The South Asian Energy Challenge: Implications for Pakistan

Martin Trachsel
Vice President Middle East Gulf, Shell International Gas & Power Ltd

February 2007

Disclaimer statement
This presentation contains forward-looking statements concerning the financial condition, results of operations and businesses of Royal Dutch Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on managements current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Royal Dutch Shell to market risks and statements expressing managements expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as anticipate, believe, could, estimate, expect, intend, may, plan, objectives, outlook, probably, project, will, seek, target, risks, goals, should and similar terms and phrases. There are a number of factors that could affect the future operations of Royal Dutch Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this Report, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand for the Groups products; (c) currency fluctuations; (d) drilling and production results; (e) reserve estimates; (f) loss of market and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, fiscal and regulatory developments including potential litigation and regulatory effects arising from recategorisation of reserves; (k) economic and financial market conditions in various countries and regions; (l) political risks, project delay or advancement, approvals and cost estimates; and (m) changes in trading conditions. All forward-looking statements contained in this presentation are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of this presentation. Neither Royal Dutch Shell nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this document. The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this presentation, such as oil in place" that the SEC's guidelines strictly prohibit us from including in filings with the SEC. U.S. Investors are urged to consider closely the disclosure in our Form 20-F, File No 1-32575 and disclosure in our Forms 6-K file No, 1-32575, available on the SEC website www.sec.gov. You can also obtain these forms from the SEC by calling 1-800-SEC-0330.

Presentation Outline
1. The Regional picture Demand, Supply, Challenges

2. Focus on Pakistan
Energy & Gas demand-supply gap Outlook on various options pipeline, LNG, coal gasification Observations on imported gas pricing Key messages for Pakistan

World Energy Demand 1971 - 2030

16

billion tonnes oil equivalent

12

Other renewables Hydro Nuclear Biomass & waste Coal Gas Oil

0 1971 2002 2010 2020 2030

Source: The International Energy Agency

Regional Demand for Energy to increase significantly by mid next decade

4000 3500 3000 M toe 2500 2000 1500 1000 500 0 2004 China India Pakistan 2015
Increase of 4% pa

Sources: World Energy Outlook 2006, Source: Pakistan Energy Outlook 2006 (PIP)

Why Natural Gas? The Fuel of the 21st Century

Natural Gas could overtake oil as the global number one fuel of choice by 2025
mln boe/d 150 125 100 75 50 25 0 1980

Clean Abundant Cost competitive

Oil Gas

Natural Gas as the fuel of the twenty-firs century with increasingly diverse supply, driven by emerging technologies and the development of broader gas markets

1990

2000

2010

2020

2030

Regional Demand for Gas imports to increase five fold by mid next decade
3500 3000 2500 bcf/pa 2000 1500 1000 500 0 2005 China
Sources: WoodMac, Shell

2010 India Pakistan

2015

Countries with Gas Export potential/intent

Country
Iran Qatar

Reserves (tcf)
971 911

Issues
- Political uncertainty - Domestic needs - Current moratorium on the North Field - Significant competition for Qatari supplies - Production largely destined for Gazprom network - Political uncertainty - Existing commitments?

Kazakhstan Turkmenistan

65 71

Significant reserves in geographical proximity; however, limited suppliers and significant challenges
Source: The US Energy Information Administration (EIA)

Regional Gas Picture 2015 significant demand, uncertain supplies

KAZAKHSTAN

1 Tcf pa

100 Tcf
UZBEKISTAN KYRGYZSTAN AZERBAIJAN TURKMENISTAN TAJIKISTAN CHINA IRAN AFGHANISTAN IRAQ NEPAL

PAKISTAN QATAR U.A.E. OMAN

INDIA

YEMEN

Gas reserves (Tcf) Required import (Tcf)

Sources: WoodMac, Shell

Regional Picture - Conclusions

Regional energy and gas demand are set to increase significantly by 2015. Significant reserves exist within geographical proximity of demand centers. However, significant challenges exist including:
investment needed to turn reserves into production. competition from Russia/ME for pipeline imports. competition from America/Europe/Asia for LNG imports. competition from within the supplier countries (domestic needs, reinjection etc.)

Markets likely to be dictated by supplier aspirations, at least in the medium term.

