30 Shell Investors` Handbook Downstream

30
Shell Investors’ Handbook
Downstream
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31
DOWNSTREAM
CCS EARNINGS [A]
HIGHLIGHTS
$ billion
 Made good progress in delivering strategic goals; improved many aspects of
operating performance.
 Delivered a concentrated portfolio ahead of schedule.
 Kept expansion of the Port Arthur site on track for completion in 2012. Once
complete, the site will have doubled in size to become North America’s largest
refinery with planned capacity of some 600 thousand b/d.
 Moved into biofuels production with the start-up of our Raízen joint venture in Brazil.
The joint venture produces and commercialises ethanol and power from sugar cane
and distributes a variety of transportation and industrial fuels through a combined
distribution and retail network in Brazil. With annual production capacity of more
than two billion litres, Raízen is one of the world’s largest ethanol producers.
 Was named the number-one global lubricant supplier by the consultancy Kline &
Company for the fifth consecutive year.
 Secured our 1,000th retail site in China. Overall, 271 new sites were secured in
2011 and the total number of secured sites reached 1,011 by the end of the year.
 Developed promising new leads to expand Chemicals: Signed the heads
of agreement with Qatar Petroleum for proposals to develop a world-scale
petrochemical complex in Qatar; announced an investment decision to build a
500-tonne per year demonstration unit to manufacture diphenyl carbonate; and
announced our intent to explore the opportunity to build a cracker in the North East of
the USA.
9
8
7
6
5
4
3
2
1
0
2007
2008
Oil products
Chemicals
2009
2010
2011
=#?'ZENWFKPIKFGPVKƂGFKVGOU
AVAILABILITY AND SALES VOLUMES
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100
25
80
20
60
15
40
10
20
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K E Y STAT I ST I C S
Downstream CCS earnings ($ million)
Oil products
Chemicals
Total Downstream earnings ($ million) [A]
Total Downstream earnings excluding identified items
($ million)
Downstream cash flow from operations ($ million) [B]
Total oil products sales (thousand b/d)
Chemicals sales volumes (thousand tonnes)
Refinery intake (thousand b/d)
Oil products refinery availability (%)
Petrochemicals manufacturing plant availability (%) [C]
Downstream net capital investment ($ million)
Downstream capital employed ($ million)
Downstream employees (thousands)
2011
2010
2009
2008
2007
2,235
2,054
4,289
1,439
1,511
2,950
(58)
316
258
5,153
156
5,309
6,906
1,682
8,588
4,274
8,746
6,196
18,831
2,845
92
89
4,342
71,976
51
3,873
8,138
6,460
20,653
3,197
92
94
2,358
67,287
59
1,940
5,839
6,156
18,311
3,067
93
92
6,232
62,632
62
5,744
1,750
6,568
20,327
3,388
91
94
3,104
54,050
64
8,289
13,150
6,625
22,555
3,779
91
93
2,682
65,042
69
[A] With effect from 2010, Downstream segment earnings are presented on a current cost of supplies (CCS)
basis. Comparative information is consistently presented.
[B] Excludes working capital movements.
[C] The calculation of chemical plant availability for 2011 is based on a methodology to bring better alignment
for our Downstream assets. On this basis, 2010 and 2009 figures would be 92% and 91% respectively.
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2007
2008
2009
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2011
32
Shell Investors’ Handbook
Downstream
REFINING
We have interests in more than 30 refining
sites worldwide. Together, they processed
2.8 million barrels of crude oil a day
in 2011 into a wide range of products,
including gasoline, diesel, heating oil,
aviation fuel, marine fuel, lubricants,
liquefied petroleum gas, sulphur and
bitumen. Around 35% of our refining
capacity is in Europe, 30% in the Americas
and 30% in Asia-Pacific.
We focus on energy-efficiency
improvements at our refineries and
chemicals plants. Those improvements
have contributed to a reduction in their
greenhouse gas emissions. Achieving even
greater efficiency will help us deliver more
profitability – so too will greater operational
reliability. The average availability of our
refineries – a measure of their operational
excellence – was 92% in 2011.
