Remarks to the 12th International Oil Summit

Mark Williams Downstream Director Royal Dutch Shell plc

International Oil Summit Paris, April 6, 2011

Mark Williams: Remarks to the 12th International Oil Summit

Mark Williams was appointed Director Downstream with effect from 1 January 2009. Prior to this, Mark was Executive Vice President (EVP) Supply & Distribution (S&D), where he had responsibility for crude oil and refined products supply for Shell’s global refining and marketing businesses.

Mark’s other previous positions have been EVP, Global

Businesses, Vice President of Strategy, Portfolio and Environment for Oil Products. Mark was born in 1951 in Houston, Texas. His qualifications include a Masters Degree in Theoretical Physics from Oxford University (1975) and a Doctorate & Masters Degree in Physics from Stanford University (1979).

He joined Shell in 1979 as a research physicist for Shell

Oil Exploration and Production. Highlights of his career include being Engineering Manager for the U.S. Gulf of Mexico during the early days of Deep Water, working as Operations Manager for Shell Oil Western EP Operations, being Head of Staff Planning for Shell Oil Exploration and Production, Head of Downstream Strategy for Shell Oil during the merger with Texaco, and Head of Transportation (pipelines and distribution) for Equilon Enterprises LLC, the Shell and Texaco joint venture in the United States. Mark and his wife, Candace, have two children. His interests include amateur astronomy and astro-imaging, yacht racing, mountaineering, cycling and weight training.

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Mark Williams: Remarks to the 12th International Oil Summit

Introduction

observe that there’s nothing quite as practically

Thank you very much, and good morning.

useless as unrefined crude oil or gas stranded

It’s an honor to be here. The International Oil

thousands of miles from a customer.

Summit has become a “must-do” venue… an

The fundamental value of what we produce is

important opportunity to exchange views and take

established at the customer end of our supply chains.

stock of what’s happening in and around the energy It takes conversations like this one… leaders like

And the world is changing dramatically for our customers

you… and organizations like the ones represented

Recent events have emphasized that many

in this room… multiplied by hundreds… to tackle the

challenges we will face in the future are inherently

world’s growing, complex global energy needs.

unpredictable. The scientist in me says, statistically,

This morning, I’ll briefly offer a view of the broad

‘black swan’ events like earthquakes and revolutions

economic and political trends that are reshaping the

aren’t really happening more often. But they sure

global energy landscape.

seem to be.

Then I will suggest that our industry must look

Just consider what we’ve seen in the last few

beyond just the impact these trends have on our

weeks: a devastating earthquake in Japan, political

business… rather, that we need to acknowledge the

turmoil in North Africa, another spike in oil prices, a

role we play in meeting the societal challenges they

sweeping new energy policy in China, a re-think of

pose.

nuclear power in Europe. These are based on huge,

And I’ll make an unapologetic plug for integrated

unexpected, systemic events that can blindside even

energy companies – why our ability to combine

the most robust institutions.

both upstream and downstream value, our global

They are inherently difficult to plan for. They

presence, and our intimacy with markets and

shake people’s faith in institutions and technology.

customers can help all of us in this industry tackle the

They are game-changing.

challenges to come.

Much of this political, social and economic

I started my career in the Upstream business.

volatility is – by definition – short term. And

But after 15 years in our Downstream refining,

the impacts are amplified by unprecedented

marketing, chemicals and trading businesses, I’ve

speed of communication and by the increasing

developed a deep appreciation for the face and

interconnectedness of the global economy.

the value our industry puts to our markets… to our

But longer-term, utterly predictable trends will

communities and our customers… right down to the

affect us with the inevitability of an oncoming

individual energy user.

glacier.

And I’ve come to realize that the continued

Every second, five new babies are born in

integration of upstream and downstream strategies

the world. By 2050, there will be about 9 billion

has a hugely important role to play in meeting the

people on the planet, up from fewer than 7 billion

energy challenges we face.

today. Adding 2 billion more people is like having

world.

another China and India on the planet.

Here’s Why

These people will not only have basic needs

Our industry has a habit of thinking about the supply

to be met, but personal expectations that will

chain from the hydrocarbon supply to the customer,

compound their numbers when it comes to energy

rather than (as most industries do) the other way

consumption.

around: from the customer’s needs.