Presentation Outline
1. The Regional picture Demand, Supply, Challenges 2. Focus on Pakistan
Energy & Gas demand-supply gap Outlook on various options pipeline, LNG, coal gasification Observations on imported gas pricing Key messages for Pakistan

Gas dependence for energy to continue despite ambitious growth aspirations for alternates
2005 (57 Mtoe)
Nuclear 1% Oil 29%

Hydel 11%

Coal 8%

Gas 51%

2010 (66 Mtoe)

Nuclear 1% Renew 1% Oil 32% Nuclear 2%

2020 (99 Mtoe)

Renew 1% Oil 25%

Hydel 11%

Hydel 14%

Coal 8%

Gas 47%

Coal 11%

Gas 47%

rce: Pakistan Energy Outlook 2006 (PIP)

Significant need for gas imports during next decade

70 60 50 40 30 20 10 0 2007
LNG
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Demand Gap exceeding 25 mtpa (3 bcfd+) by end next decade

Domestic supplies Import Pipeline
2019 2020 2021 2022 2023 2024 2025

m t p a

Energy demand is increasing sharply, particularly for electricity. Major gas fields are very mature and supplies will decline from 2010.
Source: Pakistan Energy Outlook 2006 (PIP)

Pakistan is an attractive gas export market

Close to Middle East supply sources Well-located to act as regional energy corridor A mature gas network Large demand with high growth potential Well placed for both pipeline and LNG imports
..And for Shell, the added confidence of >100 years of operations in country

Pipeline import options exist but are challenging

Three opportunities: Iran-Pakistan-India (IPI), Turkmenistan-AfghanistanPakistan (TAP) and Qatar-Pakistan.

IPI - structurally most cost efficient, progress made; however, political uncertainties. TAP Broad international support. Issues - Reserves? Security? Qatar-Pakistan technically feasible, political benign; Qatars priority?

Shells view

Major issues are political, not technical or economic Upstream production and pipeline supply is technically feasible from either Iran or Qatar (Turkmenistan to be proven) Pipeline imports can be economically viable (with or without India) Inter-governmental framework required as a first step

LNG Global trends: From unconventional to conventional

1990
65 mt
(4% global gas)

2010
> 230 mt
(~13%)
Europe Asia Americas

Asia Pacific focus Niche technology, risky Capital intensive Long term contracts Oil linkage Inefficient

Global business Security of supply Cost competitive Increasing spot/flexibility Various price linkages Improving optimisation

Source: CERA 2005, Shell analysis

LNG - Current Demand/Supply Trends

1. Demand significantly exceeding supply until 2011-12:
Expansion in all markets (US, Asia, Europe, India, China) customers purchase in summer and keep floating storage to avoid winter spikes All plants under construction are sold-out

2. Volume for terminals who wish to start in 2007-11 will have to be diverted from elsewhere, require re-supply or be acquired from the spot market which is leading to an interconnected market 3. Suppliers have choices and look for highest price, whether from existing customers or new terminals

Gas Export Pricing Principles link to alternates

Cost of Alternate Fuels for Pakistan Value from alternate markets for suppliers Cost of Supply

US$/mmbtu

Typical negotiation range

Recent trends in pricing

Pipeline pricing appears to be increasingly linked to exporting countrys alternates (eg. LNG). LNG market is expected to be short in the 2008-12 timeframe. Demand surge led by USA and Asia means customers will need to compete for limited supplies and pay world prices. LNG prices remain strongly linked with Oil prices or Henry Hub. Recent LNG spot deals have been in the range of $8-13/mmbtu; term deal pricing has also increased significantly.

Imported Gas to Pakistan likely to be significantly more expensive than existing price

Coal Gasification
Coal is the worlds most abundant fossil fuel, and features strongly in most economies Various technologies are available to utilize coal Sustainable utilization requires advanced clean technology that comes with a price Shell has the worlds leading coal gasification technology that converts coal into synthesis gas for multiple applications The adoption of such technology is still in its infancy stage but with increasing interest and pace Thar coal offers opportunities; however, significant challenges remain for its commercial utilization due to its remote location

Key messages for Pakistan

Pricing :
Gas prices are increasingly becoming global in nature. Pakistan needs to pay world prices for gas imports (LNG & pipeline).

Regulation
Regulatory clarity needed for tenure of long term take-or-pay gas contracts.

Competition
Significant competition exists from competing markets (America, Europe, Far East) as suppliers have options to monetize gas in various forms. Pakistan would therefore need to offer more than world prices to get a share of limited supplies.

Timing
Pakistan needs to move quickly to ensure imported gas early next decade as long project development lead times (LNG 4-5 years; pipeline 6-8 years).