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Royal Dutch

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Royal Dutch

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    1. Royal Dutch / Shell Group of Companies The value of Supply and Demand Aggregators in the LNG Chain Ann Pickard Director – Global LNG and Power March 2004

    2. Different Models for LNG Offtake Many different models for LNG Offtake At the extremes are: “Tramline” ……….. Dedicated assets throughout the value chain, and specific fixed destinations for product “Aggregators” …. The aggregator lifts product with destination flexibility Clearly there are many intermediate models that have some features from either of these extreme approaches. Many different models for LNG Offtake At the extremes are: “Tramline” ……….. Dedicated assets throughout the value chain, and specific fixed destinations for product “Aggregators” …. The aggregator lifts product with destination flexibility Clearly there are many intermediate models that have some features from either of these extreme approaches.

    3. Tramline Model : value chain Tramline model The assets in the value chain are all set up to supply volume to fixed destinations In the extreme form, partners will share ownership of assets right the way through to the terminal Tramline model The assets in the value chain are all set up to supply volume to fixed destinations In the extreme form, partners will share ownership of assets right the way through to the terminal

    4. Tramlines: For and Against (from the perspective of a supplier or major resource holder) Consider the Pros and Cons of the Tramline model. The advantages of this model are obvious. ….. Full exposure to upside, transparency, efficient use of assets – since the asset base is specifically designed to supply certain fixed end markets. However downsides of this model are real and not so obvious……(list downsides) Consider the Pros and Cons of the Tramline model. The advantages of this model are obvious. ….. Full exposure to upside, transparency, efficient use of assets – since the asset base is specifically designed to supply certain fixed end markets. However downsides of this model are real and not so obvious……(list downsides)

    5. US Terminals ……..many things to consider Taking the implications of the “tramline” model further, let us consider the US market Committing to specific regas terminal destinations implies, picking the right project - there are a huge number of potential terminal projects to consider, not all of which will proceed, some will be better than others Participation through this far in the value chain requires understanding of the risks involved, which include…….. (list risks)Taking the implications of the “tramline” model further, let us consider the US market Committing to specific regas terminal destinations implies, picking the right project - there are a huge number of potential terminal projects to consider, not all of which will proceed, some will be better than others Participation through this far in the value chain requires understanding of the risks involved, which include…….. (list risks)

    6. Aggregator Model The LNG aggregator combines various market and supply positions, optimising his portfolio to create value though : Maximising the use of assets (shipping, regas positions) Diversifying risk by pooling supply and market positions Importantly, the aggregator has far more flexibility to respond to short term opportunities or long term market changes – and is not committed to a small number of downstream outlets like the tramliner. The Aggregator will make a proposal to LNG suppliers and MRHs based on destination flexibilityThe LNG aggregator combines various market and supply positions, optimising his portfolio to create value though : Maximising the use of assets (shipping, regas positions) Diversifying risk by pooling supply and market positions Importantly, the aggregator has far more flexibility to respond to short term opportunities or long term market changes – and is not committed to a small number of downstream outlets like the tramliner. The Aggregator will make a proposal to LNG suppliers and MRHs based on destination flexibility

    7. Customers contracted from Shell LNG projects

    8. Shell’s LNG Shipping position Turning to Shipping, Shell also has a major position with a total of 22 vessels wholly or partly owned. Turning to Shipping, Shell also has a major position with a total of 22 vessels wholly or partly owned.

    9. Aggregators: For and Against (from the perspective of a supplier or major resource holder) From a Major Resource Holder’s perspective, the drawbacks of the aggregator model are obvious. Less transparent - you do not necessarily know how much money the aggregator is making – and the aggregator has potential conflicts of interest when allocating supplies to the most attractive market outlets. These disadvantages can be overcome by making aggregators compete for available suppliers – in these way some of the added value created by aggregators will flow back to suppliers Also allows diversifies risk, through exposure to a wider range of markets, and requires less capital outlay if the aggregator’s shipping and regas positions are used. Is a good way of providing an outlet for build up volumes, as main outlets build up to full capacity. From a Major Resource Holder’s perspective, the drawbacks of the aggregator model are obvious. Less transparent - you do not necessarily know how much money the aggregator is making – and the aggregator has potential conflicts of interest when allocating supplies to the most attractive market outlets. These disadvantages can be overcome by making aggregators compete for available suppliers – in these way some of the added value created by aggregators will flow back to suppliers Also allows diversifies risk, through exposure to a wider range of markets, and requires less capital outlay if the aggregator’s shipping and regas positions are used. Is a good way of providing an outlet for build up volumes, as main outlets build up to full capacity.

    10. What should LNG players do ? Major Resource Holders Factors to Consider: Faced with these two extreme models, what should key players in the LNG market do? For Major Resource Holders the factors to consider are: Desired rate of development – if there are capital or financing constraints, the aggregator model, involving less capital outlay, may speed up development. The desired risk profile: a player willing to take a risk on individual terminals or markets will be happy with the tramline model, whilst other players may favour a more diverse risk portfolio Degree of transparency needed – a requirement for particularly high transparency would favour the tramline model. No single solution – each MRH will see these factors differently Mixed models can allow conflicting priorities to be balanced ….. Faced with these two extreme models, what should key players in the LNG market do? For Major Resource Holders the factors to consider are: Desired rate of development – if there are capital or financing constraints, the aggregator model, involving less capital outlay, may speed up development. The desired risk profile: a player willing to take a risk on individual terminals or markets will be happy with the tramline model, whilst other players may favour a more diverse risk portfolio Degree of transparency needed – a requirement for particularly high transparency would favour the tramline model. No single solution – each MRH will see these factors differently Mixed models can allow conflicting priorities to be balanced …..

    11. What should LNG players do ? MNOCs What should Major Oil Companies do? They can be pure players with one model or the other Or they can offer tailored made, as Shell does. This requires the organisational culture and flexibility to both tackle large supply projects whilst also being comfortable with the more flexible aggregator role. An ability to offer offtake solutions tailored to our customers’ needs will be a key differentiator amongst the suppliers of LNG projects to MRHs Have proposed the tramline model to various partners in the industry – and fixed supply and destination is also the foundation of most of our business in Asia. In our Aggregator role, we purchase from various Shell and non Shell sources such as N.W.S, NLNG and Rasgas to supply a range of outlets such as Spain and various North American terminals. As one example of a creative deal – agreed last year - we supply shipping capacity to Rasgas for winter deliveries and use the same vessels for purchases of surplus Rasgas summer volumes What should Major Oil Companies do? They can be pure players with one model or the other Or they can offer tailored made, as Shell does. This requires the organisational culture and flexibility to both tackle large supply projects whilst also being comfortable with the more flexible aggregator role. An ability to offer offtake solutions tailored to our customers’ needs will be a key differentiator amongst the suppliers of LNG projects to MRHs Have proposed the tramline model to various partners in the industry – and fixed supply and destination is also the foundation of most of our business in Asia. In our Aggregator role, we purchase from various Shell and non Shell sources such as N.W.S, NLNG and Rasgas to supply a range of outlets such as Spain and various North American terminals. As one example of a creative deal – agreed last year - we supply shipping capacity to Rasgas for winter deliveries and use the same vessels for purchases of surplus Rasgas summer volumes

    12. The value of Aggregators in the LNG Chain The Aggregator and Tramline approach both have benefits for major resource holders Aggregators create value through optimising supply and market positions The flexibility to adopt either approach is important both for all players in the LNG industry

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