Shell Sustainability Report 2012

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SUSTAINABILITY REPORTROYAL DUTCH SHELL PLC SUSTAINABILITY REPORT 2012


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2OUR APPROACH

3 Introduction from the CEO4 Building a sustainable energy future5 SD and our business strategy6 Living by our principles7 Safety8 Communities9 Environment10 Climate change

The companies in which Royal Dutch Shell plcdirectly and indirectly owns investments are separateentities. In this publication Shell, Shell groupand Royal Dutch Shell are sometimes used forconvenience where references are made to RoyalDutch Shell plc and its subsidiaries in general.Likewise, the words we, us and our are alsoused to refer to subsidiaries in general or to thosewho work for them. These expressions are also usedwhere no useful purpose is served by identifying theparticular company or companies. Subsidiaries,Shell subsidiaries and Shell companies as usedin this publication refer to companies over whichRoyal Dutch Shell plc either directly or indirectlyhas control. Companies over which Shell has jointcontrol are generally referred to joint ventures andcompanies over which Shell has signicant inuencebut neither control nor joint control are referred toas associates. In this publica tion, joint venturesand associates may also be referred to as equity-accounted investments. The term Shell interest isused for convenience to indicate the direct and/orindirect (for example, through our 23% shareholdingin Woodside Petroleum Ltd.) ownership interest heldby Shell in a venture, partnership or company, afterexclusion of all third-party interest. This publicationcontains forward-looking statements concerningthe nancial condition, results of operations andbusinesses of Royal Dutch Shell. All statements otherthan statements of historical fact are, or may bedeemed to be, forward-looking statements. Forward-looking statements are statements of future expectationsthat are based on managements current expectations

and assumptions and involve known and unknownrisks and uncertainties that could cause actual results,performance or events to differ materially from thoseexpressed or implied in these statements. Forward-looking statements include, among other things,statements concerning the potential exposure of RoyalDutch Shell to market risks and statements expressingmanagements expectations, beliefs, estimates,forecasts, projections and assumptions. Theseforward-looking statements are identied by their useof terms and phrases such as anticipate, believe,could, estimate, expect, goals, intend, may,objectives, outlook, plan, probably, project,risks, schedule, seek, should, target, willand similar terms and phrases. There are a numberof factors that could affect the future operations of Royal Dutch Shell and could cause those results todiffer materially from those expressed in the forward-looking statements included in this publication,including (without limitation): (a) priceuctuationsin crude oil and natural gas; (b) changes in demandfor Shells products; (c) currencyuctuations; (d)drilling and production results; (e) reserves estimates;(f) loss of market share and industry competition; (g)environmental and physical risks; (h) risks associatedwith the identication of suitable potential acquisitionproperties and targets, and successful negotiationand completion of such transactions; (i) the risk of doing business in developing countries and countriessubject to international sanctions; (j) legislative,scaland regulatory developments including regulatorymeasures addressing climate change; (k) economicand nancial market conditions in various countries

and regions; (l) political risks, including the r isksof expropriation and renegotiation of the termsof contracts with governmental entities, delays oradvancements in the approval of projects and delaysin the reimbursement for shared costs; and (m) changesin trading conditions. All forward-looking statementscontained in this publication are expressly qualied intheir entirety by the cautionary statements containedor referred to in this section. Readers should notplace undue reliance on forward-looking statements.Additional risk factors that may affect future resultsare contained in Royal Dutch Shells 20-F for the yearended December 31, 2012 (available at www.shell.com/investor and www.sec.gov). These risk factorsalso expressly qualify all forward-looking statementscontained in this publication and should be consideredby the reader. Each forward-looking statement speaksonly as of the date of this publication, April 11, 2013.Neither Royal Dutch Shell plc nor any of its subsidiariesundertake any obligation to publicly update or reviseany forward-looking statement as a result of newinformation, future events or other information. In lightof these risks, results could differ materially from thosestated, implied or inferred from the forward-lookingstatements contained in this publication. We mayhave used certain terms, such as resources, in thispublication that United States Securities and ExchangeCommission (SEC) strictly prohibits us from includingin our lings with the SEC. U.S. Investors are urged toconsider closely the disclosure in our Form 20-F,File No 1-32575, available on the SEC websitewww.sec.gov. You can also obtain these formsfrom the SEC by calling 1-800-SEC-0330.

12OUR ACTIVITIES

13 Sustainable development in action14 Natural gas17 Joint ventures, contractors and suppliers18 Deep water20 The Arctic22 Nigeria25 Iraq26 Oil sands27 Fuels and products28 Biofuels

Cautionary note

30OUR PERFORMANCE

31 Economic32 Environmental34 Social36 Environmental and social data38 External Review Committee40 About our reporting41 About our data


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OUR BUSINESSES

ABOUT SHELL

Shell is a global group of energy and petrochemicalcompanies employing 87,000 people in more than 70countries. Our aim is to help meet the energy needs ofsociety in ways that are economically, environmentally and socially responsible.

UpstreamUpstream consists of two organisations, Upstream International andUpstream Americas. Upstream searches for and recovers crudeoil and natural gas, operates the infrastructure to deliver oil andgas to market, liquees and transports natural gas, converts gas toliquid products, and extracts bitumen from oil sands for conversioninto synthetic crude oil. It often works in joint ventures, includingwith national oil companies. Our wind power activities are part of Upstream.

DownstreamDownstream manufactures, supplies and markets oil products andchemicals worldwide. Manufacturing and Supply & Distributionincludes reneries, chemical plants, and the supply and distribution

of feedstocks and products. Retail and Commercial sell a rangeof products including fuels and lubricants. Chemicals marketspetrochemicals for industrial consumers. Downstream tradeshydrocarbons and other energy-related products. It also includesour activities in biofuels.

Projects & Technology Projects & Technology manages the delivery of Shells majorprojects and drives its research and innovation programme tocreate technology solutions. It provides technical services andtechnology capability to Upstream and Downstream.

www.shell.com/about

1reports.shell.com | Shell Sustainability Report 2012Introduction

GASfor cooking, heating,electrical power

FUELS ANDLUBRICANTSfor transport

CHEMICALPRODUCTfor plasticscoatings,detergents

Rening oilinto fuels andlubricants

Producingpetrochemicals

Producing

biofuelsShippingand trading

Shippingand trading

Supply anddistribution

Retail salesRetail sales

B2B sales

B2B sales

Developingelds

Extractingbitumen

Converting gas to liquidproducts (GTL)

Producing oiland gas

Liquefying gas bycooling (LNG) Generating

wind power

Miningoil sands

RegasifyingLNG

Exploring for oil

and gas


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2 Shell Sustainability Report 2012 | reports.shell.comOur approach

OUR APPROACHThe world needs to produce enough energy to keep

economies growing, while reducing the impactof energy use on a planet threatened by climatechange. Shell works to help meet rising energy demand in a responsible way. That means operatingsafely, minimising our impact on the environmentand building trust with the communities who are ourneighbours. If we fall short of the standards society expects of us, we learn from our experiences toimprove the way we operate.


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INTRODUCTION FROM THE CEO

I am pleased to introduce the ShellSustainability Report for 2012. Againstthe backdrop of a still-struggling globaleconomy, we continue to operate ineconomically, environmentally and sociallyresponsible ways; and to invest for the future.

As global demand for energy continuesto rise, we must develop energy resourcesthat exist in increasingly challengingenvironments, or that are dif cult to produce.Wherever we operate, we never cease in ourefforts to keep everyone safe: whether ouremployees or contractors, or the communitiesnear our operations. We recognise thespecial physical and technical challengesof working in some of the worlds toughestconditions, and we are determined to learnfrom our experiences to continue to improvethe safety and reliability of our operations.

Building trustTrust between governments, industry andcivil society is all the more essential in an eraof economic volatility. Today that trust oftenappears to have broken down. To remedythis we need action, including a greaterlevel of collaboration and transparency, andleadership to develop policies that work.

Sustainable development remainsrmly atthe core of our business strategy. Workingwith communities, governments, non-governmental organisations and othershelps us to operate safely and responsibly.We take stringent steps to prevent harmto the environment and to build trust withcommunities close to our operations. Forexample, we continue to lead the industry in

setting and following responsible guidelinesfor our tight oil and gas projects.

In 2012, Shell began the drilling of twoexploratory wells in the Arctic waters off Alaska. This was a signicant step forwardin our efforts to develop these resourcesin a responsible way. We have workedclosely with the people of Alaskas NorthSlope, with regulatory authorities and withsome environmental non-governmentalorganisations. At the end of 2012, however,there were regrettable incidents involvingour drilling ships. We are incorporating thelessons learned from these events into ourfuture plans.

Taking actionA more sustainable future will require cleanerenergy, and more ef cient use of energy.With more people moving into cities, worldpopulation rising and living standardsimproving, all forms of energy will beneeded to meet demand. Renewables suchas wind and solar will continue to grow, butfossil fuels will still be meeting aroundtwo-thirds of energy demand in 2050.

