Introduction

Welcome to Future Downstream and two days of interesting discussions.

My name is Carlos Maurer and I head Sectors & Decarbonisation at Shell. My job is to help our customers decarbonise, sector by sector.

Today I will focus on three key trends in Downstream: decarbonisation, collaboration and digitalisation.

Uncertainties ahead

Before we begin, a word from our legal team. Today I am going to gaze into my crystal ball and talk about the future. With that comes a lot of uncertainties. And I am obliged to share the following disclaimer notes with you. Please visit shell.com for more information.

Overview of Three Trends

So, back to today’s topic, decarbonisation, collaboration and digitalisation.

Why these three trends?

The disruption of Covid-19 has made all three more prominent and more essential.

It is clear society expects a green recovery, one which involves significantly reducing the carbon footprint of the products and services we buy, and the energy we consume.

Collaboration has been critical to the pandemic response, allowing us to act more quickly and more effectively.

And finally, digital solutions played a vital role in delivering business continuity.

Two or three years ago these topics were certainly on our minds, but over the last 6 to 8 months, I cannot recall a single meeting when one or more of these topics did not dominate the agenda. Not only during internal meetings, but when I met with customers, like some of you.

Decarbonisation

So let’s start with decarbonisation.

Change is happening. And it is happening fast.

Why so fast? Well, it is because society is demanding this change.

And it is not just society. It is governments and companies as well. In September, the United Nations reported that, in less than a year, the number of governments and companies committing to become net zero has doubled.

Government regulations play a vital role in accelerating the energy transition. Regulations and incentives lead to greater innovation. And in turn, this allows companies to more rapidly commercialise their low and zero carbon solutions.

But it is not just about the pace of change. It is also about the scale of change. Every country, every sector and every company.
At Shell, we recognise the need for change.

Within the Downstream sector we need to change ourselves. We need to reduce scope 1 and 2 emissions. And we have a vital role in helping others accelerate their decarbonisation journeys.

Shell Net-Zero Ambition

So how are we at Shell are responding to this challenge?

In April last year we announced our ambition to be a Net-Zero Emissions energy company by 2050 or sooner. In step with society and our customers.
Last month we recognised the need to go further.

Tackling climate change is an urgent challenge.

It is not just about 2050. It is about what we do this year.

Shell will contribute to a net-zero world. A world where society stops adding to the total amount of greenhouse gas emissions in the atmosphere.
We also support the more ambitious goal laid out in the United Nations Paris Agreement, to limit the rise in average global temperature to 1.5 degrees Celsius.

We will do this by reducing emissions from our operations, and from the fuels and other energy products we sell to our customers.

It also means capturing and storing any remaining emissions, using technology or balancing them with offsets.

We are transforming our business and finding new opportunities.

We will provide more low-carbon energy such as biofuels, hydrogen, charging for electric vehicles and electricity generated by solar and wind.

Most of our emissions come from the use of the energy we sell. So we must help our customers cut their emissions.

Previously, we had committed to reducing the emissions from the energy products we produce and process ourselves. Now, we have also committed to reducing emissions from energy products that others have produced and that we then sell to our customers.

So how will we get there? Of course, we have medium and long term targets. But now we have short term targets for each of the next three years.
For example, for 2021, we have set a target to reduce our carbon intensity by between 2 and 3 percent compared to 2016.

And we also realise that leaders will play a critical role in delivering these targets. So we have linked the pay of more than 16 and half thousand senior staff to the target reduction for 2023.

The need for collaboration

So how will we accelerate the energy transition?

There are a number of factors at play here.

First, we must address decarbonisation sector by sector. Each sector will need a different approach.

Second, we need to act now. We need pioneers. Governments and businesses who are willing to step up and deliver change.

Third, Government policy and greater alignment will be vital. Sectoral decarbonisation will only happen if low and zero carbon choices are incentivised.

It is crucial that decarbonisation makes commercial sense.

And finally, underlying all of this is collaboration.

Talking about collaboration is easy. It is the doing that is harder.

It is about changing behaviours and corporate cultures.

It is about genuine collaboration from start to finish.

It is about involving the different players within a sector’s ecosystem.

It is about identifying the web of inter-dependencies within the sector.

So what needs to happen?

The players in the ecosystem need to come together. They need to put the goals of the sector ahead of their own goals.

At Shell, we are committed to be the partner for change.

We know that no single company can develop all the solutions that are needed.

I am inspired that more companies and organisations are committing to open collaboration.

When we come together and focus on a common end goal; we will drive results.

I want to share an example from the road freight sector. In fact, some of you may have heard of it. H2Accelerate.