They will want – and deserve – the jobs, cars,

That’s largely because rents have preferentially

computers, and heated and air conditioned homes

been captured upstream; the key strategic control

that billions of their parents and grandparents could

point is access to the below-ground resources.

never dream of. They will want – and deserve – the

But the real value in what we do gets generated

fuel and electricity to keep those things going.

by what we enable our customers to do. The energy,

According to the International Energy Agency,

the mobility, the products we produce and make

by 2035 energy consumption in the developing

possible, create value hundreds of times larger than

world could rise by 64% compared with 3% in

we realise in our businesses alone.

developed countries. In China alone, energy use

Here – and not to insult my upstream friends – I

could increase by 75 percent in 25 years. In India

“Our ability to combine both upstream and downstream value, our global presence, and our intimacy with markets and customers can help all of us in this industry tackle the challenges to come” 2

Mark Williams: Remarks to the 12th International Oil Summit

planet’s resources and on the global energy system.

The value of an integrated company: innovating to match supply with demand

Even if we account for the new energy efficient

Let’s first step back and ask what it actually means

technologies and the new supplies of energy we

to be an integrated company. I’ll use my own

can imagine today, fueling expectations in 2050

company as an example.

could create a gap between energy supply and

Shell produces around 3.3 million barrels of oil

demand as big as the entire energy industry was in

equivalent a day. We process and trade some 7.5

2000 – roughly 400 EJ/a.

million.

There is much we can and are doing at the

We run 250 distribution centers and 2,500

production end of our value chain to close this

storage tanks in some 60 countries.

gap… finding and producing more gas, extracting

We move oil and gas through 9,000 kilometers

more oil from end-of-life wells, pushing the

of pipeline. Our tankers handle more than 100,000

boundaries of exploration into deeper water and

cargo operations a year.

thicker ice, developing so-called unconventional

We sell our fuels and lubricants through a

fossil fuels, and investing heavily in biofuels.

network of 43,000 retail outlets. 6,000 trucks are

But still, that 400 EJ/a gap is a recipe for

on the roads, making a delivery somewhere in the

volatility on a mammoth scale, as individuals,

world every 8 seconds.

governments, and institutions are pressed to

We refuel an airplane every 12 seconds, and

bridge it one way or another -- through a step

in the time I’ve been talking we’ve sold enough

change in efficiency, a dramatic jump in supply,

bitumen to resurface one kilometer of roadway

or the disappointment of unmet expectations; with

somewhere in the world.

inevitable societal and political consequences.

So we’re big. We’re complex. We’re global. But

At Shell, our Scenario planners call this the

the meaning of all these billions in assets and furious

“zone of uncertainty.” It can be either a zone of

human activity is deeper than just big numbers.

extraordinary misery or of extraordinary opportunity,

Energy is the most fundamental ingredient to

depending on how we respond. In either case, we

economic progress. There is a reason the integrated

are entering an era of major transitions, some of

energy companies – with their scale and complexity

which will be volatile.

– are so vital to tackling the world’s energy

For example, we need to shift to a lower carbon

challenges.

energy system, as the scientific verdict about

First and foremost, we match energy supplies

climate change grows more pessimistic, while the

with growing and changing demand on a truly

global efforts to tackle CO2 emissions make scant

global basis and along the entire value chain.

progress, and public opinion varies from alarm to

Upstream we reach deep into the heart of

confusion to outright denial.

the earth to find the energy resources the world

All of this is happening in an increasingly

needs now and will need in greater abundance

“flatter” world – where information and opinion

in the future. Downstream we sense the needs of

twitter around the world through social media,

a growing and more demanding population of

creating instant and overwhelming tides of public

consumers. And in between, we tie it all together in

opinion; and where the solutions to complex

one of the most extraordinary enterprises in human

energy challenges increasingly depend not just

economic history.

on government policy and corporate innovation

The fast growing liquefied natural gas (LNG)

but also changes in the choices that individual

business is just one case in point. Gas is a beautiful

consumers make.

fuel: clean burning and with a relatively lower

So how will the world pass through this “zone of

carbon footprint than other fossil fuels. But often

uncertainty?” Where will the investment come from?

inconveniently located.