We are already taking action to delivermore energy and cleaner energy usingadvanced technologies and innovativeapproaches. We are producing almost asmuch cleaner-burning natural gas as oil,producing low-carbon biofuel, helping todevelop carbon capture and storage (CCS)technologies, and putting in place steps toimprove our energy ef ciency.

CCS is critical to reducing global CO2 emissions. In 2012, we decided to moveahead with the Quest CCS project thatwill potentially capture and store deepunderground over 1 million tonnes of CO2 a year from our oil sands operations inCanada. We are also involved in a numberof other CCS projects. We are not justtalking about CCS. We are taking action although without a strong price for carbon,these projects generate no revenue forcompanies.

We are also helping to shape a betterunderstanding of the increasing stresses theworld faces as demand grows for theinterlinked essentials of energy, water andfood. Most forms of energy production needwater; energy is needed to move and treatwater; and producing food requires both

energy and water. These stresses are likelyto increase because of climate change. In2012, I brought together CEOs from a range

of industries to identify steps each of us coultake to start to mitigate these stresses andincrease our resilience for the future.Innovative cross-industry partnerships candeepen resilience to stresses and buildsustainability in the years to come. In early2013, we published a new set of scenariosthat focus on the challenges of an era of volatility and transition, characterised byrapid urbanisation and energy-water-foodstresses.

Partnerships and principlesIndustry can achieve more when working inpartnership with governments, communitiesand others. In Nigeria, 2012 saw a dramaticrise in the theft of oil from pipelines. The bulof this oil is illegally exported overseas, andthe rest turned into low-grade fuel in localmakeshift reneries, causing environmentaldamage. These criminal activities reducegovernment income from the energy industryThe Nigerian government believes millionsof barrels of oil a month are being stolen,amounting to a loss of billions of dollars a

year in revenues. The energy industry cannotackle this alone. It needs more action fromthe Nigerian government and help from locacommunities. The international communityalso needs to step forward. This industrial-scale crime is harming the Nigerian nation.

Shell was a founding member of the UNGlobal Compact and supports its principlesin human rights, labour, environment andanti-corruption. In this report you can readabout our progress in these areas.

The External Review Committee has againprovided important contributions to thedevelopment of our Sustainability Report,and I thank them.

I invite you to send your comments on thereport to:

[email protected]

Peter VoserChief Executive Of cer

TRUST IS ALL THE MOREESSENTIAL IN ANERA OF ECONOMICVOLATILITY.

3reports.shell.com | Shell Sustainability Report 2012Our approach


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The worlds population is heading formore than 9 billion by 2050, from todays7 billion. Global energy demand is rising,

yet in many regions easy-to-reach suppliesof oil and natural gas are becoming harderto nd. To help meet growing demand,more renewable energy as well as morefossil fuels will be needed. Accordingto Shells scenarios, energy from solar,wind, hydro-electricity and biomass couldrise to around 30% by 2050, with stronggovernment support. Nuclear power willalso continue to play a part. Fossil fuelsare expected to meet around 65% of energy demand by mid-century. At thesame time, carbon dioxide (CO2) emissionsmust be cut signicantly if the planet is to

avoid the most serious effects of globalwarming and climate change.

Vita l re sources under p ressureEnergy production is linked to both wateruse and food production. If the world isto build a sustainable energy future, thesethree elements must be carefully managedto avoid growing stresses, which areexpected to increase with climate change.In 2012, we publishedndings from ourwork with the World Business Councilfor Sustainable Development and theUniversity of Utrecht, in the Netherlands,to develop a new way of assessing moreaccurately the amount of water that energyproduction needs. We are sharing our datawith the wider business community and theInternational Energy Agency (IEA), andhave incorporated it into our own scenariosmodelling.

Governments, business and civil societymust work together to overcome thechallenges of climate change and theenergy-water-food stresses. We areencouraging this collaboration. In 2012,for example, we brought together CEOsof multinational companies from severalindustries to identify joint projects that couldhelp to start tackling resource stresses. Shellis already working to reduce the amountof water we use. For example, a recyclingplant makes our gas-to-liquids facility inQatar self-suf cient in water, avoidingthe need to draw on scarce fresh-waterresources.

Rapid urbanisationBy 2050, around 75% of people will beliving in cities, up from 50% today. Asurban population density grows, citiesand towns will suffer most from increasingpressure on resources. This creates anopportunity to build more ef cient andintegrated systems, including bettertransport networks. But closer co-operationis needed between urban planners, localgovernments and companies tond

innovative ways to move more people andgoods safely, cost effectively and with lessenvironmental impact.

We are working with governments andauthorities in major cities on severalcontinents to better understand how cities

develop, and their impact on energy supplyand demand. In China, for example, wehave worked for two years with the state-run Development Research Centre to helpanalyse and improve the countrys mid- tolong-term energy strategy. In 2012, we alsobegan working with Singapores Centre forLiveable Cities with a view to improving citmanagement in the future.

Acting now for the futureThe IEA says that unless governmentschange policy, the world faces an insecure,inef cient and high-carbon energy future.Without clear measures to promoteinvestment in more ef cient and low-carbontechnologies, it risks setting itself on a courseto potentially catastrophic climate change.

At Shell we advocate publicly and togovernments that a strong and stable priceon CO2 emissions will help drive the rightinvestments in low-carbon technologies.But we are not waiting for government policyto develop. We consider the potential costof a projects CO2 emissions, which we setat $40 a tonne, in all our major investmentdecisions. We are producing more naturalgas, the cleanest-burning fossil fuel, andwe produce low-carbon biofuel. We arealso helping to develop carbon captureand storage technologies, and workingto improve theenergy ef ciency of ouroperations.

BUILDING A SUSTAINABLE ENERGY FUTUREThe world is at the beginning of a transformation in energy use. Globalpopulation is rising, living standards are improving for many and morepeople are moving to cities. Demand for energy could rise by up to 80% by around 2050 as it powers rapid economic development. Energy resources

and other essentials such as water and food all interlinked are expectedto come under growing stress with climate change. As we help build amore sustainable future, Shell is working to better understand the tensionsbetween supply and demand in energy, water and food.

Shell uses scenarios to peer intothe future as an aid to strategic

planning. Major corporate actors likeShell will be critical in shaping a futureof resilience. Shell has incorporated thePlanetary Boundaries concept meaning that pursuing some of ouractivities beyond certain limits increasesthe risk of large-scale changes in theway the entire earth system behaves into its scenarios work. Helping Shellwith this process has given me hope thatmaking the transition from an oil andgas company to a sustainable energycompany will not be an impossibleendeavour. Dif cult, certainly.Impossible, denitely not.

Director of the Swedish Secretariat for Environmental Earth System Sciences,Stockholm, Sweden

ProfessorKevin

Noone

0

100

200

300

400

20502040203020202010200019901980

Source: Shell analysis, November 2012

million barrels of oil equivalent a day

PROJECTED GLOBAL ENERGY DEMAND TO 2050

Crude oilNatural gasCoal

NuclearBiomassWind

Other renewablesSolar


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As the worlds population rises and thedemand for energy grows, we must meetthe needs of our customers and partnersagainst a backdrop of economic volatility.We face increasing competition for accessto energy resources in a world whereenvironmental and social pressures aremounting. Our approach to sustainabledevelopment underpins the responsibleway we work.

In developing energy projects andoperating our facilities, we must balanceshort- and long-term interests. That meansintegrating economic, environmental andsocial considerations into our businessdecisions from the earliest stage. Thisapproach is crucial to our success. It helpsus develop projects without delays, andminimise the environmental and socialimpacts of our operations. It also enables usto better share the benets of our activities,such as creating new jobs and contractsthat help boost local economies.

Producing more natural gasIncreasing the use of natural gas will helpbuild a sustainable future energy system.Replacing coal with cleaner-burning

natural gas for power generation is thequickest and most affordable route formany countries to meet their CO2 reductiontargets. In 2012, we produced almost asmuch natural gas as oil, and we continue toinvest in developing natural gas resources(see chart). Shell expects global demandfor natural gas to increase by 60% by2030 from its 2010 level, reaching 25% of the global energy mix.

We will continue to develop oil andgas projects to help meet rising energydemand. We are moving into increasinglychallenging environments, using advancedtechnologies andnding creative ways toaccess dif cult resources.

To support our overall growth in deliveringenergy, we expect to have a net capitalinvestment of around $33 billion in 2013.Around 80% of this will go to our oil andgas exploration and production activities.As new projects start up over the next fourto ve years, we expect our production torise to 4 million barrels of oil equivalenta day. This is an increase of 23% on ourproduction in 2012.

Technology and innovationInnovation and the development of advanced technologies are central toour strategy. Cleaner, more ef cienttechnologies will be crucial as we explorefor and develop resources in ever morechallenging environments. In 2012,

we spent $1.3 billion on research anddevelopment (R&D), more than any otherinternational oil and gas company.

