Welcome to the Royal Dutch Shell 2021 Q3 results announcement Q&A session. Today's session will be recorded. [Operator Instructions] I would like to introduce Ms. Jessica Uhl, Mr. Ben Van Beurden, Mr. Huibert Vigeveno..

Welcome everyone to the live Q&A on Shell's third-quarter results. This quarter's performance as a result of the strength of our portfolio and how well positioned we are to the economic recovery. We are delivering sector-leading cash and making progress towards becoming a net zero emissions energy business.

Let me also reference the investor letter published yesterday by Third Point. We issued a statement to acknowledge our receipt of the letter and to say we have had initial conversations with Third Point through our Investor Relations team. We will engage further with them as we do with all of our shareholders.

I know you'll have questions on this topic and I hope you will understand there isn't much more we can say at this moment. So today, Ben, Huibert, and I will be answering your questions. Please, could we have just one or two each so everyone has the opportunity. And with that, could we have the first question, please. Tracey, over to you..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] We will now take our first question from Oswald Clint from Bernstein. Please go ahead..

Thank you very much. And good afternoon, everyone. My first question is for Ben. Ben, you very bravely sat on a stage last week at the TED conference on the tough crowd, but I wanted to get your reflections on not pleased in terms of winning over the public and also the views of, I mean, certain shareholder types who were on the stage with you.

I mean, the question is, do you think you can eventually appease all of these disparate views or do you think just successfully executing and getting powering progress strategy on lock this side of 2025 will ultimately prove the doubters wrong. And then secondly, I want to ask about LNG.

I think 10% or maybe 20% of your LNG term contracts are up for renewal over the next 3 years. Seems like a pretty good time to be renegotiating those. Seems to be a bit of a seller's market.

So do you think you'll be able to increase the slope on these contracts, and on that I think my own impression was Martin was a pretty tough negotiator in this respect, should I be worried that he's left? Thank you..

Well, I will answer the second question. I think it's probably more for Jessica, but let me say one thing also, if you haven't while so on yet, then better pay attention to how he negotiates. But on the TED thing, I'm not sure whether the rest have seen it. So maybe a bit of context.

It was indeed a dialogue with an activist, actually, two activists, I would say, although one call them selves, an active owner. I think it's -- to be perfectly honest, the discussion with Chris James, I thought was very good. I respect him very much for his perspectives.

The one with the activists probably less so, but I think it also shows a little bit in the sentiment in society these days, about the narrative around our companies, and the inability I suppose, to also listen and see what it is that we have to say.

I think it's nevertheless important to also note that we keep on trying, that we bring our perspectives in, and that we also position our perspectives not just as a sort of golden calculating assets developer or whatever, but also as human beings, it is after all, also, my planet.

I also have forecasts and I also have a personal reputation and perspective that I need to look after, and for me, therefore as I said on that stage, this is highly personal. It always was, was never going to be any different. Can be convinced our critics -- our real critics, probably never, can be convinced significant parts of society.

Well, I hope so. But I'm also really certain that's what I also had right at the end. The words, trust me, are not going to cut it anymore. I can probably just do that with my children. But it needs to be a new set effects that needs to be merged around our Company. And I think we're working very hard on that.

Again, this quarter, you will see lots of proof points and we will continue to add to these proof points. And hopefully at some point of time, the narrative will simply change because effects have changed..

Oswald, in terms of your second question on LNG and the outlook on the contract pricing going forward. This price environment is certainly supportive in terms of shifting up the value we can achieve in our long-term contracts, and I would say that we've had some success in that respect.

These uncertain times, these high prices bringing value to companies such as ourselves who can provide the stability and certainty in terms of supply and certainly our customers value more certainty on the pricing and are willing to pay for that and pay for that risk management from a pricing Perspective. And we're starting to see that.

So I'm optimistic that this will have a positive effect on our contract re-negotiations that will occur over the coming years. In terms of Martin leaving, I'm sad to see him leave Shell. I wish him very well. He's been a great partner on the executive committee.

Whilst a fantastic leader, he is very good at getting the most value out of the businesses he's run and we've seen that in the upstream and looking forward to his impact in Integrated Gas, and he is known as being a pretty good negotiator himself. Tracey, next question, please..

I'll take our next question from Michele DellaVigna from Goldman Sachs. Please go ahead..

Thank you very much. It's Michele. I had 2 questions. The first one probably for you Jessica.

It's very welcome to see a major recovery in the LNG volumes from your guidance for Q4, I was wondering if we should expect to these to allow the trading and the volume maximization to come through in the LNG results in the fourth quarter after effectively very low results in Q2 and Q3. And then one question for Huibert on refining.

We are seeing much higher margins, but we're also seeing higher cost for energy, for carbon in Europe. Should we expect a material improvement in the profitability of the business as we go into Q4 until next year? Or do we run the risk that this is just a cost push higher and therefore margins do not substantially improve? Thank you..

Michele, thank you for the questions. I'll start with the first then hand over to Huibert. In terms of the LNG business, both in Q3 and the outlook, let me just spend a couple of minutes or a couple of moments rather on Q3 and then shift to the outlook. In the third quarter, our underlying assets have performed well from an LNG perspective.

and those assets have seen upside associated with the current price environment. So for instance, prelude has been ramping up. Those volumes are being sold into the current market pricing. And that caused some $400 million improvement from Q2 to Q3 in our LNG business.