The innovation? The scientific judgment and political

LNG gives us the ability to liquefy natural gas

wisdom?

and ship it to far flung destinations. That links new

And why is an integrated energy company well-

gas supplies to new customers, strengthening supply

placed to help meet these challenges?

security. Right now, the LNG business is growing at

it could double. These changes will put huge pressure on our

“The fundamental value of what we produce is established at the customer end of our supply chains”

the rate of around 6 to 8 percent per year, driven 3

Mark Williams: Remarks to the 12th International Oil Summit

by a marriage of upstream technical expertise and

In fact I’m convinced that customer demand for

downstream market savvy, an intimate knowledge of

the benefits of GTL-based products – along with our

the world’s energy markets and a heavy investment

ability to move and market it around the world – will

in shipping and logistics. Shell played a large

drive even more opportunities for upstream gas

role in creating the LNG business, and it was only

plays in the future. And it will help unlock more of

possible because we took an integrated view from

the world’s gas resources. That’s the Upstream and

the natural gas resource to the customer.

Downstream marriage at work.

The devastating events in Japan have brought

Canada’s Oil Sands are another example of

into sharp focus the ability of LNG to respond to

how integrated upstream-downstream innovation

short term demand fluctuations on a global basis.

can help close the supply-demand gap and rescue

Within weeks we’ve diverted almost a dozen LNG

a potentially stranded resource.

cargoes to Japan from Dubai, Russia and Nigeria…

The oil sands are some 10 percent of global

with more to come.

proven reserves. As a secure and affordable source

Now, with the more unconventional gas

of energy they cannot be ignored. But neither

resources coming on stream, the combination of

do we ignore their unique challenges, involving

increasing domestic gas supply and the flexibility

CO2 emissions, environmental footprint and social

of LNG make possible the large scale substitution

impacts.

of gas for coal in power generation…at lower cost

The Athabasca Oil Sands Project shows how

and with a much lower CO2 footprint. And with

we can be a leader in converting a difficult and

intrinsically lower CO2 emissions, technologies like

challenging resource into useable products that

carbon capture and storage – CCS – are more

people need. We’ve linked upstream capabilities

likely to be practical with gas-fired power plants.

like mining and bitumen extraction to downstream

This gas opportunity has revealed another

technologies to upgrade bitumen, while working to

benefit of integration. Along with PetroChina we

mitigate CO2 emissions with CCS – a technology

are developing unconventional gas resources in

that draws on both upstream and downstream skills.

both Australia and China, with a significant fraction

Let me offer one final example of how innovative

of the Australian gas destined for China. So, our

upstream-downstream integration can help make

partnerships with NOCs are increasingly anchored

better use of the world’s energy resources:

in integrated plays.

We’re exploring with Saudi Aramco for sour gas

GTL – gas-to-liquid – is another great example.

in the empty quarter of Saudi Arabia. Saudi Aramco

We’re close to completing the $19 billion Pearl GTL

is a long time partner in our US and Japanese

project in partnership with Qatar Petroleum – the

refining and marketing businesses, a joint venture

first-ever world-scale GTL plant.

partner in refining in the Kingdom, and a major

We’ve used an essentially downstream

supplier of crude oil to our refineries.

technology – the fischer-tropsch process – to rescue

The trust and respect nourished by years of

huge amounts of isolated upstream gas in Qatar,

downstream partnership have helped realize the

by converting it into liquid products that can be

value of key upstream resources.

transported to parts of the world that want and need

And in addition to exploration, drilling, and sour

it. But an important dimension of Shell’s participation

gas production technology, Shell is contributing

in Pearl is our ability to leverage the global supply

unique downstream capabilities that enhance the

chains and marketing innovation.

opportunity. We’ve developed ways to convert

When fully up and running in 2012, Pearl will

waste sulfur into useable products. Shell Thiocrete

produce enough GTL gasoil to fill over 160,000

replaces the cement typically used in concrete and

cars a day and enough synthetic base oil each

uses far less energy with a smaller CO2 footprint

year to make lubricants for more than 225 million

than conventional concrete production.

vehicles. Qatar’s gas will also become naphtha

I’ve mentioned Saudi Aramco, PetroChina, and

feedstock for the chemicals industry, kerosene for

Qatar Petroleum as partners in adding value through

aviation fuels, paraffin for detergents, base oils for

integration, innovation, and our ability to bring the

high quality lubricants, and even extremely high-

world’s resources and the world’s customers closer

quality, environmentally-safe drilling fluids for our

together.

industry.