Over the lastve years we have spent$2.2 billion on developing alternativeenergies, carbon capture and storage, andon other CO2-related R&D. We producelow-carbon biofuel through our Razen jointventure in Brazil, and we are helping todevelop advanced biofuels for the futurefrom non-food sources.

SUSTAINABLE DEVELOPMENTAND OUR BUSINESS STRATEGYEnergy sustains our daily lives and powers progress around the globe.Sustainable development for Shell means working with governments,

partners, communities and others to deliver more energy in economically,socially and environmentally responsible ways. This approach helps shapethe business decisions we make.

OUR GOVERNANCE AND STANDARDSThe overall accountability for sustainable development withinShell lies with the Chief Executive Of cer (CEO) and the ExecutiveCommittee. They set priorities and standards in sustainabledevelopment that help shape our business activities. The CEOchairs the Health, Safety, Security, Environment and SocialPerformance (HSSE & SP) Executive, which reviews and assesseshow we manage our sustainability performance.

All employees and contractors working for Shell, including thoseat joint ventures we operate, are required to act in accordancewith our mandatory HSSE & SP Control Framework. This denesstandards and accountabilities at each level of the organisation.The accountability for running our projects and facilitiesresponsibly lies with our business managers. They work withcommunities, non-governmental organisations, partners and othersto better understand and address the impact of our operations.

HSSE & SP specialists work with business managers to implementour standards to help improve our sustainability performance.We have comprehensive assurance processes in place to monitorcompliance.

The Corporate and Social Responsibility Committee (CSRC) of theBoard of Royal Dutch Shell plc reviews policies and performancewith respect to the Shell General Business Principles, Code of Conduct, HSSE & SP standards and issues of public concernon behalf of the Board. Besides its regular meetings, the CSRCvisits facilities to become more familiar with our operations. In2012, the CSRC visited Nigeria and observed the environmentaldamage from illegal rening in the Niger Delta. While there, italso visited facilities and met with government of cials, communityrepresentatives and local non-governmental organisations. Duringa visit to Shells UK operations in the North Sea, the CSRC sawhow safety is managed on an oil and gas platform.

12111009080706050403

0.0

0.5

1.0

1.5

2.0

2.5

billion barrels of oil equivalent

SHELLS EXPLORATION RESOURCE ADDITIONS

Oil YearGas

Note: Excludes mergers and acquisitions


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Shell General Business PrinciplesWe were one of therst companies topublish business principles, in 1976. Theyset the standards for the way we conductbusiness with integrity, and our respect forthe environment and local communities.They also detail our responsibilities towardscustomers, suppliers, partners, employees,shareholders, and to broader society. AllShell employees and contractors, and thoseat joint ventures we operate, are expectedto comply with our business principles.In joint ventures we do not control, weencourage our partners to apply principlesconsistent with our own. Mechanisms existto make employees aware of the principlesand act in accordance with them.

Shell Code of ConductOur Code of Conduct helps employeesand contractors to meet the standards andbehaviours expected of them as set outin our business principles. Condentialchannels, including a global telephonehelpline and website, are available foranyone to report breaches, anonymouslyif they wish. The Code of Conduct coversareas includingghting corrupt practices,national and international trade, andsafeguarding information and assets. Shellprovides mandatory training in the ethicaland legal aspects of all these areas.

Anti trustThe purpose of antitrust laws is to promoteand safeguard competition, and to punishanti-competitive behaviour. We havean active antitrust programme in placeto identify and resolve any activity thatfails to meet our standards of compliancewith antitrust laws. It includes mandatorymeasures people working for Shell must taketo prevent antitrust incidents, and trainingto help them understand their roles andresponsibilities. Anyone working for Shellwho does not comply with antitrust lawsfaces disciplinary action, up to and includingdismissal or termination of their contract.

Anti -bribery and corrupt ionOur compliance programme supports Shellslong-established position against the director indirect offering, paying, soliciting oraccepting of bribes in any form, includingfacilitation payments. It includes mandatoryprocedures and training on topics such aspolitical payments, gifts and hospitality, andconicts of interest. Anyone working for Shellwho does not comply with anti-bribery lawsfaces disciplinary action, up to and includingdismissal or termination of their contract.

Human rightsThe Shell General Business Principlesrequire our employees and contractors torespect the human rights of fellow workersand communities where we operate. Wefocus on four areas across Shells activitieswhere respect for human rights is especiallycritical to the way we operate: communities,labour, supply chains and security.

Shell has long been involved withdevelopments in business and humanrights. While it is the duty of governments toprotect human rights, Shell recognises theresponsibility of companies to respect them,in line with the UN Guiding Principles onBusiness and Human Rights. We also workwith other companies, non-governmentalorganisations and other bodies to improvethe way we apply these principles. Forexample, we are working with the DanishInstitute for Human Rights to help shape ourapproach (see opinion).

In 2012, we continued our communityfeedback pilot projects, based on the UNGuiding Principles, in four countries. Whatwe learn from these pilots will guide ourefforts to put new community feedbackmechanisms in place, or improve ourexisting programmes, at our major projectsand facilities in the future. We also helppromote a common approach to humanrights across the oil and gas industrythrough IPIECA, the industry associationfor social and environmental issues, asco-chair of its working group on communityfeedback mechanisms.

We have requirements to keep employees,contractors and facilities safe, whilerespecting the human rights and security of local communities. Since their developmentin 2000, we have actively implemented theVoluntary Principles on Security and HumanRights (VPSHR), which guide companiesin assessing risks when working withpublic and private security. We train oursecurity staff and contractors in the VPSHR,and we incorporate the principles in oursecurity contracts.

LIVING BY OUR PRINCIPLESOur business principles are the foundation for the way we work. They governhow we behave, the policies and processes we follow, and the decisions wemake. They also guide the way we manage the impact of our operations onthe environment and our approach to working with communities.

We work with Shell to implementrespect for human rights across

four areas: community impacts,employee relations, procurementand security. Shell has had a publiccommitment to respect human rightssince 1997. However, implementationhas not been consistent across thecompany and therefore progresshas been uneven. We hope that ourknowledge can help Shell improve itsapproach to human rights, and inspirethe same change among its peers. Thehuman rights challenges faced by theoil and gas industry require joined-upthinking and joined-up action. Weare pleased by Shells active role inthe human rights task force of IPIECA,and we encourage Shell and its peersto address the industrys human rightsimpacts in relation to climate changeand natural resource management.

Department Director, Danish Institute for Human Rights, Copenhagen, Denmark

AllanLerberg

Jorgensen

ENGAGING OUR INVESTORSDuring 2012, Shell organised severalevents to engage with sociallyresponsible institutional investorson the sustainability aspects of ouroperations worldwide. In London,

one event focused on safety, biofuels,climate change, oil sands, tight oiland gas, Nigeria and the Arctic. Wehosted a visit to Nigeria to review thedif cult operating environment andthe large-scale oil theft occurring inparts of the Niger Delta. We also heldsessions on our Alaska offshore drillingprogramme for investors in the UK andthe Netherlands.


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Delivering energy and products to ourcustomers responsibly depends on operatingsafely. Our goal is to have zero fatalitiesand no leaks or other incidents that harm ouremployees, contractors or neighbours, orput our facilities and the environment at risk.In 2012, we continued to record low injuryrates. However, any injury or incident, nomatter how small, serves as a reminder of the need to avoid complacency. (For detailsof our safety performance, see page 34.)

We manage safety through rigorousprocesses and by embedding a safetyculture in the daily lives of our workforce.Everyone working for us and joint ventureswe operate must follow our safety rules,intervene in unsafe situations, and respectour neighbours and the environment. OurHSSE & SP Control Framework, a global setof standards and accountabilities, denesthe operational controls and physicalbarriers we require to prevent incidents.

Our Life-Saving Rules and annual SafetyDays continue to improve risk awarenessand foster a culture where everyone takesresponsibility for safety. Road safety is onearea where this approach has achievedgood results in recent years (see box, page25). The Oil & Gas Producers Association(OGP) has drawn up a set of recommended

safety rules for its members based on theShell Life-Saving Rules. Our Safety Day isan important global event. Shell employeesand contractors across the world cometogether in a number of locations fromdeep-sea platforms and desert oilelds toreneries, chemical plants and of ces toimprove their understanding of safety andreinvigorate their goal of staying safe.

Process safety

We have a stringent approach to processsafety to make sure our facilities arewell designed, well operated and wellmaintained, so they can run safely andwithout harm to people or the environment.The global safety standards we apply toall the facilities and projects we operatemeet local regulatory requirements, andin many cases exceed them. Since 2006,Shell has been implementing a $6 billionprogramme to improve the safety of ouroil and gas production facilities, includingregular training for those who manage andoperate them. In 2012, we invested around$1 billion in the safety and reliability of ourreneries, chemical plants and distributionfacilities.

