SHELLS ENERGY STRATEGY

OUR ASPIRATION IS TO GROW OUR POSITION AS A COMPETITIVE AND INNOVATIVE ENERGY COMPANY. WHY?
A

 To invest in safe, low cost and reliable energy sources for our customers, and create attractive returns for our shareholders. win business in a very competitive landscape, and to be resilient in the face of a volatile future, with population growth, rising wealth levels and increased environmental stresses as key drivers. we can help design and develop a future energy system that drives economic progress in a sustainable way.

B  To

We want to maintain our companys license to operate and create space for further growth. That requires us to be competitive, innovative and responsible all at once.

C  So

1
The world needs more energy to spur development and sustain a growing and wealthier world population. This is an urgent challenge.
n

2
To meet the worlds energy needs in the coming years and decades, society will have to mobilise all forms of energy. By 2035, additional supplies equal to twice the size of todays US energy system will be needed to help meet demand. That is a formidable challenge.
n

3
Rising living standards are increasing demand for energy, water and food, against the backdrop of climate change. For continued prosperity and development, government, industry and society must work to address this stress nexus in an integrated way.
n

The world has entered an era of unprecedented progress and prosperity. Average wealth, health and life expectancy are increasing. Higher standards of living are giving more people access to hospitals, public transportation and reliable electricity. n By 2050, there will be 9 billion people on the planet compared to 7 billion today. That is equivalent to adding another China and India. Urbanisation will continue as 70 million people move into cities each year for the next 25 years. n We estimate that global energy demand will grow by 15-20% between now and 2020, with nearly all growth coming from non-OECD nations. Adding 20% extra demand to the system is like adding another China in less than a decade. n Over the first half of this century, global energy demand could double from 200 mboe per day in 2000 to some 400 mboe per day by 2050.

This could mean spending some $37 trillion on the global supply infrastructure by 2035, according to the IEAs 2012 World Energy Outlook. Thats more than $30 billion every week for a period of more than twenty years.

By 2030, global demand for water will increase by 30% and food by 50% compared to today, according to the UN. The worlds water, energy and food systems are closely linked: water is needed for energy production; energy is needed to produce, treat and transport water; and both water and energy are needed to grow food. n Policies that address CO2 emissions also help mitigate water and food stresses, so governments are welladvised to put a price on CO2 as a means to promote low-carbon technology, energy efficiency, and the replacement of coal by natural gas in the power sector.

STRATEGIC THEMES
ENGINES GROWTH PRIORITIES FUTURE OPPORTUNITIES

DOWNSTREAM ENGINE

INTEGRATED GAS

DEEPWATER

FUTURE OPPORTUNITIES

UPSTREAM ENGINE

RESOURCES PLAYS (UNCONVENTIONALS) IRAQ, KAZAKHSTAN, NIGERIA HEAVY OIL ARCTIC

4
Our advocacy of natural gas in the energy mix reflects our belief that natural gas occupies the sweet spot in the stress /opportunity nexus.
n

5
To make Shell more resilient in the face of a volatile future, we need a strong strategic focus. A focus on where we have room to grow and win. We will take a thematic approach when we make and implement our investment decisions.
n

6
Our main focus in renewables continues to be biofuels, which sit in the Downstream Engine.
n

Electricity demand growth will outpace that of overall energy demand. By 2020, we expect electricity consumption to have increased by between 25% and 35% as compared to 2012. n As a source of electricity, natural gas has a considerably lower CO2 footprint and a lower water footprint - than coal, and is a more flexible partner of renewable electricity. n Were confident about the supply picture over the long term. Across the world, there are vast reserves of gas, enough to last 250 years at todays consumption levels. n Shells leadership role in natural gas provides a strong platform for our company to play a key role in growing the share of natural gas in the mix, at the expense of coal.

We have identified a series of strategic themes. Each of these themes shares common key characteristics that influence everything from how we make investment decisions to how we replicate and scale success. n This approach will allow us to reduce complexity and take advantage of standardisation and the resulting economies of scale. It also gives us more clarity on the organisational skills needed for success, putting talent at the centre of our strategic focus. n Our two Engines are the upstream engine and the downstream engine. These Engines deliver the bulk of our cash, and we expect them to be our financial foundation at least through this decade. We need to continue to invest in them to remain strong. n There are three main Growth Priorities: integrated gas, deep-water and resources plays. These will provide our medium-term growth and we expect them to become engines in the future. n Future Opportunities in Iraq/ Kazakhstan/Nigeria, heavy oil and Arctic will provide further growth potential to 2020 and beyond. These could turn into major growth pipelines and engines down the road, subject to market and operating conditions. Some are well on their way already.

Shell has been involved in distributing biofuels for over 30 years. In 2011 we started producing biofuels. With Brazilian company, Cosan, we formed a new company called Razen. With annual production capacity of about 2.2 billion litres, the JV is one of the worlds largest ethanol producers. Brazilian sugar cane ethanol is one of the most sustainable Biofuels available on the market today. It also produces around 70% lower CO2 than conventional gasoline.

7
As we intend to increase energy production over the coming years, Shell maintains a sharp focus on managing the footprint of our operations, particularly with regards to CO2 emissions and water use, while working closely with local communities.
n

8
We strongly believe in partnerships, especially non-traditional, cross-sectoral ones, as part of our strategy to be the worlds most innovative energy company.
n

9
In short, this strategy is about making Shell resilient in the face of a volatile energy future, and at the same time helping to design that future.
n

Global CO2 and water governance plans are mandatory for each of the strategic themes. n We continue to invest in Carbon Capture and Storage, as we are doing with Quest in Canada and Gorgon in Australia. An operation like Groundbirch in Canada offers evidence we are making progress on the ground with regard to water efficiency and recycling.

Our inventions over the years have entitled us to more than 21,500 patents that are still in force. n We believe we can become even more successful at innovation by working with partners. n We work closely with a wide range of companies, NGOs, academia and the public sector to spark new ideas, share knowledge or minimise our operational footprint. Such openness helps speed up developments in biofuels, solar power, energy efficiency, water treatment and CO2 management, but also helps improve our understanding of the energy-water-food nexus and resilience.

Shell continues to take a deep interest in understanding long-term global trends and we continue to have some of the best people in the world, capable of driving innovation. n We continue to invest in our companys resilience and position it to win in a competitive landscape through a stronger focus on the best growth opportunities in our portfolio. n We invest in CO2 and water governance in our own operations and we invest in collaborative partnerships to address challenges that go beyond our own value chains.