However, in the third quarter, from a trading and optimization perspective, they were supply disruption issues that unfortunately continued into the third quarter from third-party gas issues flowing through in terms of the LNG supply chain for our trading business that had a negative effect for us in the quarter. So it's really the trading piece.

and the supply from third-party suppliers that had a negative impact in the third quarter, so I'd like to make the distinction from our own operations in our own assets versus some of what's happening on the trading side.

If you look forward, unfortunately, some of those issues we expect to continue through the fourth quarter and even into the first quarter. I think we'll have this behind us as we get into the second quarter in 2022.

However, this positive price environment will be reflected in the -- our performance over the returns that we'll generate from our assets.

But some of the issues that we see in the third quarter on supply from a trading perspective will persist a bit into the fourth quarter and into the first quarter and hopefully be behind us by the second quarter of next year. Huibert..

Thanks very much, Jessica, and thanks Michele for the question. Looking at the refinery margins, we indeed saw an average uptick in Q3. Looking into Q4, we -- within our own portfolio, still have some items around maintained turnarounds on to Scotford, at the Rheinland, and the effects of Hurricane Ida at our Norco refinery.

What I can tell you is that indeed the cost structures of some of these refineries, particularly the feedstocks and associated items have gone up.

But when I was visiting our Pernis refinery 2 weeks ago, I can assure you that their daily and nightly calls between economics and scheduling and our trading teams to consciously optimize and determine how we further can -- can gain value out of that. On the future outlooks of refinery margins, there's not too much I can say other than that.

I do believe, on a global scale, there is still quite some overcapacity..

Great. Thanks, Huibert.

Next question, Tracey?.

We will now take our next question from Lydia Rainforth from Barclays. Please go ahead..

Thanks. Good afternoon, everyone. Two questions if I could. The first one just on the emissions targets on the new target [Indiscernible] for scope 1 and scope 2. I think that's already included within the CapEx plans. I am just trying to look at what is different or what's the additional to where we were in February.

And then secondly, Huibert, marketing is clearly going very well. How does this bit of the business interact with the partnerships that are outlined in the presentation. Are you seeing a lot more demand for the carbon management and effectively energy of the service. And I know vastly, but it's mainly it's about today ideas.

I think the Shell work better as one integrated Company rather than lots of different one, thanks..

Thank you Lydia. I'll start with the first question and then hand over to Huibert for the second. So yes, the emissions targets we announced today really pleased to have those out into the market.

This is the absolute emissions target for our scope 1 and scope 2 emissions under operational control where we're looking to reduced this by some 50% between 2016 and 2030. And, indeed, in order to achieve that, we have already, at hand, both the strategy as well as the capital allocation that's required to deliver on that ambition.

What's different now is that we've added an absolute target. I think that we've complemented our targets. But all of the levers that are necessary to achieve that by 2030 or were contemplated when we introduced this strategy in February.

So yes, from a CapEx perspective and importantly from a returns perspective, we don't expect this additional target to cause any change in that. It's simply executing the strategy that we've laid out.

And of course, each week and each month we learn new things, certain things go better than expected, certain things didn't go -- don't go quite as fast as we would hope.

So, of course, we're learning every day, but essentially the mainly recently identified in strategy Day 21 in terms of what is needed to achieve this reduction are already in place, and therefore the capital has already been considered and the returns are already considering these changes.

Huibert?.

Thanks, Jessica and Lydia. Good to hear you. A couple of things you're absolutely right that our marketing businesses are doing extremely well. Since 2013, we have a net earnings CAGR of more than 7%. And as you could see in the presentation Jessica gave that we continue to perform well. A lot of that is due to many factors.

It's around our focus on premium products like V-Power and the penetration we can get. It's our focus on loyalty customers, it's our increasing convenience retailing, which we've now increased to 12,000 sites and actually is generating a gross margin of more than a billion dollars. But you also have to realize a lot of that is integrated as well.

We operate in 80 countries in retail. And that's all integrated with our trading and supply businesses, with our distribution businesses. So it's really an integrated value chain.

Also, if you look at the way we run our EV charging, our ambition is to be able to provide you as a customer, the EV facilities you need where you are when you are so that can be at home, that can be on the street, that can be at destinations, or at wake, or it can be as you go to one of our retail sides.

And with that, we will also then offer you the ability to recharge yourself. But all those activities are coupled together and we need to make it very easy for you.

But there are other important parts of our marketing businesses, for instance, our lubricants business where we're now 15 years in a row, number 1, and we increased our market share that's fully integrated with the energy and chemical sparks of the future as we need to provide high-quality basils group 2, group 3 to be able to make these great lubricants.

Our top-tier lubricant, actually which can give you a fuel efficiency of 4% to 5% for passenger car, comes, actually, from a base oil from Qatar GTL. So there you can really see the integrated nature.

Another examples bitumen, where this fully integrated with our energy and chemical perks, where we make the quality bitumen based on the customer demand. So customer demand is working from the customer back, looking at the integrated nature of the energy and chemicals perks we have..

Great. Thanks Huibert. Next question, Tracey..