It is a collaboration to build out hydrogen trucking - at scale - across Europe.

Daimler Truck, IVECO, Volvo, OMV and Shell have all committed to work together. There is a phased plan with clearly identified and measurable deliverables. There is also a common belief that synchronised investments are needed to support the mass market roll-out of hydrogen trucks.

Three attributes stand out for me:

  • First – Multiple players, like truck manufacturers and fuel retailers, have come together to achieve a common goal
  • Second - We have a plan with specific identified results. This means society can hold us to account
  • And finally, we have identified the need for synchronised investment. This is how we will overcome the “chicken and egg” challenge. The common barrier when major transitions are required.

Shell & Deloitte sector decarbonisation research

Before I explore the role of digital, I want to share some insights from our recent research with Deloitte into the road freight and shipping sectors.

As part of the research process, we ran regional workshops. We used this collaborative environment to bring together different players from across the ecosystem. Together, they identified a roadmap of solutions.

With the road freight sector, of course, there were differences of opinions. But there was a clear consensus that road freight is close to a tipping point to decarbonise. And that it will happen faster than most expect.

There was also strong alignment that battery electric and hydrogen will be the two zero emissions technologies.

And there is a real sense of urgency. To meet the Paris Agreement in a growing sector, the common view is that zero emission trucks need to start being deployed at scale by 2030.

Our shipping and road freight research identified a strong consensus about the importance of common policy frameworks. Regulations and incentives are vital levers to drive change.

There needs to be alignment within the sector. This will result in clear policy asks that will accelerate the change that is needed.

Of course, the need for a common policy framework is also clearly seen in other sectors like aviation.

The role of digitalisation

And that leads me on to my third trend – digitalisation.

The participants from both sectors identified digital as a way to drive change today.

Digital technologies will play a key role in the transition to a lower-carbon future.

They help optimise energy efficiency.

They also enable more effective monitoring of greenhouse gases.

The future energy system will be clean and net zero. The combination of AI and digital technologies will help unlock these energy solutions.

Our digital solutions for customer experience and loyalty may be more advanced, but there is a strong and growing focus to unleash digital’s potential to accelerate the Energy Transition.

Efficiency

Digital can help deliver efficiency. And in some cases that efficiency means lower fuel consumption. And therefore, lower emissions.

In shipping, for example, we have successfully deployed digital solutions to improve the draft and trim of a vessel as well as optimise its arrival time at a port. Both have helped to reduce emissions.

And in the world of road freight, we have tackled one of its major challenges – minimizing empty runs.

Last year we invested in InstaFreight, a digital logistics leader in Germany.

We have now just engaged them to optimise our own lubricants supply chain in Europe. InstaFreight will organise the transportation of Shell lubricants from our blending plant in Germany to Shell warehouses all across Europe.

They will optimise routes via road and rail transport. And we are looking for this technology solution to help us cut up to 50% of these transport CO2 emissions.

The power of data

As to be expected, there is a lot of interest in how data can help reduce emissions.

Data can help businesses better understand how their equipment is operating. And with this information, a company can then work out how to make that piece of equipment operate more efficiently.

Take MachineMax, a digital venture that we incubated at Shell.

MachineMax uses sensors attached to equipment and mobile data to help businesses analyse and improve the efficiency of their equipment.

And when it comes to data, the “holy grail” is predictive maintenance.

Avoiding downtime and ensuring peak performance of equipment can lead to reduced emissions.

We combined our decades of experience in lubricant testing with Artificial intelligence to develop Shell Remote Sense.

It uses sensor data and advanced analytics to deliver insights about the condition of lubricants in machinery. This allows companies to catch potential problems before they cause damage to their equipment or reduce their efficiency.

The need for digital collaboration

Collaboration also has a role to play in the digital world

Last year, we joined forces with IBM to launch Oren, the first digital marketplace for the mining sector. The marketplace offers vetted digital solutions from trusted enterprises as well as innovative start-ups.

Oren allows different sellers to come together to develop integrated solutions.

For example, we are currently working with four different companies to develop an integrated offering that will help mines better manage one of their main sustainability issues, dam tailings.

Another example of a digital partnership is with Kongsberg and the deployment of digital twins. The digital twin solution provides operators a virtual representation of the physical elements, such as equipment and instruments. Then it overlays dynamic behavior of an asset over its lifecycle.

Shell is deploying digital twins so operators can better understand and predict the performance of their machines. As well as to optimise the operational performance of an entire facility.

Real-time control helps achieve more consistent and optimised process operations. Then by setting things closer to operating limits, it is able to help lower energy consumption.