Shell takes a dual approach to potentialincidents. We identify and assess risks thathave the potential to become an incident,

and take the necessary steps to reduceor eliminate them. At the same time, weprepare for, and are ready to respond to,an incident in the event that one occurs.

We learn from investigations into majorindustry incidents. Shell has a programme

in place to improve awareness amongmanagers of how they can better create aworking culture that prevents safety incidentThis includes recognising and responding tothe smallest signs of a potential problem. Italso includes asking workers more questionsabout their safety concerns.

We routinely prepare and practise ouremergency response to incidents such as anoil spill or are. We work closely with localemergency response crews and governmentorganisations to regularly test our plansand procedures, with the aim of continuallyimproving our readiness to respond. If an incident does occur, we have multiplerecovery measures in place to minimise theimpact on people and the environment.

Contractors taking part in an exercise on Safety Day at Pulau Bukom manufacturing site, Singapore.

SAFETYSafety is critical to the responsible delivery of energy. We develop andoperate our facilities with the aim of preventing incidents that may harm ouremployees and contractors or nearby communities, or cause environmentalimpact. We continue to build a culture where each person understands their

role in making Shell a safer place to work.

I have run numerous processsafety workshops for Shell, and

I am struck by the way the companyhas tried to learn the process safetylessons that have emerged from previousdisasters. It has identied 11 processsafety basic requirements (PSBRs).They are summarised on a single card,and the requirements refer to things likesafe siting of portable buildings, permitto work and alarm management. Eachof these is linked to specic industryincidents. This linkage is what breatheslife and meaning into the PSBRs. Theyare not just abstract procedures: theyare the result of the hard lessons of previous tragedies. The PSBRs representorganisational learning. The next stepis to ensure that people know and cantell the stories of the incidents fromwhich the PSBRs are derived. In thisway organisational learning will betranslated into individual learning.

Emeritus Professor of Sociology at the Australian National University,Canberra, Australia

Andrew Hopkins


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Our projects and facilities are a part of many communities around the world.We aim to have a positive effect in thosecommunities. Through our operations wecreate jobs and business opportunities thathelp to build or rejuvenate local economies,and support community developmentprojects. We also work to incorporate theviews of those living close to our operationswhen we make decisions that may affectthem. This is a responsible approach thatbuilds trust and makes good businesssense: without community support, projectsand facilities can experience delays andother challenges. (For details of our socialperformance, see page 34.)

Shell has global operating standardsand mandatory requirements that set outhow we work with the communities ouroperations might affect. Each of our majorprojects and facilities must have a socialperformance plan that frames the way wework to minimise our impacts, engage withcommunities and share benets.

When we plan a new project orchanges to an existing facility, we talkto local communities and listen to theirexpectations and concerns as early aspossible (page 19). Through the life cycleof our operations, we engage with localcommunities to identify their needs andopportunities for development. We workwith indigenous peoples to preserve theirway of life and culture, and learn fromtheir traditional knowledge to improve theway we operate. Our approach includesguidelines on how to avoid the involuntaryresettlement of communities.

We also discuss our business plans withadvisory panels of local representativesor at community meetings. Our socialperformance guidelines help our specialiststo engage respectfully and effectivelyduring these and other meetings withcommunities. In 2012, we trained 272social performance specialists. We alsorun courses to increase awareness of social performance-related topics forbusiness managers, with 120 attendingin 2012. We have increased the number

of our community liaison staff and trainedthem to improve their skills in resolvingconicts and grievances at the communitylevel, and developing joint benets. TheConsensus Building Institute, a not-for-protorganisation, developed this programme.

Investing in communitiesSharing the benets of our operations meanswe also invest in community programmes inwhich our expertise can provide a positiveand lasting impact. We focus on three globalthemes: enterprise development, road safety,and safe and reliable access to energy forthe communities around us. We also havelocally tailored programmes in areas suchas community development, education, andbiodiversity and conservation.

In Iraq we support road safety awarenessschemes for many people, includingschoolchildren, and we are working toimprove the skills of our drivers (page25). We support young entrepreneursin developing their businesses. Themanagement training and businessplanning advice that the Shell LiveWIREprogramme delivers can help newcompanies develop and build for the future.In 2012, Shell LiveWIRE marked its 30thanniversary, and trained almost 9,000people leading to the creation of around2,500 new businesses. Shell runs theprogramme with local partners.

Building local economiesIn 2012, we spent around $14 billionon goods and services from companiesin countries with lower incomes. Wealso organised three workshops forsuppliers in partnership with UK Trade &Investment to promote support for localjobs and enterprises. One focused onIraqi and Omani contractors, the secondon Nigerian contractors (see opinion,page 17) and the third on Kazakhstanicontractors.

Around 400,000 people are contractedto work for Shell. We hire local peoplewherever possible, and some governmentsrequire this. In 2012, more than 90% of ouremployees were local nationals.

When a natural disaster happens, wecan work to help rebuild local economiesthrough support in restoring livelihoods.In 2012, we supported several countriesthat were affected by natural disasters.For example, we jointly developed andran a programme with the ChaipattanaFoundation in Thailand to supportoodrelief. We contributed $1 million to theprogramme, and provided support andtraining for local communities to repair andmaintain agricultural equipment that hadbeen damaged during theoods.

COMMUNITIES Working with our neighbours helps us share the bene ts of our activities. Ouroperations help to develop local economies by creating jobs and contracts.

We aim to build trust by engaging closely with communities about our plans,listening to their hopes and concerns, and taking action to address them.

WORKING WITH COASTALCOMMUNITIESDeep-water projects are vital to US Gulf Coast communities, providing jobs andhelping to sustain a way of life. As wedevelop our Mars B deep-water

platform, Shell is investing in a rangeof projects to help protect coastalcommunities. We have pledged$5 million to community andenvironmental projects, including therestoration of wetlands and coastlinesdamaged by hurricanes.

For example, Shell is providing$1 million to support a project that willalmost double the size of Pelican Island,Louisiana, an important habitat fornesting wading birds that is threatenedby coastal erosion. We are providing$500,000 to fund The NatureConservancys restoration efforts onShamrock Island in Corpus Christi Bay,Texas, another vital nesting habitat forup to 21 species of birds. We have alsodonated $500,000 to the GreaterLafourche Port Commission to restoreand maintain a 1.6 km section of storm-damaged beach in Louisiana.

Shell is working to increase knowledgeof the local environment. For instance,we are supporting a scienticdocumentary by the Gulf of MexicoFoundation, a non-prot conservationorganisation. We involved 90 childrenfrom three schools in a communityproject to clean debris from 61 km of coastline on Matagorda Bay in Texas,and are producing an educationalvideo on the project. Our $1 milliondonation is helping to fund theconstruction of the Bayou CountryChildrens Museum in Thibodaux,Louisiana, which started in 2012.


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Working to reduce the environmental impactof our operations takes rigorous planning.We focus on key areas including managingcarbon dioxide (CO2) emissions, using less energy and water, preventing spills,aringless gas produced with oil, and conservingbiodiversity. (For details of our environmental performance, see page 32.)

We manage CO2 emissions through usingmore energy-ef cient technologies andprocesses, and by reducingaring in ouroperations. We are developing a capabilityin carbon capture and storage. We aim to

prevent spills through strict standards andby making sure that our facilities are welldesigned, safely operated and properlymaintained.

The availability of fresh water is a growingchallenge for the energy industry asdeveloping new resources, such as tightgas, can be water intensive. Operating inwater-scarce areas may bring operationaland commercial challenges as regulationson water use tighten and the costs of usingwater increase. Shell is taking steps tobetter manage our use of water. We are

ENVIRONMENT As we work to help meet the worlds growing energy needs, we aim toreduce the environmental impact of our operations. Working with localcommunities and experts from leading environmental organisations helpsus better understand and address the challenges we face in running our

facilities and developing major projects.

using innovative approaches and advancedtechnologies in the design and operationof our facilities to reduce our use of freshwater, and to recycle more water.

At our Groundbirch tight gas project inBritish Columbia, Canada, for example, we

are reducing the amount of fresh water weuse from local sources. We operate a storageand recycling facility for the water used intight gas production. Pipelines transportthe water to where it is needed in theeld,reducing truck movements. We have alsofunded the building of a water-recyclingplant for the nearby city of Dawson Creek.The plant will treat water so that it can bereused in our operations and for otherindustrial and municipal needs (see opinion)

When we plan a major project, or anexpansion to an existing facility, we conductan environmental impact assessment. Aspart of this we consider the potential effectson local biodiversity, and take steps toaddress them. Through our partnership withthe International Union for Conservation of Nature (IUCN) we have developed eightaction plans for major operations in areasof rich biodiversity, and we are developingplans in Iraq, Ireland, Kazakhstan, Nigeriaand the UK.