A key part of our strategy is to divest noncore assets while selectively investing in
REFINING CAPACITY [A]
REFINERY SCALE
million b/d Shell share
kb/d
5
250
4
200
3
150
2
100
1
50
0
0
2002
2006
Europe and Other
Americas
#UKC2CEKƂE
2009
[A] Subject to successful completion of announced deals.
REFINERY
IINERY
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RY PORTFOLIO
PORTFOL O
KEY
Y




≥ 100,000
100
100,000
000 b/d
b/d
< 100,000
100
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2002
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2011
2012E
high-growth markets, especially in the East.
We aim to create a Downstream portfolio
that is more focused on larger, integrated
refining sites that are better able to respond
to tighter fuel specifications and growth
opportunities.
The Port Arthur refinery in Texas, USA, will
have a prominent place in that portfolio. Part
of the joint venture Motiva Enterprises (Shell
interest 50%) is currently in the finishing
stages of an expansion project that will make
it the largest refinery in our portfolio. The
expanded refinery will have a total capacity
of some 600 thousand b/d and be capable
of handling most grades of crude oil. New
technology will also lower most emissions
from the refinery on a per-barrel basis.
Including the Port Arthur expansion, we
have reduced our refining capacity by 15%
between 2009 and 2012. The capacity
reduction amounts to around 800 thousand
b/d, most of it located in Europe, where the
market has been in oversupply. Since 2002,
capacity has been reduced by around a
third. We have retained the larger and more
integrated refineries and petrochemical
plants, and the current portfolio is positioned
for optimisation across the entire value
chain. Major asset sales have been
completed, but we will continue to review
the portfolio regularly and improve it further
where necessary.
Shell Investors’ Handbook
Downstream
SUPPLY AND
DISTRIBUTION
BUSINESS TO
BUSINESS (B2B)
A network of some 150 distribution
facilities with more than 1,500 storage
tanks in around 25 countries serves to
deliver feedstocks to our refineries and
chemical plants as well as finished products
to our Marketing businesses and customers
worldwide. We move products in Europe,
the USA and other parts of the world
through 9,000 km of onshore and offshore
pipelines. Our global fleet of around 2,600
Shell-owned or contracted trucks travels
around 860,000 km every day, making a
delivery somewhere in the world every 13
seconds.
We sell fuels and specialty products and
services to a broad range of commercial
customers.
Through various means, we have
systematically reduced the cost and time
of deliveries. We have adopted fuelsaving driving techniques, made larger
deliveries and made the best use of vehicle
availability. We also continue to look at
opportunities to manage stock levels more
efficiently in response to changes in market
conditions.
A large refinery can process many different
crude oils through various distillation and
treatment processes to end up with a wide
range of different products. We optimise
refinery runs to meet demand in many
regions. We assess the value of crude
oils, maximise refinery margins, optimise
transport and forecast demand, thereby
balancing regional supply and demand.
customers in more than 20 countries. Our
Commercial Road Transport business
supplies road haulage and bus companies
worldwide through a global network of sites
and offers payment services through Shell’s
card system.
Shell also provides specialities products
and services related to the bitumen residue
from crude-oil refining and sulphur derived
from the processing of natural gas and
crude oil. Every day, on average we supply
to some 1,600 customers worldwide
around 11,000 tonnes of bitumen – enough
to repave 350 km of road. We are one
of the largest premium grade bitumen
supplier in China and the only international
bitumen supplier for China’s high-speed
railway sector. We have developed
innovative bitumen products that can be
mixed and laid at temperatures lower than
conventional asphalt to reduce energy use
and carbon dioxide emissions.
Shell Aviation provides fuel every
day for around 7,000 aircraft at over
800 airports in more than 30 countries.
