
JKM

HH

Jul 21

Oct 21

TTF

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

February 2022

14

Global LNG supply increases by 21 million tonnes
US LNG export growth offsets supply constraints elsewhere
Net LNG exports 2021 y-o-yMTTop exporting countries 2021
MT

Non-US liquefaction utilisation%

US exports by month vs capacity
MT

30

90

95%

8

25

80

20

70

90%

60

80%

40

75%

30

70%

20

Atlantic Basin

M EastAsia Pacific

65%
60%

Australia
RussiaQatar
MalaysiaUS

2016-2020

2019

2020

2021

Dec

Nov

Oct

Sep

Aug

Jul

Jun

0
Jan

Nigeria

Trinidad

Peru

NorwayAngolaRussia East

PNG

BruneiIndonesia

Argentina

Qatar

Cameroon

UAE

Oman

E.Guinea

Malaysia

Russia West

Aus

0

Algeria

-10

USA

10
Egypt

-5

2

May

0

4

Apr

5

50

Mar

10

Feb

15

6

85%

Corpus Christi
Cameron
Cove Point
Liquefaction capacity

Elba
Freeport
Sabine Pass

Shell interpretation of Kpler, Wood Mackenzie & Customs 2021 data

Shell plc

February 2022

15

China becomes the world’s largest LNG importer
Net LNG imports 2021 y-o-y

Top LNG importers 2021

MT

MT

14.0

90

12.0

80

10.0

70

8.0

Total LNG trade: 380 MT

60

Total LNG trade: 380 MT

6.0

50

N America

S America

Asia

UK

Italy

India

Spain

MexicoFranceJordanUSA

TurkeyMalaysia

IsraelGreeceUAE

Belgium

Lithuania

M EastColombia

SingaporeJapan

PanamaCanadaMalta

EuropeSwedenJamaica

Egypt

Myanmar

PolandPortugal

Chile

Netherlands

Dom Rep

Puerto Rico

ThailandBangladesh0Indonesia-4.0
Croatia

10
Pakistan-2.0
Kuwait20

Argentina

0.0

Brazil30

Taiwan2.0

S Korea

40

China

4.0

China

Japan

South Korea

India

TaiwanShell interpretation of Kpler & customs 2021 data

Shell plc

February 2022

16

Economic recovery post COVID-19 lockdowns leads to
18% LNG import growth in China
LNG demand growthMT

Gas supply & demandGas production & imports

BCM

BCM

Gas storage capacity
BCM

%
20%

14

390

40

50%

40

12

370

35

45%

35

40%

30

35%

25

25

30%

20

20

25%

15

15

20%

10
8

30

350
Average

330

6

310

4

290

15%

10

10%

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021

2020

ActualTransport

2021 forecast

Industry0%

Res & Comm

0

Power

250

2021

0

LNG

5%

Pipeline

5

Dom Gas

270

2020

2

15%
10%

10

5%

5
0

0%
2019

2020

2021

2022

Other storage facilities
Large-scale peak-shaving projects
LNG tanks at regas terminals

Domestic prod

Pipeline imports

Underground gas storage

LNG imports

Share of LNG% of gas demand (RHS)

Source: Shell interpretation of GasTank, IHS Markit, Poten & Partners, Wood Mackenzie & China GAC 2020 and 2021 data

Shell plc

February 202217

Brazilian LNG imports triple
Demand increases for gas-fired power as hydropower sources dry up
Reservoir fill

Brazil gas supply & demand%

Brazil gas production & imports

BCM

BCM

36

80%

% Share

4

100%
90%

60%

80%

3

32

70%
60%

40%

2

28

50%
40%

20%

30%

1

24

20%
10%

2017-2021

2020

2021

Domestic production

Pipeline imports

LNG Imports

Share of LNG

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2020

OthersIndustry

Power

2021

LNG

Pipeline

Dom prod

2020

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

0%

2011

0

20

2010

0%

Sources: Shell interpretation of ONS, ANP, MME, Wood Mackenzie and Kpler 2021 data
Note: Reservoir level is weighted average

Shell plc

February 2022

18

Extended winter, economic rebound and gas supply
constraints kept European gas storage at historical lows
Gas demand y-o-y change*
BCM
16

12

60

40
300

20

200

Jan

Mar May

Industrial

LDC

LDC: Local Distribution Company

Jul

Sep

Power

Nov

Others

Dec

Oct

Jan
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

2020

Non-power

Power

2021

Ukraine exp

Storage

LNG

Pipeline

Domgas2020

Shell interpretation of Wood Mackenzie, ENTSO-G and GIE 2021 data
* Europe 34 ** EU 27+UK

Shell plc

100

(6)