WORKING WITH ENVIRONMENTAL PARTNERSThrough our partnerships with leading environmental organisations we continue tondnew ways to manage environmental challenges and improve the way we develop ourprojects. In 2012, Shell worked with Wetlands International on ecosystem baselinestudies of the Timan-Pechora region of northern Russia, where Shell is planning a newexploration project.

Shell was one of several companies and organisations that commissioned anindependent study through IUCN on the relationship between extractive industries andnatural World Heritage sites. The study report proposes practical ways of strengtheningthe role of the World Heritage Convention in safeguarding these special areas.

Our partnership with Earthwatch enables Shell employees to work with scientists onresearch projects around the world. This includes our support for its research and learningprogramme in the rainforests of the Sabah region of Borneo, Malaysia. Our employeesare working with scientists to understand the effects of logging and changes in land use,and the resilience of these rainforests to the potential effects of climate change.

With The Nature Conservancy we are working tond ways to use articially engineeredoyster reefs as breakwaters to reduce coastal erosion in Louisiana, USA. This approachcan also protect pipelines in the area.

After experiencing several yearsof decreased rainfall, in addition

to increased growth of the natural gasindustry in north-east British Columbia,the City of Dawson Creek realised that anew solution would need to be exploredto sustain our precious water resource.After the City reached out for help,Shell came forward and a par tnershipwas formed that resulted in the City of Dawson Creek reclaimed water plant,an innovative and successful projectthat we can all be proud of. We arenow a national model of what can beaccomplished when communities andbusiness work together with everyonesbest interests in mind.

Mike

Bernier

Mayor of Dawson Creek City,British Columbia, Canada

Mapping ecosystems with Wetlands International in northern Russia.


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Global population will grow rapidly overthe next few decades, and living standardsare expected to continue improving. Manypeople in developing countries will rise outof poverty. Demand for energy is expectedto rise by almost 80% by 2050.

All energy sources will be needed to meetdemand in the coming years. Renewablesincluding wind and solar power willcontinue to grow, reaching perhaps 30%of the worlds energy mix by 2050, withstrong government support. By the same

year, fossil fuels are expected to still meetaround 65% of energy demand. With thelevel of CO2 in the atmosphere approaching400 parts per million, the InternationalEnergy Agency (IEA) has made clear that thechances of limiting global temperature riseto a relatively safe 2 C are slipping awayand that urgent steps are needed to reduceCO2 emissions.

Greater energy ef ciency will help. But if the world is to avoid the effects of seriousclimate change, it needs decisive action nowby governments, industry and consumers toat least halve global CO2 emissions in thecoming decades.

Putting a price on carbonA strong, stable price for CO2 within acomprehensive policy framework is neededto achieve signicant emissions reductionsin the long term. Governments should allowmarket forces to encourage the use of alltechnologies to reduce CO2 emissions,starting with those that are least costly andquickest to implement. In a positive stepin 2012, Australia linked its developingcarbon market with that of the EuropeanUnion. We welcomed the progress madeduring the 2012 UN Climate ChangeConference in Doha, Qatar, including thedecision to continue the Kyoto Protocol, butsubstantial work will be needed over thecoming years to reach a global agreement.

At Shell, however, we are not waitingfor government policies or internationalcoalitions to emerge. We are taking action

today, with the focus on delivering results infour main areas.

Natural gasMore than one-third of CO2 emissions fromthe energy system come from electricitygeneration, making it a priority to reducegreenhouse gas (GHG) emissions in thepower industry. From production throughto use in generating electricity, naturalgas produces around half the GHGemissions compared to coal. This appliesacross a range of production, processingand transportation methods (see chart).Replacing coal with natural gas in the powersector is the quickest, most affordable routefor many countries to achieve their CO2 reduction targets. Our production of naturalgas is rising: in 2012 it accounted for almosthalf our production of energy resources. Weare one of the worlds largest distributors of liqueed natural gas.

Carbon capture and storageThe IEA estimates that if carbon captureand storage (CCS) moves rapidly fromdemonstration phase to widespread use,it could reduce global CO2 emissions byaround 20% by 2050. Shell is helping toadvance CCS technologies in a number of projects. More government funding and astrong price on CO2 emissions are needed tomove forward these projects for use in widerindustry, as CCS projects currently generateno revenue for companies.

In 2012, we began construction of ourQuest CCS project in Canada, which willpotentially store over 1 million tonnes of CO2 a year from our oil sands operationsfrom around 2015 (page 26). Quest isdesigned to demonstrate a combination of technologies to capture, transport and storeCO2 deep underground. The knowledge itwill provide is expected to help develop awider and more cost-effective use of CCSwithin the energy industry and other sectorsin the years to come.

Other CCS projects Shell is involved ininclude the Technology Centre Mongstad

in Norway, the worlds largest facility todevelop and test CO2 capture technology,which opened in 2012. The Gorgon LNGproject (Shell interest 25%) off the coast of Western Australia will include the worldslargest CCS project, once in operationaround the middle of this decade. It is

expected to store 3 to 4 million tonnes of CO2 a year.

BiofuelsAround 17% of global CO2 emissions fromfossil fuels come from road transport. Shellbelieves low-carbon biofuels are one of thequickest, most practical routes to reducingCO2 emissions from the transport fuel mix inthe next 20 years. Through our joint ventureRazen, Shell produces low-carbon biofuel:ethanol made from sugar cane in Brazil. Thisbiofuel can reduce CO2 emissions by around70% compared to petrol, from cultivationof the sugar cane to using the ethanol asfuel. We continue to work with partners todevelop advanced biofuels for the future fromnon-food sources (page 28).

Energy efficiency Shell has long-term multibillion-dollarprogrammes in place to improve the energyef ciency of our operations (page 11). Theseinclude our oil and gas production projects,oil reneries and chemical plants. We alsooffer products and services to help customeruse less energy, including advanced fuelsand lubricants (page 27).

Adapta tionIn addition to our actions in these four areas,we are working to understand the potentialphysical impact of climate change in thefuture on our facilities and new projects.

CLIMATE CHANGEThe world faces the critical challenge of how to meet rising demand forthe energy that powers economies, while urgently cutting the emissions ofcarbon dioxide (CO 2) that energy use generates. Shell is taking action in fourareas: producing more natural gas, the cleanest-burning fossil fuel; helping

to develop technologies to capture and store CO 2; producing low-carbonbiofuel; and working to improve the energy ef ciency of our operations.

0

20

40

60

80

100

indexed to coal

GHG EMISSIONS FROM SOURCE TO POWER GENERATION

Source: U.S. Department of Energy, National EnergyTechnology Laboratory, October 2011

Coal Traditionalgas

Tight/Shalegas

.KSWG GFnatural gas


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Our Pernis renery near Rotterdam in theNetherlands is one of the largest in theworld. It transforms crude oil into a rangeof important products. These include petrol,diesel, jet fuel, heating oil and lubricants, aswell as petrochemical raw materials that areused to make essential everyday items.

Pernis operates continuously, reningabout 20 million tonnes of crude oil a year,equivalent to around 400,000 barrels aday. This means it is processing 750 litresof crude oil a second. The renery sits at theheart of a major industrial complex, whichincludes a port for the delivery of crude oil inlarge tankers, and plants to make chemicalproducts derived from oil. The wholecomplex covers 550 hectares, equivalentto 1,000 footballelds. Its 160,000 km of pipeline, if laid end to end, would circle theglobe four times.

Rening oil requires large amounts of heat,and therefore energy. At Pernis, the energycomes from natural gas. Most of it is usedto heat the oil directly, with the rest usedto power two plants that create steam andelectricity. In recent years we have beenworking hard at Pernis to improve energyef ciency, to cut CO2 emissions and reducecosts. Given the size of the renery, evenrelatively small improvements can have asignicant impact.

Each renery has different characteristicsbecause of varying size and complexity.

Operators need to manage temperatures,pressures and also the rates at which liquidsand gases are owing through pipes. Thechallenge to improving energy ef ciencyis to keep the different parts of the reneryworking together at optimum levels.

An innovative approachIn 2009, we introduced a new computersoftware system to help improve energyef ciency at Pernis. It allowed operators tosee a visual representation of the reneryprocess, with colour coding to highlightareas of inef ciency. This helped them focusmore easily on parts of the renery whereenergy performance could be improved,such as those needing maintenance oradjustments to function more ef ciently.

However, although the new computer systemallowed operators to monitor performance,it did not provide key information clearlyenough. In 2010, Roland Berkhoudt, aProcess Control Technologist, took the systemto the next level. In an innovative move thatwon praise from senior management, hecreated an additional software tool thathelped our operators prioritise their workby highlighting theve largest causes of inef ciency at any given time. To furtherencourage them, the enhanced systemexpressed inef ciencies innancial terms,the amount in US dollars wasted each day.

For example, one section of the reneryuses heat, pressure and catalysts to break

down heavier hydrocarbon molecules intoproducts such as gasoil and kerosene. The

technology and operational teams workedtogether to reduce the amount of steam used.This has delivered a reduction in energycosts of around $1.5 million a year.