On average, it refuels a plane every 12
seconds. Customers range from private
pilots to the largest global airlines. Shell
Aviation was named Best Aviation Fuel
Provider in the Emerging Markets Aviation
Awards in 2010 and 2011. More than
400 customers voted for Shell Aviation on
both occasions, recognising the business’s
safe and reliable supply of products and
services to customers in emerging markets.
Shell marine activities provides
lubricants, fuels and related technical
services to the shipping and boating
industries. We supply over 100 grades of
lubricants and 20 different types of fuel
for marine vessels powered by diesel,
steam-turbine and gas-turbine engines. We
serve more than 15,000 customer vessels
worldwide, ranging from large oceangoing tankers, containerships and dry bulk
carriers to offshore drilling rigs and small
fishing boats.
Shell has also developed innovative
sulphur-based products such as Shell
Thiopave, a paving material that can
prolong road life; Shell Thiocrete, a very
durable, fast setting concrete; and Shell
Thiogro, a new family of fertilisers for
sulphur-responsive soils.
Shell Gas (LPG) provides liquefied
petroleum gas and related services to retail,
commercial and industrial customers for
cooking, heating, lighting and transport.
Shell Commercial Fuels provides
transport, industrial and heating fuels
and related services to more than 15,000
 Supplying fuel for the service station at Beaconsfield, UK.
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Shell Investors’ Handbook
Downstream
RETAIL
Our branded fuel retail network is the
world’s largest, with around 43,000
service stations in more than 80 countries.
Our experience in fuel development,
over more than 100 years, underpins our
position today as a leading provider of
innovative fuels. Differentiated fuels with
unique formulations designed to improve
performance are available in more than 60
countries under the Shell V-Power brand.
In 2009, we launched Shell FuelSave. It is
now available in 15 countries. Our FuelSave
programme aims to inform motorists of
driving techniques and car-care tips that
can help them get the most out of the Shell
fuel they buy. Shell also sells Shell Fuel
Economy for petrol and diesel in more than
20 countries.
Shell has a close technical partnership
with Scuderia Ferrari. Our fuel has helped
Ferrari to achieve 10 Formula One World
Constructors’ and 12 World Championship
Drivers’ titles. This partnership enables our
scientists and engineers to develop cuttingedge fuel technologies for the racetrack that
can then be transferred to road fuels for the
benefit of our customers.
BRANDED RETAIL SITES
thousand, per year-end
50
40
30
20
10
0
2007
2008
Americas
#UKC2CEKƂE
Europe
Other
2009
2010
2011
COUNTRIES
UNTRIES
U
NTR ES WITH
WITH SHELL
SHELL RETAIL
RETAIL BRANDED
BR
RAND D PRESENCE
PRESEN
NCE
We continued to invest in selected retail
markets, such as those of the UK and China.
In 2011 we acquired 253 retail sites in
the UK, primarily in central and south-east
England. In Brazil we launched a joint
venture (Shell interest 50%) with Cosan
called Raízen for the production of ethanol,
sugar and power, as well as the supply,
distribution and retailing of transport fuels.
This move supports Shell’s growth platform
for our retail and commercial fuels business
in Brazil.
Shell Investors’ Handbook
Downstream
LUBRICANTS
For the fifth consecutive year, the
consultancy Kline & Company has named
Shell the number-one global lubricant
supplier. With more than 13% share of
the market in volume terms, we sell more
lubricants than any other company in the
world (source: Kline & Company, 2011).
We make and sell a wide variety of
lubricants to meet customer needs across
a range of applications. These include
consumer motoring, heavy-duty transport,
mining, power generation and general
engineering. Shell’s portfolio of lubricant
brands includes Pennzoil, Quaker State,
Shell Helix, Shell Rotella, Shell Tellus and
Shell Rimula. Shell also owns Jiffy Lube®
franchised service centres, with more
than 2,000 franchised service centres in
North America, serving approximately
24 million customers each year. Jiffy Lube
pioneered the fast oil change industry in
1979 by establishing the first drive-through
service bay, providing customers with fast,
professional service for their vehicles.