Conclusion

I hope that over the next two days you are inspired by the need to collaborate. That you take action to join us, or to join others to deliver the Energy Transition.

I would like to leave you with a quote from Henry Ford, a visionary who played such a pivotal role in shaping our Downstream world.

"Coming together is a beginning. Keeping together is progress. Working together is success."

Henry Ford nails it. True collaboration only comes with action.

Now is the time for us to work together.

To act and not just talk.

To deliver and not just commit.

It is what society - quite rightly - expects of us.

Thank you.

Disclaimer

This presentation contains the following forward-looking Non-GAAP measures: Adjusted Earnings, Cash capital expenditure, Underlying operating expenses, and Divestment proceeds. We are unable to provide a reconciliation of the above forward-looking Non-GAAP measures to the most comparable GAAP financial measures because certain information needed to reconcile the above Non-GAAP measure to the most comparable GAAP financial measure is dependent on future events some which are outside the control of the company, such as oil and gas prices, interest rates and exchange rates. Moreover, estimating such GAAP measures consistent with the company accounting policies and the required precision necessary to provide a meaningful reconciliation is extremely difficult and could not be accomplished without unreasonable effort. Non-GAAP measures in respect of future periods which cannot be reconciled to the most comparable GAAP financial measure are calculated in a manner which is consistent with the accounting policies applied in Royal Dutch Shell plc’s financial statements. The future potential for Cash capital expenditure and cash flow from operations is an average of multiple years. The presented medium-term outlook is an average of multiple years post economic recovery. Shell’s reporting segments under IFRS 8 remain Integrated Gas, Upstream, Oil Products, Chemicals and Corporate.

Shell’s scenarios are not intended to be projections or forecasts of the future. Shell’s scenarios, including the scenarios contained in this report, are not Shell’s strategy or business plan. When developing Shell’s strategy, our scenarios are one of many variables that we consider. Ultimately, whether society meets its goals to decarbonise is not within Shell’s control. While we intend to travel this journey in step with society, only governments can create the framework for success. The Sky 1.5 scenario starts with data from Shell’s Sky scenario, but there are important updates. First, the outlook uses the most recent modelling for the impact and recovery from COVID-19 consistent with a Sky 1.5 scenario narrative. Second, it blends this projection into existing Sky (2018) energy system data by around 2030. Third, the extensive scale-up of nature-based solutions is brought into the core scenario, which benefits from extensive new modelling of that scale-up. (In 2018, nature-based solutions required to achieve 1.5°C above pre-industrial levels by the end of this century were analysed as a sensitivity to Sky. This analysis was also reviewed and included in the IPCC Special Report on Global Warming of 1.5°C (SR15).) Fourth, our new oil and natural gas supply modelling, with an outlook consistent with the Sky 1.5 narrative and demand, is presented for the first time. Fifth, the Sky 1.5 scenario draws on the latest historical data and estimates to 2020 from various sources, particularly the extensive International Energy Agency energy statistics. As with Sky, this scenario assumes that society achieves the 1.5°C stretch goal of the Paris Agreement. It is rooted in stretching but realistic development dynamics today but explores a goal-oriented way to achieve that ambition. We worked back in designing how this could occur, considering the realities of the situation today and taking into account realistic timescales for change. Of course, there is a range of possible paths in detail that society could take to achieve this goal. Although achieving the goal of the Paris Agreement and the future depicted in Sky 1.5 while maintaining a growing global economy will be extremely challenging, today it is still a technically possible path. However, we believe the window for success is quickly closing.

Also, in this presentation we may refer to Shell’s “Net Carbon Footprint”, which includes Shell’s carbon emissions from the production of our energy products, our suppliers’ carbon emissions in supplying energy for that production and our customers’ carbon emissions associated with their use of the energy products we sell. Shell only controls its own emissions. The use of the term Shell’s “Net Carbon Footprint” is for convenience only and not intended to suggest these emissions are those of Shell or its subsidiaries. It is important to note that as of February 11, 2021, Shell’s operating plans and budgets do not reflect Shell’s Net-Zero Emissions target. Shell’s aim is that, in the future, its operating plans and budgets will change to reflect this movement towards its new Net-Zero Emissions target. However, these plans and budgets need to be in step with the movement towards a Net Zero Emissions economy within society and among Shell’s customers.

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 Royal Dutch Shell plc and its subsidiaries in general or to those who work for them. These terms are also used where no useful purpose is served by identifying the particular entity or entities. “Subsidiaries’’, “Shell subsidiaries” and “Shell companies” as used in this presentation refer to entities 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 an entity or unincorporated joint arrangement, after exclusion of all third-party interest.

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