We improved the system further in 2011,enabling the software to highlight areas inthe process that were operating ahead of ef ciency targets. This helped encouragestaff by signalling success, and also allowedthem to identify areas where targets mightbe adjusted to further improve performance.

Stepping up the efficiency drive

In 2012, management at Pernis continuedto drive improvements in operationalperformance. Daily meetings took placebetween the technology and operationalteams, and management focused evenharder on ef ciency, identifying it asa critical way to improve the renerysperformance.

The results have been signicant, andachieved without the need for majorspending on new equipment. Since theintroduction of the energy managementsystem in 2009, the energy savings andfewer CO2 emissions are equivalent toaround 50,000 less cars on the roadeach year.

The progress made at Pernis has led tosimilar work to improve energy ef ciency atShell reneries and chemical plants aroundthe world. Today, all our reneries useadvanced software tools to help operatorstackle areas of inef ciency as part of ourglobal CO2 and energy managementprogramme.

Shell is the operator of the Pernis renerywith a 90% interest. Statoil owns theremaining 10%.

IMPROVING ENERGY EFFICIENCY AT PERNIS REFINERY FOCUS


Our Pernis re nery in Rotterdam, the Netherlands, has used an innovative approach to improve energy ef ciency.


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12 Shell Sustainability Report 2012 | reports.shell.comOur activities

OUR ACTIVITIES We aim to produce energy resources and deliver

products in the right way: with respect for peopleand the environment, and with safety as our rstpriority. We are producing more natural gas, thecleanest-burning fossil fuel, and nding innovative

ways to convert it into useful products. We operatein challenging conditions such as deep water, andour plans to develop new energy resources includeexploring in the Arctic. We are producing low-carbonbiofuel and helping to develop advanced biofuels forthe future.


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1reports.shell.com | Shell Sustainability Report 2012Our activities

SUSTAINABLE DEVELOPMENTIN ACTION

When planning and developing newprojects, or expanding existing facilities,we assess the potential impact on theenvironment and consider the views of local

communities when we make decisions.This helps us to operate in a responsibleway, delivering energy and products thatcontribute to the worlds economic progress.

When we design a project, we use asystematic approach that includes thesteps needed to help reduce the effectson the environment and achieve lastingbenets for local communities. We considerenvironmental, social and health impactassessments at every review stage of theprocess as we decide how, or if, we moveforward with the project (see diagram). Weoften make these assessments available tothe public.

At each review stage, we also take intoaccount regulatory requirements as well asthe technical and commercial challengesinvolved. We capture the goals we set inthe impact assessments in a managementplan. We put this plan into practice andmonitor progress through the life cycle of the project.

Workin g closely with communitiesIn support of this approach, we employspecialists in environmental and socialperformance at projects and operationsthat are particularly complex. They workwith business managers to integrateenvironmental, community and regulatoryaspects of our activities, and to considerthese in technical and commercialdevelopment plans and decisions. Followingthe successful use of this approach in NorthAmerica, in 2012 we stepped up thisprogramme by employing more specialistsat projects around the world.

Working closely with communities wherewe operate allows us to better share thebenets of our activities and to reduceour environmental impact. Understandingand responding to community hopes andconcerns allows us to help develop local

economies through jobs and businessopportunities from the outset of a project.This also allows us to avoid delays to ourprojects, so makes good business sense.Through engaging with people duringcommunity meetings, and sometimesin their homes, we learn how to help

protect their way of life. We also improveour understanding of how to protect thelocal wildlife and biodiversity they mayrely on for subsistence. For example, wehave rerouted pipelines and agreed notto operate during certain periods to limitdisturbance to communities and wildlife.

We continue to build a culture wheresustainable development matters to ouremployees across the company. Our annualCEO awards for health, safety, security,environment and social performancerecognise the best examples of embeddinga sustainable approach in our activities.

Developing projects in ChinaOur community liaison of cers engage withcommunities on our plans in order to listento and address their concerns. In China, forexample, we have tight gas operations atChangbei in Shaanxi province, as well asexploration projects in Sichuan province.In Sichuan, concerns we are addressinginclude noise from our operations that candisturb local people and livestock.

Staff from Shell and our partner in theseprojects, PetroChina, regularly meet withvillage leaders and work closely withtheir communities. Shell works with theEnvironmental Protection Bureau in Sichuanto measure and reduce noise levels. To build relationships, we have helped organisecommunity events and projects, includingthe equipping of a care home for the elderlyin the Jinqiu area of Sichuan.

Water is a vital resource for farmers in theregion. We have designed our operationsto avoid competing for water with localcommunities. For example, in 2012, aswe prepared for hydraulic fracturingoperations, nearby paddyelds werelacking water because of low rainfall. Ourproject team discussed with local villageleaders how we could help. As a result,

we invested in pumps to take some waterfrom a nearby reservoir and paid for thepower needed to irrigate the rice crops.The farmers had a good autumn harvestand allowed us to use some of the water forour operations. Building trust by workingclosely with the local community resulted infewer delays to our operations.

The collaboration with Shell hasbeen positive since we set up the

Santai County government-communityco-ordination of ce in March 2012.Shell has been proactivelycommunicating with the countygovernment, and we respect the highinternational social and environmentalstandards Shell applies. We areimpressed by Shells rigorousroad-safety rules, as well as the earlyengagement with local communitiesbefore operations, includinginformation about the way peopleraise grievances.One aspect I believeShell could improve is the time it cantake to address grievances. Mostgrievances are dealt with swiftly, butsome that are more complex takelongerand Id like to see Shell speedthese up, in order to resolve quicklyany possibleconicts of interestbetween local peopleand the Jinqiutight gas project, and to smooth theprogress of the project.

Xianyong Wu

Assistant Director of Santai County Peoples Government Of ce,Sichuan Province, China

SELECTCONCEPT

STUDY FEASIBILITY

IDENTIFY OPPORTUNITY

OPERATEFACILITY

DESIGNPROJECT

CONSTRUCT ASSETS

PROJECT DEVELOPMENT PROCESS REVIEW STAGES BETWEEN EACH PHASE


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NATURAL GAS

The world needs more energy and cleanerenergy to power economic progresswhile keeping the planet healthy for futuregenerations. Shell is producing more naturalgas, the cleanest-burning fossil fuel.

We expect global demand for naturalgas to increase by 60% by 2030, from its2010 level. Shell is developing a numberof long-term projects that will help meetthis demand. We are also using advancedtechnologies to convert gas into otherproducts, such as cleaner fuels for transport.

The tight gas revolution in North Americaand developments in other regions havetransformed the global energy picture. Thereare around 250 years worth of naturalgas resources available for developmentat todays rate of consumption. Thatsignicantly increases the potential topower economies with the cleanest andmost affordable fossil fuel. A natural gas-red power plant produces around half thecarbon-dioxide emissions of a coal-redplant. It also costs less than half as muchto build. It can bered up or stood downquickly, making it ideal to complementintermittent renewable sources, such aswind or solar energy, to maintain a steadyow of electricity.

Shell is working to reduce the impact of tight gas production by applying someof the worlds most stringent safety andenvironmental standards. We are alsoencouraging government and industry toadopt better practices.

Conventional gasMost of the natural gas we produce comesfrom conventionalelds. Our projectsprovide valuable energy resources tocountries worldwide and local employmentto the communities where we work. Forexample, the Corribeld, off the west coast

of Ireland, has the potential to meet up to60% of Irelands gas needs when the projectstarts production in around 2015. Irelandcurrently imports almost all of its energy.

Thenal stage of the project involvesbuilding the onshore section of the gaspipeline, which includes a 4.9 km tunnelunder Sruwaddacon Bay, an area of outstanding natural beauty. Tunnellingwork started at the end of 2012, followingagreement on the pipeline route with ourneighbours and local planning authorities.

Completing the Corrib project willsustain nearly 1,500 full-time jobs duringconstruction. Once in production, around175 full-time jobs will be maintained duringthe lifespan of theeld in an area wherelittle signicant industrial or commercialemployment previously existed.

Tight gasShell produces tight and shale gas at anumber of projects in the USA, Canada andChina, and has started to explore for tightgas in Ukraine. The abundance of naturalgas in North America today has reducedgas and electricity prices in the region,with lower energy costs boosting industryagainst competitors in other parts of theworld. It has also beneted the environment:replacing coal with cheaper gas in many

power stations has contributed to a fallin the USAs CO2 emissions. In 2012, weproduced around 230,000 barrels of oilequivalent a day of tight gas in NorthAmerica from four major projects.

Tight gas is natural gas trapped in dense

rock in pores 100 times thinner than ahuman hair. It is produced with a processcalled hydraulic fracturing, or fracking,which uses large amounts of water mixedwith sand and small amounts of chemicaladditives injected under high pressureto crack the rock deep underground andrelease the gas into the well. Fracking hasbeen used for many decades. Its increaseduse in recent years has led to concernsamong some communities about potentialair and water impacts, and earth tremors.