We will now take our next question from Irene Himona from Societe Generale. Please go ahead..

Thank you. Good afternoon. My first question back to the new scope 1 and 2 absolute emissions reduction target. Is it possible to split it in two, please? So how much of that will be from disposals versus own decarbonization. And then what will be the contribution of the Permian disposal to that 50% target? And then my second question.

Huibert, on marketing, if you can, please talk a little bit about what you're seeing in your key geographies in terms of retail demand recovery and which areas remained problematic for you at that retail end. Thank you..

Thanks, Irene.

Ben?.

Thanks, Irene. On the targets, maybe again, recap a little bit. So it's a 50% reduction target compared to 2016 than we had 83 million tons of greenhouse gas emissions coming down to 41. If you would compare it to '19, it's a 48% reduction. So that is also better than what's the court ruling in the Hague required us to do.

So that's why we are saying it's an important contribution to that ruling. And it's of course, just the emissions that are under our control that we can do something with. So emissions from our own facilities, as well as the emissions associated with the energy that we buy power most of -- most of the time.

Now, can we break that down? Yes, we can and we will give you probably an update by the time we get to the AGM for next year, because this is part, also, of our plan to put forward the progress that we are making with the attainment of our targets and ask for an advisory vote from our shareholders to understand what they feel about the progress that we are making.

We actually made quite good progress. We have already done out of that 50%, 17% by the end of this year. So you can see that we are making progress. Are there divestment in that? Yes, there is, but also closures and conversions, and high grading of facilities, et cetera. But most of it is indeed just that.

It is a shutdown of accrued stellar and [Indiscernible]. It is a conversion of refinery into a terminal. It is more efficient furnaces. It's also going to be CCS and it's also going to be other components that contribute to it. Now, how much is the Permian? Negligible. Because you have to bear in mind our scope 1 emissions.

And even most of our scope 2 emissions are associated with our refineries, our chemical plants, at GE plans, and our GTL plants. And if you look at the contribution on scope 1 and scope 2 of our upstream, it is actually a very small amount.

It is a few percent and I don't have the number off the top of my head, but I wouldn't be surprised if it was more than half of percentage points if you look at the Permian.

Irene, we have also a video that we put together explaining, again, how scope 1, 2, and 3 emissions work, what we're doing about it, what are the quantums, how are we tackling them, and I would recommend you take a view at it, because it's probably one of the least well-understood aspects of our strategy, how all these scopes come together, and what we're doing with it.

Thank you..

Irene. And good to hear you. So if you look at the mobility volumes, we see actually an interesting trend. If I look at Q3 compared to Q2 of this year, we're probably at a 106% of volume. And actually, it was our highest volume in the last seven quarters.

So, then you might say when was it before where we're not at the levels exactly on a volume basis on Q3 '19 yet that's around 92% 90% of quarter fee this year. But I do see quite some regional differences. So you asked me, well, which region is behind and which one is doing better? I'll particularly still see a bit of a softness in the east.

And that's obviously many countries together. And there's a direct correlation with still impact of COVID-19 and the lockdowns. If you look like a country of Philippines, where we have more than a million customers. There's been basically a lockdown for around 18 months right now.

If you look at Malaysia, there's still some severe lockdowns and other parts of the East as well. So we see that through in our volume figures as well.

I think one of the things we are demonstrating, however, is how resilient our mobility businesses that is not depending purely on the volumes that we're able to make these very high-end record earnings. I think this quarter is probably our second best ever for mobility, driven by different factors.

And I think Jessica presented today that we showed that 40% to 50% of customers and many of our key markets don't come for fuel. They actually come for convenience retailing. So you can see the differentiation in coming through in that part of the business..

Thanks, Huibert. Tracey, next question, please..

We'll now take our next question from Biraj Borkhataria from RBC. Please go ahead..

Hi, thanks for taking my question. As sort of a follow-up on marketing, given your slide study with that business has been incredibly stable business and it actually generated some of the highest returns in the portfolio. And it looks like through the pandemic, the metric's only getting stronger and going in the right direction.

You could make a -- or I could make a reasonable argument that this business should be on a much higher multiple than the rest of the business. But obviously it gets hidden in the mix. So the question is, if you were to look at a partial lifting or float of the marketing business to maintain a majority stake.

What is the downside to Shell or what would you lose? And then second question is just following up on Ben's comments around scope 1 and 2 growing your LNG businesses is a strategic priority for you. From a scope 1 and 2 basis, those are -- can be quite carbon intensive.

And honestly that you're adding large chunks to capacity as you get these things online. So as you put the targets out today, does that have any implications for your ability to grow that business or does that imply a shift from equity volumes to be an off-taker or are there any other constraints around that? Thank you..

Thank you, Biraj. Huibert, do you want to share your thoughts on integration value and -- versus a standalone entity? And then Ben, [Indiscernible].

Yeah, I think -- absolutely. And I think a couple of things I think on the question on say price earnings, one of the things we realized that we need to -- should disclose much more about from marketing businesses.

And that's exactly what we're doing now and we will continue to do next year that you and others at large can understand that business in much more detail and ask questions in much more detail around it. And then hopefully see that reflected back in the investor base.