Our lubricants are marketed in
approximately 100 countries. We have
LUBRICANT
RICANT
R
CANT PORTFOLIO
PORTFOLIO
KEY
Y


Lubricants
ubricants
u
bricants oil
oil-blending
blending
bl
ble di
ding plants
pl t
Base oil manufacturing plants
leading positions in both mature and
emerging markets. Shell is the top supplier
by volume in the USA – the world’s largest
lubricant market – and the top international
supplier by volume in China – the world’s
fastest growing lubricant market.
We continue to expand in emerging
markets. We have an oil-blending plant
in Zhuhai, Guangdong Province, China.
Associated with this, we opened Shell’s
first Lubricants Technical Service Centre in
Zhuhai in August 2011. The construction of
Shell’s largest grease manufacturing plant
is ongoing on this same site. Shell was also
the first international oil company to build
an oil-blending plant in Russia.
We have leading lubricants research
centres in Germany, Japan (in a joint
venture with Showa Shell), the UK and the
USA.
We invest significantly in technology and
work closely with our customers to develop
innovative lubricants. Our focus is on
developing products and services for our
clients that provide both superior protection
and efficiency. One of the ways we push
the boundaries of lubricant technology is
by working closely with top motor racing
teams, such as Scuderia Ferrari. These
technical partnerships enable us to expand
our knowledge of lubrication science and
transfer cutting-edge technology from the
racetrack to our commercial products.
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Shell Investors’ Handbook
Downstream
CHEMICALS
We produce and sell petrochemicals to
some 1,100 major industrial customers
worldwide, with the top 20 customers
accounting for about 42% of our thirdparty sales proceeds. Our range of
petrochemicals includes base chemicals,
such as ethylene, propylene and aromatics;
and first-line derivatives, such as styrene
monomer, propylene oxide, solvents,
detergent alcohols, and ethylene oxide.
Our customers, many of them leading
companies in their own fields, use these
products to make everyday items, such
as plastics, detergents, textiles, medical
equipment and computers. All in all, we
sold almost 19 million tonnes of bulk
petrochemicals in 2011.
We also produce additives for fuel and
lubricants, and catalysts for refinery and
petrochemical markets. Shell catalysts
have steadily improved the production of
ethylene oxide, an important building block
for synthetic fabrics, plastic bottles and
antifreeze. More efficient ethylene oxide
production has the benefit of lowering CO2
emissions.
Shell petrochemical alcohols are the basis
of more concentrated household laundry
detergents that clean clothes at lower
temperatures. Compared with traditional
powders, they not only require less
detergent per wash but also have lower
packaging, shipping-weight and shelf
space requirements. Washing laundry at
colder temperatures can help consumers to
save energy.
TOTAL CHEMICALS PRODUCT SALES [A]
million tonnes
25
20
15
Over many decades we have developed
the proprietary technologies, processes
and catalysts that enable Shell to enjoy
a powerful competitive advantage in our
core petrochemical markets. Our OMEGA
technology is considered the most efficient
technology currently available in the world
for converting ethylene to ethylene oxide,
which is used to make a wide range of
industrial and consumer products, such as
polyester films and fibres, engine coolants
and antifreeze. OMEGA uses about 20%
less steam and 30% less waste water
than a traditional thermal conversion
MEG plant with the same capacity. The
technology also produces significantly less
carbon dioxide per tonne of MEG than
conventional processes.
In Singapore, we are building a
demonstration unit to manufacture the
chemical ingredient diphenyl carbonate, a
versatile and growing engineering plastic
used in a wide variety of applications, from
optical media, household items, automotive
components to electronics and sheeting/film.
10
5
0
2007
2008
2009
Base chemicals
First-line derivatives and others
2010
2011
[A] Excludes volumes sold by equity-accounted investments,
chemical feedstock trading and by-products.
We will continue to focus on the synergies
among our chemical plants, refineries and
Upstream businesses to increase the supply
of the best available feedstock for our
crackers.
Our Chemicals strategy is based on
selective growth at existing sites through
increases in capacity, improvements
in efficiency and integration, and
strengthening our feedstock sources.