Shell uses advanced, proven technologiesand practices to make fracking safe. Wehave adopted a set of ve global operatingprinciples for our onshore tight oil andgas activities. The principles focus onsafety, environmental safeguards, andengagement with nearby communities toaddress concerns and help develop localeconomies (see opinion, opposite page).We consider each project separately fromthe geology to the surrounding environmentand communities and design our activitiesusing the latest technology and innovativeapproaches best suited to local conditions.

In 2012, we worked towards makingsure that our onshore operations areconsistent with these principles acrossthe world. We assessed our projects toidentify any gaps and began work to bring

WORKING WITH OUR NEIGHBOURS ATEAGLE FORDThe arid ranching region of southern Texas, USA, was one of the poorest parts of the country when energy companies arrivedto develop the Eagle Ford shaleelds. Many of the small ruraltowns some with just a church, a post of ce and a handful of businesses welcomed the economic benets. New businessessprang up and school numbers swelled as workers and theirfamilies arrived.

When Shell leased 250,000 acres to drill for natural gas near theborder between the USA and Mexico, we also set out to help localcommunities share the benets of our operations. We appliedour global approach, developed from lessons learned at projectsaround the world.

To improve road safety as industry traf c increases in the area,we have improved access to and from our operations. With other

companies, local police and state agencies, we are working toraise awareness of road safety and increase support for broadersafety improvements to public roads. Shell has also fundedtraining and equipment for emergency services. In schools,we are sponsoring programmes to help teachers explain theenergy industry to students. In 2012, we worked with a regionalnon-prot organisation to establish a new after-school facility inEagle Pass. We also helped to set up a family literacy scheme dueto start in 2013.

We are looking at ways to help build sustainable communitydevelopment. For example, in 2012 we worked with a localuniversity to develop two programmes that will start in 2013.One will provide training and resources to help civic leadersmanage the sudden growth and inux of revenue, while planningfor the long-term benet of their communities. The other will helplocal businesses manage the change, including those that are notShell suppliers.


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them intoalignment with our principles.We also continued to seek comment onour principles from non-governmentalorganisations.

Shell advocates regulations consistentwith these principles that are designed toreduce risks to the environment and keepthose living near operations safe. In 2012,the International Energy Agency (IEA)published similar recommendations. ManyUS industry organisations, shareholdercoalitions and government bodies alsoproposed or adopted fracking guidelines in2012, building on progress in this area inprevious years. We support and encourageefforts to adopt stronger standards. Wealso support the strong enforcement of existing regulations.

Concerns have been raised about leaks of methane, a greenhouse gas (GHG) around20 times more potent than CO2, from tightgas production. The IEA has found thatGHG emissions from tight gas operationsslightly exceed those of conventional gas.GHG emissions from gas-red powerstations whether from conventional ortight gas sources are around half of those from coal across the lifecycle fromproduction to use. Shell has joined withthe Environmental Defense Fund and eightother energy companies in a Universityof Texas study that is assessing fugitiveemissions of methane at gas productionsites to provide objective scientic dataand to identify operational best practices.At Shell, we use proven technologies toreduce these emissions. For example, atour Pinedale operations in Wyoming, USA,infrared cameras detect any small methaneleaks so we can quickly address them.

Protecting groundwater is another priorityfor Shell in producing tight gas. We publiclydisclose the chemicals we use in frackingoperations to the extent allowed by oursuppliers, even where it is not locallyrequired. We support state legislationrequiring the release of this information.

Shell works with local authorities to secureenough water for our operations in waysthat minimise impact on communities andthe environment. For example, we reachedagreement with communities in the state of New York to supply up to 5.3 million litresof water a day to our Tioga County tightgas operations in Pennsylvania, USA. Thewater will be transported by rail rather thanroad, minimising noise, truck traf c andvehicle emissions.

We work to reduce the need for freshwater in our operations, for instance byrecycling. Our approach at Groundbirchin Canada is one example (page 9). At ourMarcellus project in the Appalachian regionof the USA, Shell transfers water from oneoperation to another for recycling. In theEagle Ford shaleeld of southern Texas,we set up a water recycling pilot projectwithin therst year of operations (seebox, opposite page). We are transferringtechnologies and what we learn from ourexperiences to other parts of the world.

We are reducing truck traf c whereverpossible, which improves safety and cutsvehicle emissions. At our Pinedaleoperations,for example, we collect all of the water produced with gas from our wellsand pipe it to a central facility for disposal.This eliminates an estimated 165,000 trucktrips and 2 million litres of diesel fuel use a

year a reduction of over 85% in distancescovered by truck and associated vehicleemissions. Shell has also applied advancedtechnologies to reduce polluting emissionsfrom drilling rig engines and other sources.

We drill multiple wells from a single site

to minimise our footprint on the land. InAlberta, Canada, we use digital maps of environmental data, with rich ecologicaldetail supplied by local people when weidentify land for potential projects. This helpus avoid sensitive areas, such as cariboumigration pathways.

Shell operates major tight gas projects inChina in partnership with PetroChina (page13), and we are planning to explore forshale gas in South Africas Karoo region.Gas could be essential both in meetinggrowing energy demand in South Africa andby providing a cleaner alternative to coal,which currently supplies more than 70% of the countrys energy demand.

In Australia, the Arrow joint venture (Shellinterest 50%) produces natural gas fromcoal seams.

I have the opportunity to workwith representatives of Shell

in the Appalachian region on anumber of fronts including landdevelopment reviews, assisting theTioga County Board of Commissionerswith information gathering andworking with non-prots on communitydevelopment issues. Across all thesesectors, Shell personnel have beenresponsive, willing to provide detailedinformation and adaptable to therapidly changing conditions in ourcommunity. Shell is interested in raisingthe bar for performance of all operatorsand so far they have exceeded ourexpectations. The challenge nowis continued implementation andimprovement of the approach Shell isfollowing.

Jim Weaver

Tioga County Planner, Wellsboro,Pennsylvania, USA

Staff working at the Changbei tight gas project, Shaanxi province, China.


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Liquefied natural gasShell pioneered liqueed natural gas (LNG)more than four decades ago as a way totransport natural gas from remote areas todistant markets. Cooling the gas to -162 Cturns it into liquid and shrinks its volume by600 times, allowing us to ship it around theworld. At its destination, the LNG is turnedback into gas for our customers. Today, weare one of the largest LNG suppliers, withfacilities worldwide. With the abundance of natural gas in North America, the industry isexploring new opportunities to export LNGto countries where it is needed.

The Gorgon LNG project (Shell interest 25%)is under construction on Barrow Island,around 50 km off the north-west coast of Western Australia. The Greater Gorgonelds are the largest gas discoveries inAustralia to date and are expected to be inproduction for over 40 years. The projectwill include the worlds largest operation tocapture CO2 produced with natural gas andstore it safely underground. It is expectedto capture and store 3 to 4 million tonnesof CO2 a year, over 2 km beneath BarrowIsland.

Floating LNGShell is developing an innovative approachto producing more natural gas from remoteoffshore locations. Our giantoatingliqueed natural gas (FLNG) facility, underconstruction in South Korea, will combineproduction, processing and storage capacitywithout the need to build an onshore plant orlay a pipeline on the seaoor.

FLNG allows access to offshore gaseldsthat would otherwise be too costly or dif cultto develop. Our facility will enable thedevelopment of the remote Prelude gaseldoff the coast of Western Australia. Whenbuilt it will be the largest offshoreoatingfacility in the world, stretching the lengthof four footballelds. The project will usesignicantly less material, take up less landand disturb a smaller area of seabed than anonshore facility. FLNG avoids the need forshoreline pipe crossings, dredging and jettyworks, so developing the gas at the locationof the gaseld offshore will reduce impacton coastal habitats.

LNG in transportLNG has been used as a fuel for LNG oceantankers for several decades, but it is nowemerging as a cleaner fuel for other formsof shipping and for road transport. Shell isdeveloping an LNG-for-shipping business. In2012, we acquired Gasnor, a Norwegianrm that supplies LNG as a fuel to shippingcompanies and industrial customers. Wealso chartered therst two LNG-poweredbarges for carrying goods on Europesinland waterways, which started operationsin early 2013.

In 2012, we began constructing a small-scale production plant at the Jumping Poundcomplex in Alberta, Canada, to produceLNG for transport fuel. This will be sold attruck stops along a busy route in northernAlberta, Canada. Therst station openedin early 2013. Until our plant is completed,other suppliers will deliver the fuel. Also in

early 2013, we announced plans to buildtwo more small-scale plants to produce LNGfor road transport in the US Great Lakes andGulf Coast regions. We have further plansto provide LNG to power marine transport inthe Gulf of Mexico in the future.