But it's also very clear in my mind that a lot of the value is driven by the integration we have. I gave you some examples of our mobility business there's no way we can run that business without the close integration with trading supply, distribution to get that fiscal flow of molecules being able to source that better.

If you look at our lubricants business, it's not only actually integration with base-oils, it's also on the additive side. Our bitumen business is totally integrated in itself as well. So there are many reasons why it is actually one value chain.

Then if you go to the next step and you look at the value chain of the future, the ones we're creating, for instance, with sustainable aviation fuel, it is really -- the game for me, for instance, of what we're trying to do with Pernis [Indiscernible] where we are building one of the largest biofuels plant in Europe, this optimization opportunity gives me.

So let me explain to you. Because I have the customer base in aviation, but also in shipping, and also in chemicals, I can determine, by making those biofuels, how do I optimize that always better. I need to have a location where I can make them, where I have the people where I have the logistics, and where I actually have the permits.

And then I can always optimize between shall I make more sustained way Aviation fuel, shall I make more renewable diesel, or shall I make more bio Northstar for cleaner chemical. But then you need to work from that customer back.

And for instance, in the Pernis example, if I want to make sustainable aviation fuel, I actually have a pipeline from Pernis to Schiphol, that I can go directly into the plane of KLM or any other customer I have with a blend of biofuels. So that integration value is real. It's complex.

But this is really, a very high-value for us in the marketing businesses..

Great. Thanks, Huibert..

And just to add to that point very briefly, indeed there were times that we have some of these volume change cut up and distributed to the different ownership structures. I actually firstly spend a large part of my career undoing all of that.

Because you actually do great tremendous barriers for Chinese walls and arm's-length relationships and non-competes and anti-trust issues, et cetera, that actually eradicate the integrations that Huibert so well described. But on your other point, the LNG plants, yes, indeed, I do have a -- and sort of quantum of automations.

And of course, the ones we operate, which are quite a few actually come onto our account. So we've been very clear that if we want to build new LNG plants, that better come with very competitive carbon footprints on the operational side.

And we have to find ways to offset this and offset not with nature based solutions, but offset it with savings elsewhere. So I've been very clear with our organization.

If we are to do another energy brands, say for instance in Canada, it needs to come either without emissions or you need to find a way to reduce emissions elsewhere, because we are on a trajectory to bring down our emissions to net zero by 2050. And that means that every emission that you add, you somehow have to take out elsewhere.

And that, I think, is the real challenge, but it's also the challenge that the world has, and that's the challenge that we are rising to..

Great. Thanks, Ben. Tracey, next question, please..

We will now take our next question from Roger Read, from Wells Fargo. Please go ahead..

Hey, good morning. I guess afternoon to you. Still morning on our side of the farm.

I just would like to come back -- You were talking about it a little with the last responses on the value of integration because I mean, I think it's a fair question with any Company, does it make sense to have as many different businesses? You talked a little bit about it with [Indiscernible] in the downstream.

But as we step back and look at the overall operation, probably a question for you, Ben, but like, where all should we think about the integration value? How should we, as analysts and investors think about Shell as one Company as opposed to some of the proposals that are out there and what is the strong case for integration?.

Thanks very much, Roger. I think of course integration is quite often an overused word and we have to work harder to make clear what we actually mean by it.

But as two levels I would say we have to think about, one of which is the fact that indeed we use our assets and our supply chains and our customer contracts, and a trading and supply business as one ecosystem within which we can optimize.

You heard some of the examples that [Indiscernible] mentioned, but actually we have that across our entire piece. You will have seen that we also -- in the introductory video that Jessica did, we talked about how we're going to use wind power on sea to turn into hydrogen, to turn into molecules, and to turn into transportation fuels.

All these things are only possible because we have the opportunity to integrate and we have the opportunity to treat our businesses and network and much in the same way, of course, when you think about biofuels and the like.

So integration is [Indiscernible] network effect, so it is an enabler for doing energy transition plays that are otherwise incredibly hard to piece together. If you have to do it with disparate businesses. The second level of integration is financial integration.

So many of these businesses that we are building for the future are going to be, of course, absorbing cash because we build them from very low to no materiality to something that is quite significant that has to be funded as well.

We've been very clear in our strategy that we see our upstream business not just providing the energy that we need today in this world, but also the funding that we need to build the energy system of the future. Now, we believe that we can do that quite efficiently in Shell, and that is what our strategy is all about.

If you again, take that away, you effectively take away our ability to invest in the future of energy. So that's two levels to think about it as much more of course that we could talk about. But these are two very important considerations for the holistic and coherent strategy that we have..

Thanks, Ben. Tracey, next question, please..

We'll now take our next question from Christyan Malek from JP Morgan. Please go ahead..

Hi. Thank you. It's Christyan Malek. First may I Just say congratulations to while and getting these Lebanese roots. I can't think of anyone better to get the best deal. One question for you, Ben, just to follow up on what you just mentioned on the previous answer, if I may.

I'd just like to talk about the market narrative around the sector that you referred to.

If we just stepped away from ESG [Indiscernible] Is it just simply cyclical? And I mean that in the sense that he thoughts for the year and commodity price remains strong in sales-generating significant cash flows that [Indiscernible] diminishes and [Indiscernible] of a constructive dialogue around your business to be compromised, assuming that plays out.