It is also based on securing integrated
 MEG storage and facility at the Shell Eastern Petrochemicals Complex (SEPC), Singapore.
Shell Investors’ Handbook
Downstream
growth projects with partners and
developing technologies to convert gas to
chemicals.
In 2011 we signed a heads of agreement
with Qatar Petroleum for the joint
development of a proposed major
petrochemical complex whose feedstock
would come from natural gas projects in
Qatar. We are working with the Qataris
and Petrochina to develop a potential
integrated refinery and petrochemicals
complex in China. We are also developing
plans to build a proposed world-scale
ethylene cracker with integrated
polyethylene derivative units in the
Appalachian region in the North East of
the USA.
PORTFOLIO
ACTIONS
In the Marketing businesses we continued
to invest in selected retail markets, such
as those in the UK and China, and in our
growing Lubricants businesses in Asia.
In the UK we acquired 253 retail sites,
primarily in central and south-east England.
We signed a heads of agreement with
Qatar Petroleum for the joint development
of a proposed major petrochemical
complex whose feedstock would come
from natural gas projects in Qatar. The
complex will include a world-scale steam
cracker. It will also include a mono-ethylene
glycol plant of up to 1.5 mtpa capacity
and higher-olefin plant of 0.3 mtpa
capacity, both based on Shell proprietary
technologies. Shell will have a 20% equity
interest in the project and Qatar Petroleum
will have the remaining 80%.
We sold our 272 thousand b/d Stanlow
refinery in the UK for a total consideration
of $1.2 billion (including some $0.9
billion for working capital). The sale also
included certain associated local marketing
businesses, Chemicals Manufacturing
(excluding the higher olefins plant and
alcohols units) and access rights to specific
distribution terminal assets.
We announced the divestment of our
Downstream businesses in Africa (excluding
South Africa) for a total consideration of
some $1 billion. In 2011, we completed
the sale of the businesses in Cape Verde,
Madagascar, Mali, Mauritius, Morocco,
Senegal and Tunisia. The businesses in the
remaining countries under consideration for
divestment are expected to be sold during
the course of 2012. We also launched
Vivo Energy (Shell interest 20%) and Vivo
Lubricants (Shell interest 50%). Under the
agreements, these entities will continue to
market Shell fuels and lubricants, which are
available in 14 African countries under the
Shell brand.
In Chile we sold our Downstream business
for a total consideration of $0.6 billion.
The deal included all of Shell’s Retail,
Commercial Fuels, Bitumen and Chemicals
businesses, as well as related supply
and distribution infrastructure. The Retail
network of about 300 sites will continue
to be Shell branded through a trademark
licence agreement.
Additional businesses and activities
deemed non-core were divested as part
of the ongoing strategy to refocus our
Downstream portfolio.
TRADING
Shell Trading is the business name of
a global organisation comprising a
network of separate companies that sell
crude oil to a wide range of customers
within and outside Shell. The companies
also trade natural gas, LNG and power
around the world. Their supply portfolio
includes the largest equity share of LNG
of any international oil company. These
companies share knowledge and best
practice, use common systems and controls,
and manage the risks associated with
international trading in a competitive
environment. Shell Trading supports Shell’s
Upstream and Downstream businesses by
trading natural gas, LNG, electrical power,
crude oil, refined products, chemical
feedstocks and environmental products. It
also manages a shipping fleet of more than
50 ocean-going vessels.
Shell Trading companies operate out
of a variety of locations, including
Dubai, Houston, London, Rotterdam and
Singapore. Two major Shell Trading units
concentrate their dealings in Europe and
North America. Shell Energy Europe
markets and trades gas, power and
carbon dioxide throughout Europe, serving
around 7,000 customers. Together with its
subsidiaries, Shell Energy North America
trades and markets Shell’s North American
natural gas production, benefitting from
access to power generation and gas
storage assets.
 Downstream Shell Shipping and Trading staff, Shell Centre, London.
37