Gas to liquidsThe worlds largest gas-to-liquids (GTL) planour Pearl project in Qatar, can produce140,000 barrels of oil equivalent (boe) aday of synthetic oil products. The plant canalso produce 120,000 boe a day of naturalgas liquids and ethane for industrial use. Theplant uses heat from the processes to convertwater into steam that drives its compressorsand generates electricity. It also has thelargest water-recycling system of its kindthat reuses water in steam production andcooling. It can process 45,000 cubic metresof water a day, without discharging liquidsfrom the plant.

Wind powerWind remains an important part of thecurrent and future global energy mix. Shellhas been developing wind power for morethan a decade and is involved in 10 windprojects in North America and Europe. Ourshare of the energy capacity from theseprojects is 507 megawatts. Most of thiscomes from around 720 turbines at eightwind projects in the USA. We are alsoassessing other potential projects, all inNorth America.

Shells Gemmata LNG vessel ships natural gas to customers around the world


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JOINT VENTURES, CONTRACTORS AND SUPPLIERS

Contractors and suppliers play an importantrole in Shells activities. In 2012, around400,000 contractor staff worked for Shell.Contractors often employ a large number

of workers, particularly in the constructionphase of projects. This creates localopportunities for jobs and developingskills. The increased demand for goods andservices also helps build local businesses.However, this can also bring challengessuch as pressure on local facilities, increasedtraf c and higher living costs. We identifysuch potential impacts and put measures inplace to minimise them.

Join t ven turesShell often works in joint ventures withnational and international energycompanies. When we operate the venturewe apply the Shell Control Framework,which includes the Shell General BusinessPrinciples, Code of Conduct and ourstandards in areas such as health,safety, security, environment and socialperformance. Where we are not theoperator, we encourage our partners toapply materially equivalent standards.

Working with our supp lier sShell buys large amounts of goods andservices from around 120,000 suppliersacross the world. We are working to makesure these suppliers and our contractorsoperate in environmentally and sociallyresponsible ways. We place about1 million purchase orders a year. In 2012,

we spent over $65 billion on goods andservices. Shell works with contractors andsuppliers who comply with applicablelaws and regulations, and behave towardsemployees, local communities and theenvironment in line with the Shell GeneralBusiness Principles and Code of Conduct.

Our Supplier Principles provide a mandatoryset of requirements for all suppliers andcontractors. We assess suppliers who wantto do business with Shell based on the levelof potential risk, especially in the areasof anti-bribery and corruption, humanrights, safety and the environment. Wealso work with suppliers to help them meetour standards in these areas. In 2012, weconducted assessments of our suppliers andcontractors on their level of compliance withthe principles (page 34).

Building local opportunitiesShell works to share the benets of ouractivities by creating jobs and helping localeconomies to develop. During the design of a project we consider how we can increasethe use of local suppliers. We also trainlocal companies so that they can tenderfor contracts, and build skills to developsustainable businesses for the long term(see opinion).

For example, one international supplierhas agreed to provide locally some of the equipment and services needed foroperations off the coast of Brunei, witheventually 90% of staff employed beinglocal. The joint venture Brunei ShellPetroleum (Shell interest 50%) is working

with the supplier to support this throughtraining and the development of localfacilities. Another joint venture, Brunei LNG(Shell interest 25%), has helped to developlocal seafaring skills. In Nigeria, the ShellPetroleum Development Company (SPDC)agreed with six international suppliers

in 2012 to develop local operations tomanufacture equipment for oil production.In the Middle East we signed new contractswith international suppliers to set up localfacilities for making chemicals used in theproduction of oil.

In early 2013, we joined a UN DevelopmentProgramme initiative to create jobs andbuild skills in Somalia. The collaborationbetween Shell, BP and several shippingcompanies is aimed at helping to rebuildSomalias economy with the long-termgoal of reducing the risk of piracy in theIndian Ocean.

Vandrezzer has been a directbeneciary of Shell Petroleum

Development Companys strategy topromote the use of Nigerian servicecompanies in production operations,projects and well engineering. Wewere invited to attend a Shell-supportedUK trade initiative forum in London soonafter becoming a contractor to SPDC in2008, and I was able to make aspeech. We have attended subsequentforums in Aberdeen, Abuja andLondon. This exposure has not onlyserved to redene our business concept,but paved the way for the formation of strategic alliances and relationships thathave helped us grow and attain a sizeand standard that enables us to handleturnkey projects in the oil and gasindustry. I am grateful to SPDC for theopportunity. The baby Shell nurturedhas matured into an indigenouscompany, with fully developedconstruction capabilities, which is ableto supply a wide range of services forthe industry.

JoeUdo a

Managing Director/CEO, Vandrezzer Energy Services Limited, Lagos, Nigeria

Staff working together on a drilling rig off the coast of Qatar.


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The SWRP intervention system is designedto be adaptable to various situations andlocations. During 2013, the equipment willbe moved to bases in four locations aroundthe world to improve speed of deployment.

Shell has also joined with other companiesthat operate in the GoM to form the MarineWell Containment Company (MWCC).With over $1 billion of funding, the10 member companies have set up arapid-response system that is designed tocap and shut in the well, or capture andcontain the oil, in the event of a futureunderwater well blowout in the GoM. In2012, MWCC lowered a seven-metre tallcapping stack more than 2,000 metres ontoa well to demonstrate its capability. Shellvolunteered to perform the drill, workingclosely with federal regulators, includingthe US Coast Guard and the US Bureau of Safety and Environmental Enforcement.

DEEP WATER

Shell is a pioneer in developing energyresources in deep waters. We introducedmany of the advanced technologies,processes and safety procedures in useby the industry today. In 2012, Shellsshare of global deep-water production was330,000 barrels of oil equivalent (boe) aday. We continued to reach into ever-deeper, more challenging environmentsoff the shores of Malaysia, the USA,Brazil, Nigeria and French Guyana. Wealso worked to develop these resourcesresponsibly by reducing our impact on theenvironment and being a good neighbourto the coastal communities closest to ouroperations.

MalaysiaThe Gumusut-Kakap project (Shell interest33%), located around 120 km off thecoast of Sabah and set in water more than1,200 metres deep, began producing inlate 2012. The start of production wasmade possible by the innovative approachof connecting the projects wells to thenearby Kikeh production facility. To avoidaring and to help us recover more of theresources, the gas produced with the oilis being injected back into the reservoir tomaintain pressure.

Gumusut-Kakap is a major project forMalaysia. It is seen as a catalyst in bringingsignicant foreign investment and transferof technology to the country, while helpingto build Malaysias self-suf ciency. Shellis playing a key role in developing adeep-water service industry in Malaysiathrough our technology and expertise,in support of the governments economictransformation programme.

USAShell has been operating in the Gulf of Mexico (GoM) for more than 30 years. Aselds age, new wells need to be drilledand older facilities upgraded to maintainef cient production. Shell is continuallysearching for ways to do this with reducedimpact on the environment.

For example, advanced technology hasallowed us to extend the lifespan of theMars eld, one of Shells most productiveprojects since it started operations in 1996.The Mars B project (Shell interest 72.5%) isthe rst major redevelopment of an existingproject in the region and will include a newplatform to deliver oil and gas to shore fromdepths of around 1,000 metres.

In developing the Cardamom Deepreservoir, which Shell discovered in 2010with advanced seismic technology, wewill minimise our environmental impactby using the nearby Auger platform. Weare installing underwater equipment andpipelines to deliver Cardamom production toAuger, expected to be 50,000 boe a day.

Operating safely The Subsea Well Response Project(SWRP), a consortium founded by nineleading companies, has designed andbuilt a comprehensive capping systemfor use at depths of up to 3,000 metres.The project was set up, with Shell as theoperator, to make vital equipment readyfor deployment worldwide following theBP Deepwater Horizon tragedy in theGoM in 2010. It seeks to improve drillingsafety and to minimise environmentalimpact in the event of a serious incident.

The hull of the new platform for the Mars B project being moved to the Gulf of Mexico, USA.

RECOVERING MORE OILFROM DEVELOPED FIELDSOnly around a third of the oil in aeld, on average, can be recoveredeconomically using conventionalmethods. One way to help meet

increasing energy demand is to boostoil recovery with the aid of steam, gasor detergent-like chemicals. Enhancedoil recovery (EOR) usually raises theamount of oil recovered by 5 to 20%,and in some cases by signicantly more.

Working with partners, Shell appliesEOR techniques in projects around theworld. In 2012, we signed agreementsfor potential chemical EOR projectsin offshoreelds with Petronas, theMalaysian national oil company.Petroleum Development Oman (PDO,Shell interest 34%) operates severalEOR projects. Some rely on steam toheat the oil. PDO isnding energy-ef cient ways of boiling water toproduce this steam. At Qarn Alam it iscapturing waste heat from neighbouringpower plants. At Amal it plans to usemirrors to capture energy from thedesert sun.

Advanced technology also helps us toman

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Shell Sustainability Report 2012

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