I'm referring to shareholder activism that we're seeing, why wouldn't you consider breaking up the business if the generated shareholder value is at the same time you can deliver on the commitments to climate change.

And I say that assuming good investors getting more companies is no longer toxic so to speak, and they were being -- the remain co re, in this hypothesis, retained its license to operate. Thank you..

Yeah, I'm not entirely sure I heard all of that correctly Christyan. I'm sorry for that. But license to operate of the RemainCo depends, of course, what you would call the RemainCo, but maybe back up a bit and then perhaps also Jessica can comment on this.

It is indeed increasingly difficult to, in the environment that we are experiencing and it was also referred to with Oswald's first question. The significant hostility and demonization of our sector. And I realize it finds its race also in the asset manager worlds and it finds its way in the asset owner worlds.

But let's also be very clear, the world's still needs oil and gas. It's using oil and gas. As a matter of fact, it's using more of it at this point in time than it used to before. And therefore it has to be provided.

And I think therefore, it is not only legal, it is legitimate and necessary that oil and gas products are being provided, and they better be provided by companies that, first of all, know how to do it, have a very responsible attitude to doing so, and, indeed, have a strategy to use some of that cash not just to fund shareholder distributions, but also to transition the Company to a better, a cleaner, a lower-carbon slate.

And that means that we are a Company in transition. Some people don't like that. They say, well, I don't want to be part of this transition, I just want to only jump to those companies that never had to do a transition or that have already transitioned to whatever else.

But the reality over this Chris John, that is actually going to impede the transition as well.

So in the end, the energy transition that we're talking about, and I'm here talking about humanity, not just for the investor universe, is going to be an energy transition that will only come about when companies with the scope, skill and scale like us actually make it happen and actually work with our customers to say we can help you use different types of energy products.

And if you had issues in terms of competitiveness, let's jointly work on the right policy framework that governments need to put in place to make all these things happen. So I do think there is a role for us in that. I might say, well, that sounds like you are an NGO or a government, in the end, you just have to deliver returns.

But then at the same time, I'm also absolutely convinced that we can deliver competitive returns in all these aspects of the energy system of the future. So that's why we have the strategy as we have it. I think it does hang together. I do believe in DHV, I never done explaining that strategy and reemphasizing aspects of it.

But that is what we believe in, and that's what we will be going for..

Thanks, Ben. Ben's covered it really well, but perhaps a couple of other points quickly.

In terms of value creation, shareholder value, if we focus on the substance of our businesses, we have spent a lot of effort and energy over the last couple of years reshaping our upstream business and our upstream portfolio to have a high-value business that's very well-run and very cash-generative.

So in the third quarter, our upstream business generated some $5.8 billion of cash flow from operations. That's the highest we've seen since 2018 on a much lower production base. And that's a great example of how we've reshaped that portfolio for value over volume. So it's a great franchise generating a substantial amount of cash.

If you look at our EBITDA for the third quarter of some $13.5 billion, half of that comes from our upstream business. So we've got a really great business, highly cash-generative, high-value business. That's part of who we are as Company, we've got, I think, unique skills and capabilities in that space to responsibly provide oil and gas to the world.

And so from a substance perspective, it's not obvious why you wouldn't want to have that in your portfolio, in terms of who we are as a Company and what we do well. But also in terms of funding, the energy transition. The energy transition is going to need some, anywhere from 2 to $4 trillion a year depending on who you ask over the next 30 years.

Our upstream business is a source of cash for us to then fund the energy transition that's so needed.

So from a substance perspective, the last thing I'll say is that the integration points that Huibert raised, if you look at the Pernis refinery, our ability to bring hydrogen solutions to Pernis biofuel solutions to Pernis and CCS solutions to Pernis. Bringing that altogether and bringing real solutions today in that space.

We're able to do at pace because we've got the skills and the capabilities and the assets within our portfolio. And we can get all of those teams in the same room to work out all of the issues that need to be worked out to create these new business models of the future.

And I think that is our source of competitive differentiation, with respect to the energy transition, particularly for fuels. Tracey, next question.

please..

We will now take our next question from Jon Rigby from UBS. Please go ahead..

Hi, everybody. Thanks for taking my questions. I've 2 actually. The first is on the Integrated Gas business, so, I was looking back and it appears to have missed, and this could be to do with [Indiscernible] but it appears to have missed consensus earnings expectations 6, out of the last seven quarters.

You might argue that even the trading update at the end of September didn't quite capture all of what was going on. And so with some of your peers actually making very good money in the LNG space.

I was just concerned, and maybe I'm looking for reassurance here, that what was a very strong, highly profitable business was there somewhat by virtue of the fact that you dominated the space.

And that actually now has become much more competitive and your competitive positioning is not as good and therefore, maybe we're a little too optimistic around its outlook and performance. And maybe there are moving parts, but perhaps even Shell doesn't quite [Indiscernible] wasn't able to capture.

I remember a question maybe a year ago and ask whether there was a structural issue in Integrated Gas and you said that there wasn't. The second question is on buybacks.