As an integrated energy company we believe

“Gas is a beautiful fuel: clean burning and with a relatively lower carbon footprint than other fossil fuels. But often inconveniently located” 4

Mark Williams: Remarks to the 12th International Oil Summit

we bring value to partnerships with NOCs while

whether we enter a “zone of misery” or a “zone of

improving our own access to resources and markets.

opportunity” – will depend fundamentally on our

But we also create value with business partners

industry’s willingness to create more efficient, more

and customers at the other end of the value chain.

available, cleaner products running the gamut from

Take large customers like shipping companies.

the chemicals that wash people’s clothes… to the

As an integrated company we talk to them not

fuel that goes into cars and trucks… to the power

just about price and volume, but also strategies

that keeps lights on and factories humming.

for keeping their marine engines running longer,

It will depend on our success in managing our

or developing new fuels to meet their low sulfur

value chains from the customer back. It will depend

requirements, or managing CO2 emissions.

on the partnerships and trust we build in our markets

Through these partnering conversations we develop

and in our communities… not just our ability to

deep insights into what our markets need, and how

manage mega-projects and global commodity

we can deploy our researchers and scientists to

flows.

meet those needs.

In other words, it will depend on fully integrated,

Our work with managers of truck fleets on

upstream-downstream strategies that connect across

telemetry and training tools can help their drivers

multiple players…multiple technologies… multiple

save as much as 20 percent on fuel costs. At our

challenges…and multiple human needs.

technology centre in Hamburg, we work with

As both a scientist and as a thirty year veteran of

our car manufacturing partners on prototypes to

the energy business, I am both troubled and excited

optimize the combination of fuel blends and engine

by this challenge. Troubled at the sheer scale and

design.

complexity of it. But excited by the opportunity – I

Wal-Mart recently named us their Sustainability

might even say the duty – we have to make an

Supplier of the Year for our work providing them

historic difference.

with EcoBoxes – recyclable bags to store motor oil

I’ve seen our industry face major challenges

which have saved Wal-Mart more than 6 million

before, and time after time I’ve seen a combination

plastic bottles a year, as well as $1 million in waste

of ingenuity, creativity and motivation overcome

oil.

them.

On a broader scale, we think biofuels clearly

I am hopeful that we’ll do it again.

offer the most practical and commercially viable

Thank you all very much.

way for governments as well as customers to reduce CO2 emissions from transport fuels today. In fact, we’re sure enough of the importance of biofuels that we’ve committed to an industry-leading Downstream and biofuels production joint venture with Cosan in Brazil. And we’re at the forefront of managing the complex challenges that biofuels pose around sustainability, public policy, and consumer acceptance. Our partnership with customers reaches right down to the Retail forecourt. Our tips for driving more efficiently have been used by more than 150,000 drivers, while our FuelSave branded petrol saves consumers up to a litre of fuel for every fifty litre tank they buy.

Conclusion So, today’s volatility – the “zone of uncertainty” – facing our customers, our communities, our economies, and our succeeding generations is unprecedented. How the history of civilizations unfolds –

“The Athabasca Oil Sands Project shows how we can be a leader in converting a difficult and challenging resource into useable products that people need“ 5

Mark Williams: Remarks to the 12th International Oil Summit

Recent speeches by Executive Directors You can count on gas Malcolm Brinded Leadership challenges for a complex world Simon Henry Remarks to the 5th EITI Global Conference 2011 Peter Voser Profits and Corporate Social Responsibility - Remarks to the Shell Annual Reception 2011 Peter Voser The annual dinner of the Scottish Oil Club: opportunities for the North Sea Simon Henry 10th Anniversary of the EU-Russia Energy Dialogue Malcolm Brinded Energy, technology and climate change: a new world Malcolm Brinded Singapore Energy Summit Malcolm Brinded Innovation and Energy: you can’t have one without the other Peter Voser Natural gas: key to green energy future Peter Voser The global energy challenge: the importance of human capital Hugh Mitchell This publication is one of a range published by Shell International BV, Carel van Bylandtlaan 30, 2596 HR The Hague, The Netherlands. For further copies, and for details of other titles available in English or as translations, please write to the above address, or contact the External A fairs department of your local Shell company. Information about the Royal Dutch Shell plc, including downloadable versions of various publications, can be accessed at: www.shell.com/speeches © Shell International Limited (SI), 2011. Permission should be sought from SI before any part of this publication is reproduced, stored in a retrieval system, or transmitted by any other means. Agreement will normally be given, provided that the source is acknowledged. The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate entities. In this publication the expressions “Shell”, “Group” and “Shell Group” are sometimes used for convenience where references are made to Group companies in general. Likewise, the words “we”, “us” and “our” are also used to refer to Group companies in general or those who work for them. These expressions are also used where there is no purpose in identifying specific companies.