450

Nov

0

(4)

Sep

(2)

Aug

-

Jul

2

Russia80

400

4Norway

100

500

8
6

N Africa

500

600

14
10

R&C

120

Jun

Others

700

BCM

May

Industry

Inventory level**

MMCM/dApr

550

Russian pipeline supply

Feb

BCM

Mar

Gas demand & supply*

2019

2020

2021

2022

2017-21 Range
2021
5-year average

2020
2022

1 BCM = ~10.47 TWh

February 2022

19

Renewable generation across Europe* declines
despite increased installed capacity in 2021
RES generation y-o-y change
700

9%
8%

600
12%
500

0

-6%

100
0

0%
Wind

Solar PV

2020

2021

Hydro

Total

y-o-y % Growth (RHS)

0

-9%
Wind

Solar PV
2020

2021

Hydro

Total

y-o-y % Growth (RHS)

-20

Solar
Hydro
Oil
Nuclear

Dec

200
3%

-10

Nov

-3%

-7%

Oct

300
-4%

100

0%

Sep

6%

-3%

Aug

200

10

400

6%
4%

3%

Jul

9%

20

Jun

300

6%

May

400

30

Apr

15%

13%

TWh

Mar

500

TWh

Feb

GW

Generation by source y-o-y change

Jan

RES capacity y-o-y changeWind
Coal/Lignite
Gas
Total y-o-y change

Source: Shell interpretation of Global Data TSOs / ENTSO-E 2021 data
*EU7: DE, NL, ES, FR, BE, IT + UK

Shell plc

February 2022

20

Gas in Europe at the centre of a pressured
energy complex

0

20

40

100

60

Number of lots (base 2014*)Japan

EU Nat Gas futures average yearly growth

80

+12%

Bangladesh
60

30

Pakistan

500

40

20

400

South Korea

300

20

10

200

Philippines

1000

Switching Range
ARA Coal

TTF
EUA (RHS)

Source: Shell interpretation of Global Data and ICE 2021 data

0

China

2015

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

0

+40%

600

2010

2015

2021

2016

40

EU nat gas

Coal, power & emissions

2021

50

2020

60

GW

2019

€/tonneICE Futures exchange data only –(excludes OTC)2018$/MMBTU

Oil-fired capacity

2017

Europe coal & carbon priceBrent

Y-axis reflects change in monthly traded volumes vs volumes traded in the same month of theyear 2014 (= 100)

Shell plc

February 2022

21

Europe became the preferred destination for LNG
only towards the end of 2021
JKM/TTF spreads

LNG imports from US

108$/MMBTU

MT (DES)

Spreads favour
Asian deliveries

5

6

0
4

Spreads favour
European deliveries

-5

2

-10
-15

Asia

Middle East & India

North America

South America

NW Europe

Rest of Europe

Jan-22

Dec-21

Nov-21

Oct-21

Sep-21

Aug-21

Jul-21

Jun-21

May-21

Apr-21

Mar-21

Feb-21

Jan-21

Jan-22

Dec-21

Nov-21

Oct-21

Sep-21

Aug-21

Jul-21

Jun-21

May-21

Apr-21

Mar-21

Feb-21

Jan-210

Source: Shell interpretation of ICE, Kpler & Customs 2021 data

Shell plc

February 2022

22

Asia expected to continue leading LNG demand
growth in 2022
Forecast LNG supply growth 2022

Forecast LNG demand growth 2022

MTPA

MTPA

25

25

20

20

15

15

10

10

5

5

0

0

-5

-5
N America

S America

EuropeAfricaM East

Asia

Total

N America

S America

EuropeAfricaM East

Asia

Total

Source: Shell interpretation of Wood Mackenzie, IHS Markit and Poten & Partners 2021 and 2022 data

Shell plc

23

03
Shell plc

C

Energy security, emissions and economic
growth in Asia to drive future LNG demandExpectations of a tight near-term global LNG market
drives new contracting
Global LNG supply growthMT

40

Global upstream capex

BCM

MTPA

500

800

80
65
BCM

400

700

30

Term contracts for newliquefaction projects

Domestic gas production$billion

25%

600

300

500

200

400

100

60

Southeast Asia

40

20

10

Europe0South Asia

Post-COVID19
Source: Shell interpretation of Wood Mackenzie and Rystad 2021 data

Shell plc

2025

2024

2023

2022

2021

2020

2019

2018

2025

2024

2023

2022

2021

2020

2019

2018

2017

2017

300

0

Pre-COVID19

20

2017

2018

2019

2020

0

US

Qatar

2020 2021 2022 2023 2024 2025

Portfolio

Other

CanadaRussia2021

MozambiqueExcludes Heads of Agreement

February 2022

25

China dominates term contracting last year
>20 million tonnes of LNG supply secured for coming decades
2021 new term contracts by importer Spot purchases as % of imports
MTPA