I see you've done sort of the thick end of a billion dollars in the third quarter [Indiscernible] you only started in August and August is a fairly thin month, so I imagine if September was a decent month to do it. And yet you've upped it into the fourth quarter.

And I'm conscious of the amount of CFFO you're generating and the straight calculation of a buyback from that. Plus the commitments around the ConocoPhillips(ph) proceeds.

Can you just explain to me, with the fact that you are only doing B-share s, and I think this was the 2nd largest B-share purchase in any one quarter, how you are going to get the share buyback program done? Thanks..

Great. Thank you, Jon. In terms of the Integrated Gas business, and I think probably more specifically LNG, our pearl asset, our GTL business is going quite strong and some of the operational performance we've ever had. And that business is also contributing to the results, but it's on the LNG side, I think is where most of the questions are.

And I would say this is not been the strongest year for the business. I remain very confident in the sector and very confident with our competitive positioning in the sector.

I think there are distinct issues that have happened this year that we have the ability to manage and to have a very different future in terms of what's happened this year, not going into 2022 and beyond. What's happened, I think are a couple of things in the past. If you look in 2018 and 2019, we had a couple of really outstanding quarters.

And when we had this quarters I cautioned the market that these were really outstanding and this shouldn't be considered the base expectation for the business, I think that did -- that may have set expectations a bit high, becoming into 2021 in the last couple of quarters, the issue has really been around supply issues in our trading part of our business.

So this is not -- this is an asset -- this is they've tried to make the distinction before, our assets are performing well, preludes ramping up it's enjoying this current price environment. And so you see some $500 million of incremental earnings over Q2 associated with our assets. And that's a combination of performance and obviously the market.

But on the trading side, the real challenge has been on supply issues coming out of Peru, Trinidad, Nigeria, which has mentioned before, Peru's up and running again so hopefully that's behind us.

And as I said, as we look into 2022, hopefully we can get the overall supply position where we need it to be with some of these other assets addressing the issues. Although most of these issues are related to third-party gas suppliers and aren't really Shell issues. So I think structurally there is absolutely not an issue.

I think we have a very competitive business. Last year the business did really well through a very difficult market. And that was to a large extent because of the strength of our trading business supporting in a very difficult market and propping up if you will, earnings and cash flow.

This year, unfortunately, not getting the same benefit from it, but again, this is really driven by supply issues and not kind of the fundamentals of the business. And Biraj asked earlier some of the fundamentals I'd say we're feeling a bit more optimistic in terms of the price outlook as we look over the coming years.

Absolutely, but also in terms of how the contracts are being priced against Brent. so I'd say there's some optimism in terms of that business going forward as well. In terms of the share buybacks, you had a couple of questions there. Why -- given the strength of the cash generation, why didn't you do more buybacks, I think, is first question.

A couple of points to raise there in the last 90 days we've announced some $10 billion of incremental distributions to our shareholders, if you consider the dividend, the share buybacks, and then the proceeds that we're going to distribute out of Permian.

So feeling we're in a good place in terms of returning cash to our shareholders through various forms of distributions. That's the first piece. The second piece is in the second quarter we talked about, I referenced that we would then look at the next tranche of share holder distribution increases in Q4.

And so we'll be doing that in the fourth quarter. Of course, we have our annual dividend increase, but of course we'll be looking at the 20% to 30% range. We'll do that looking back on the prior of 12 months.

And of course, the results of this quarter will feature in the decision making that we have in the fourth quarter in terms of increasing shareholder distributions. In terms of the pace, there is some constraints, in terms of being able to execute that as efficiently as possible. That's why we're buying the B-shares currently.

And in terms of trying to do that as fastest possible. There's various tactics that we're looking at and will be more clear. Certainly once we get the proceeds in with Permian in terms of how we expect to execute that as quickly and as efficiently as possible. Thank you. Tracey, next question, please..

We will now take our next question from Martijn Rats from Morgan Stanley. Please go ahead..

Hello. I've got two questions as well. In the short pre -recorded video that you put out this morning, there was a comment about the reduction in the production of traditional fuels from 100 million tons a year to 45 million tons a year by 2030.

And perhaps I sort of quite missed something, but I was wondering if that is sort of a new indication or an existing one. It wasn't sort of quiet so clear to me. And also, I find that quite an intriguing number because it's sort of a 55% decrease between now and 2030.

If you look at the IEA net-zero scenario, clearly the most stringent scenario that the IEA has. There is a sharp decline in oil demand, but it's only 30%.

So, it sort of sounds like, you're shrinking this business faster, very substantially faster than even the [Indiscernible] as scenario acquires, which makes it quite interesting and so I was wondering if you could put things in context.

And also how much of this decline is disposals and will still be operated by other people versus actual closures because frankly, if Company is like Shell are looking to shrink these businesses even faster then a net 0 scenario requires it does make you wonder who, at least on the time frame between now and 2030 is going to produce this fuels.

So that was one, the other one is a much smaller question, but in the statements there is a comment to that.

They were comparatively lower earnings contributions from Renewables and Energy Solutions in North America and I was wondering if you could say a few words sort of precisely what is in that business and what was driving that and also how material the lower earnings contribution is there..

Thank you, Martijn. I will quickly answer the final question you had and then hand over to Huibert.

