Shell Publishes 2017 Annual Report

Strategic Report

Chair's message: Powering progress together

I would like to take this opportunity to thank everyone who contributed to Shell's strong business performance in 2017, including our customers, partners and staff. The successful integration of BG's business into our portfolio during 2016, combined with ongoing efforts to reduce costs and debt, are helping to reshape Shell into a world-class investment.

In his review, our Chief Executive Officer Ben van Beurden outlines our performance and how this is creating value for shareholders. I would like to talk about how we are also working to thrive in the energy transition, while continuing to contribute to society.

The challenge facing global society is clear: more than 1 billion people in the developing world today still live without the full benefits that energy can provide. Many hundreds of millions more will need energy in the future. Bringing the benefits of energy to everyone on the planet, while managing the risks of climate change, will require fundamental changes in the way energy is produced and used around the world.

As Mahatma Gandhi is often quoted as saying, “The future depends on what you do today.”

Shell is working today to make a better future. In a step that demonstrates our determination to play our part in a cleaner energy future, we announced an ambition, pegged to society's progress, to reduce the net carbon footprint of our operations and of our customers' emissions from using our products.

As part of our drive to help power progress with more and cleaner energy solutions, we will offer customers more low-carbon products and services, such as lower-carbon fuels for drivers and low-carbon energy for homes and businesses.

Expanding our power supply business, including investments in electric vehicle charging systems, will help us to deliver cleaner energy while other parts of our business work to meet rising global demand for key products such as natural gas, the cleanest-burning hydrocarbon.

Powering an increasing variety of human activities with electricity can help to reduce emissions while providing energy to more people. To reduce emissions, this long-term electrification of the economy will require a combination of renewables and more natural gas in place of coal.

However, electricity is unlikely to replace oil or natural gas in some key parts of the economy, such as in heavy road transport, aviation and shipping. This means the world will need large quantities of oil and natural gas for decades to come. At the same time, production from many oil and gas fields is declining and continued investment is needed to develop new resources. Oil and gas will remain central to our business for many years.

We are increasingly active in wind and solar power. But today, the greatest contribution Shell can make to providing more and cleaner energy is to deliver more natural gas. Gas is expected to play an increasingly important part in global energy supply over the next few decades as more communities seek cleaner alternatives to coal.

Using natural gas for power generation or as a cleaner fuel for transport, for example, can play a critical role in tackling climate change. But emissions of its chief component, methane, a potent greenhouse gas, must be reduced. Shell and seven other major natural gas producers announced plans in November to further reduce methane emissions from assets they operate.

But business alone cannot drive the wider and more profound changes required across global society. Governments around the world need to accelerate change by establishing policies that encourage businesses to do more to overcome the challenges ahead. Governments need to introduce

policies that reshape several sectors of the economy and enable the development of lower-carbon and renewable sources of energy, supported by technologies such as carbon capture and storage.

One of the most effective ways of doing this are government-led carbon pricing mechanisms. Any such framework for incentivising the multitrillion- dollar investments that will be needed to combat climate change must have strong global support. Society will be able to achieve much more once effective government-led carbon pricing systems are in place.

As the future depends on what we all do today, Shell is already working to ensure its long-term business relevance by playing an active role in the energy transition.

The quality and diversity of our people are vital to the success of our approach. In 2017, we welcomed two more women to the Board. Today, we agreed to seek shareholder approval for the appointment of Ann Godbehere at the Annual General Meeting (AGM) to be held in May. If approved by shareholders, five women and six men will sit on the Board before this year is over.

I would like to thank Hans Wijers, who will not be standing for reappointment at the AGM, for his nine years of outstanding contributions to the Board, including service as Senior Independent Director, Chair of the Remuneration Committee and Chair of the Corporate and Social Responsibility Committee.

It is a real honour to serve as Chair of your Board as we continue to work to make a future that is better for all.

Chad Holliday


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