Spot as % of total

35

60%

30

50%

2021 China LNG contract lengths

CO2

2030

2020

25

2060
NZE Target

2030
EmissionsTarget

2040

2050

2060

40%

20

China 2021 contracts

30%

15

20%

10

10%

5

0%

0

2017
OthersBangladesh

South Korea

Pakistan

China

EuropeSource: Shell interpretation of Wood Mackenzie and IHS Markit 2021 data

2018

2019

2020

China

Japan

South Korea

India

Global average

2021

Contract
start

Contract
expiration

Excludes Heads of Agreement

Excludes “portfolio” contracts that have no defined import market & excludes Heads of Agreement

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February 2022

26

European* gas fundamentals point to continued
exposure to price volatility
Germany power generation

Europe gas balance

TWh

BCM
500

400

300

Pipeline imports

100

BCM

600

120

500

100

400

Domestic production

200

Europe LNG supply contracts

80

Spot

300

60

200

40

100

20

Firm term contracts
0

2020

Total gas demand

2030

Spot

Flexible term contracts

Firm term contracts
0

0

2025

Potentially divertible volume

2020

Other

2025

Nuclear

Coal

2030

Gas

2021

2024

2027

2030

Renewables

Source: Shell interpretation of IHS Markit and Wood Mackenzie 2021 data
* EU 27+UK

Shell plc

February 2022

27

Expected rising demand for LNG in Asia requires
investment in new supply
Incremental LNG demand 2020-2040

LNG supply-demand gap

100

800

MT

80

MTPA

600

60
400

40
200

20
0

0
2015

2020

2025

2030

2035

2040

-20
SE Asia South Asia

China

Bunkering

Other

EuropeM East S America NE Asia

Demand forecast range

LNG supply in operation

LNG supply under construction

Source: Shell interpretation of IHS Markit, Wood Mackenzie, FGE and Poten & Partners 2021 and 2022 data

Shell plc

February 2022

28

Momentum builds in decarbonising the LNG
value chain in 2021
UPSTREAM

Carbon capture utilisation &storage (CCUS) projects
planned with gas fields inIndonesia and Malaysia

LIQUEFACTION

World’s largest LNG
liquefaction project
under construction,
North Field
East, to feature
CCUS and solar

SHIPPING

First commercial
ME-GA lowspeed, dual-fuelengines design for
LNG carriers
tested successfully
LNG

Agreement signed to begin
pilot for hydrogen blends intoliquefaction to reduce emissions
from LNG

80%

Over
increasein CCUS for gas
with 63 MTPAof new projects
CO2announced
in 2021

Pluto LNG and CryogasVysotsk LNG share plans
to use renewable energy
for liquefaction

REGASIFICATIONCONSUMPTION~30
Liquid hydrogenplant using waste
cold energy generated
from regasifying
LNG to be built inSouth Korea

Singapore LNG
Regasification
terminal goessolar

LNG cargoes
offset withcarboncredits
in 2021

GIIGNLestablishes an
MRV & GHG
neutral LNG
framework for the industry

15

15 Japanesecompanies
form alliance topromote andimprove processes
for offsetting
carbon emissions
from LNG

Source: Shell interpretation of published announcements 2021

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February 2022

29

Summary
Natural gas plays a significant
role in progressing NZE
ambitions2021 showed fragility andinterdependence of the energy
systemEnergy security, emissions andeconomic growth in Asia to drive
future LNG demand◼ 88% of global emissions now covered by◼ With historically low inventory levels, European◼ With limited new supply growth expected in the

net-zero ambitions◼ Switching to gas can significantly lower

emissions: switching just 20% of coal-fired
power in Asia to gas can potentially save 680
MTPA of CO2◼ Multiple energy scenarios have a rolefor natural gas

gas price exceeded Asian LNG price to pullcargoes into Europe to meet winter gas demand◼ LNG demand rebounded following the lifting of

pandemic lockdowns – 21 MT growth◼ China became largest LNG importer◼ US LNG export growth offsets supply constraints

elsewhere◼ Asian gas demand to drive future LNG growth01
Shell plc

02

near term, LNG contracting rebounded in 2021
◼ China dominated contracting activity last year,
securing more than 20 MTPA of term supply◼ European gas fundamentals point to continued
exposure to price volatility◼ Longer term, expected future Asian
LNG demand growth requires investment in
new supply◼ Momentum builds in decarbonising the
LNG value chain in 2021

03
February 202230