The reduction in margins on our renewable energy solutions business in North America is really a delta versus the second quarter, where we had a bit of a makeup posting, if you will, in our margin that came through, and then we also had an increase in reserves related to our mark-to-market positions.

So it's not a kind of fundamental issue with the business. It's really a Delta versus the second quarter and not a signal in terms of the underlying performance of the business.

Huibert?.

Thanks. Hi Martjin. Going from a 100 million to 45 million fuels by 2030 is an existing target. We mentioned it in as the year end '21, and it's to certain extent the transformation of our refinery to energy and chemical sparks. It includes the divestment of some of the refineries we've done over the last year-and-a-half.

Martinas with working on Puget Mogul, Deer Park PCK but it also includes the conversion to a terminal. So what we're doing in Ta'von Gal and what we're thinking of content refinery in the U.S. In Bluecam, we actually took out accrued distillers, so we fundamentally reduced quite significantly the fuels capacity.

But importantly, it's not just taking out the fuel capacity is what do you actually do. And in my view, in a customer back world, we should make products and services based on the needs of customers, which are not only commodity-driven but we're able to price on what that product actually does. So the technology is in the product.

So what we will replace it with in the energy and chemicals parks, which will remain will be more performance chemicals, more basils for lubricants, more bitumen, which will give you more ratable margin.

In the charts that you were able to see, you see, indeed, the reduction in total fuels production, but you see quite an increase in margin, so this is actually a quite well business-driven opportunity. As I look at it, working from the customer back and then determining per sector what are exactly those needs and how do we make them more ratable..

Thank you. Martijn, I realize that the number on the rest was about 200 million for the quarter, you'd asked that number..

One thing, sorry. Yeah. Martijn, I was just thinking. One of the things we also said in 21 is we're replacing actually parts that fuels with low carbon fuels.

So we're going from 3% of our total transferred fuels to 10% low carbon fuels by 2013, so that's an increase of 8 times at the total production, which includes the 2 million tons of sustainable aviation fuel which we also mentioned. So the blends will increase and therefore the fuels acts consumption will decrease..

Great. Thank you. Next question, please..

We'll now take our next question from Christopher Kuplent from Bank of America. Please go ahead..

Thank you. Good afternoon and thanks for taking my questions. I've got two as well, if I may. The first one a bit generic, but considering that we are going into COP26, the EU is still debating around it's taxonomy. Maybe I can ask a generic question.

What do you think is a successful or an unsuccessful COP26, and does that matter at all, whether it's a successful or not successful outcome as you define it, for your energy transition strategy? So maybe asking as the devil's advocate, would you argue some of your commitments actually exposed you if COP 26 sales to reach global consensus, whatever that is.

And if I may just briefly at the second question, you mentioned the IPO will rise in, and Ben, was that one of your earlier concerns around additional Chinese roles because isn't that's exactly contradicting your point of view on integration in biofuels, marketing.

Is this a very specific case, given you a local JV partner? So just wanted to hear a firm message on IPOs around the world, or whether that's actually a specific exception to your point about vertical integration. Thank you..

Thanks, Chris and Jessica looks at me, so I'll answer the first one, I think. [Indiscernible] Probably best to talk about Raizen IPO. I think on COP26 was of course -- there's a lot of talk in the market.

What does it mean? What do we expect and what we hope for? I'm actually working on our Linked in piece that I will hope to put out tomorrow what are my hopes for COP26 so by all means, take a look at that as well. But I would say that comp probably down to three things, Chris.

So first of all, yes, we do need more ambition, everybody talks about it of course, we need to do more because the current ambitions add up to something much more than two decreasing.

You could argue that sold very bad, but you could also argue that's how it was supposed to work, isn't it? So we need to ratchet up ambitions to the point that we are in the right place. And maybe if you look before COP in Paris, the COP 21, we we're looking probably at 5 degrees.

So it -- so in that sense, we have made progress, but we need more progress. We need more ambition in that respect That's point number 1. Number 2, we need more re-election because it's not just good enough to have more targets and ambitions out there that needs to be re-election on the ground.

And in my mind, quite a large part of that action increasingly needs to focus on the heart to a base sectors. So these are things that are somewhat outside the nationally-determined contributions as well. Take aviation, no one single country is going to take care of aviation, unless we collectively put mandates in place. The same is true for shipping.

The same is true for steel, cement, heavy-duty industry, even heavy-duty road transport, probably needs to have a sort of super national approach. And that's what we mean by a sectorial approach that we are strongly advocating for. And therefore, my second point is more action along the lines of individual sectors.

And we're putting out today a set of policy recommendations that we believe governments need to embrace in order to drive all these different sectors forward with our own decarbonization roadmap. The third one I would say, is finally operationalized Article 6 of the Pernis agreement.

We're not going to get anywhere close to 2 or 1.5 degrees if we cannot do it with the help of the market. Meaning to say that we need to be able to exchange emissions, to trade emissions, you cannot have a situation where people and say, we don't like to export LNG to China to shutdown that coal plants because it gives emissions here.

We need to be able to take a global view on how we manage the emissions, and that effectively means that we have to have an operational Article 6 that has been lacking for 5 years. If it doesn't happen, I will be very disappointed. So these are my 3 points, Chris..

Thank you, Ben. Next question, please, Tracey..

Want me to -- I think --.

Oh sorry, sorry, my apologies. Apologies..

I just on the Raizen first of all, it is clearly a joint venture, 50-50 between [Indiscernible] Cosan. We put 8% in the IPO. It was a very specific because we needed to have the funds, particularly from the Cosan side, to be able to fund our growth. So we were able to raise $1.3 billion in the markets.

What did we do with that but we actually acquired a [Indiscernible] which was the number two player -- domestic player, and which increased our total capacity from the agriculture side with 50%. So from that perspective, it was specific. What is very important, however, that what we placed were non-voting shares.

So we remain fully in control of the joint venture we have..

Thank you Huibert. Now next question, please, Tracey..

We will now take our next question from Alastair Syme from Citi. Please go ahead..

Hi, everyone. Just one question. Just come back to the LNG trading. Just to clarify, are you saying because of supply issues you have them to buy cargo in the market to fill contracts or were you able to [Indiscernible].

And I guess if you were having to buy cargo's, does that mean in fourth quarter given the looks like spot process is going on averaging even high than third-quarter. Although, that's even going to be more of a headwind. Thank you..

Thank you, Alistair. Indeed, unfortunately, we did have to buy cargoes in the market. And so that is the negative impact that you're seeing is the incremental costs associated with those cargoes, that will continue into the fourth quarter as well.

However, there is the upside as well on the price that's still coming through on the cargoes that we are receiving both from a trading side and from an asset side as well. So we will get some of the upside, but we will have some incremental cost. We expect because of supply issues in the fourth quarter as well. Tracey, next question, please..

Now, take our next question from Lucas Herrmann, from Exane BNP Paribas. Please go ahead..

Thanks very much and thanks for the opportunity. And just as a comment, do you think there's a good opportunity for the narrative to change around the space, not least given where energy prices, what's happening in terms of energy prices and, to some extent, as a consequence of the Third Point position.

But leaving my sentiments aside, Jessica, I wanted to ask you about derivatives and the impact of derivatives and how we should think about their potential reversal and indeed, how perhaps we should think about them in the context of CFFO and your calculations on returns.

And the second question, I'm sorry, I'm going to go back to LNG and it's really about when I look at the asset base, a number of the fields are old -- are declining.

I'm wondering in extent to which -- to what extent the issues that you're having with supply are very simply also around issue that providing gas deploy, whether it's Trinidad, whether it's Nigeria, whether its Northwest Shell [Indiscernible] For all of which place increase -- we're going to place increasing pressure on the business going forward given the maturity of much of the asset base.

Thank you..

Good. Thank you Lucas. So in terms of derivatives, a couple of important or big movers there and just a little bit of context, there are derivatives in relation to our LNG business and there are derivatives in relation to our gas supply business.

For the third quarter, what you see happening from a mark-to-market perspective and from a variation margin perspective is a mix of those things. Unbalanced. The variation margin for the quarter for the group was a positive health of $4 billion.

All things being equal in terms of the forward curves that determine that variation margin amount, we would expect that to unwind over the next coming quarters. Yeah.

But that's if everything is -- if everything moves in tandem, and of course these things don't always move in tandem, but I think it's a reasonable expectation that $4 billion if things generally stay as they are today, we would expect that to roll off, if you will, in the next couple of quarters.

Even if that's the case, I would just highlight that, that's $4 billion we would still then have over $13 billion of cash in the quarter so I think very strong cash generation that you would see. And, of course, depending on what's happening with prices, you can also have a positive effect from a working capital perspective.

There's a lot of different moving parts in the cash flow, so I would look at the fundamentals, with the underlying cash flow, if you will of $2.5 billion in terms of the substance of the business which is very strong. And that will certainly flow-through regardless of what happens on the variation margin.

In terms of the LNG business, a bit more in what might be driving some of the supply issues. As I said before, it is not about the performance of our own asset portfolio, if you will. And it is about a couple of our sources of supply that I've referenced in prior quarters, Trinidad, and Nigeria.

Those gas supply issues which is -- third-party supply issues are playing into that. We're working solutions and continue to do so. But of course we also have other sources of supply. We contract supply we were having some more supply coming into the portfolio next year from a contractual perspective.

So there's other levers in terms of getting access to supply from contracts while we continue to work solving the gas issues and the reliability issues that we've seen in some of the supply contracts for the trading business. I hope that helps. Tracey, next question, please..

We will now take our next question from Jason Cableman, from Cowen. Please go ahead..

Thanks for taking my question. I am unfortunately going to ask another one about LNG, so apologies. But I'm trying to understand how the supply impacts flow through the volumes, because you're essentially saying you're backfilling your trading volumes.

So is there -- are we going to see an indication in the volume number when things normalize for you in the business or is it just that sales number stays flat, but the margin moves higher? And then connected to that, is it possible to provide a figure for the lost profit opportunity in the LNG business during 3Q as a result of these disruptions?.

Good. Indeed so I'm trying to -- simple way of answering the first question. So on the LNG side, we will see more volumes coming through in the fourth quarter, but we're also seeing -- some of our market positions will also be coming through, and we're still expecting some supply disruptions.

So while we'll be having increased sales happening and higher-prices positively affecting the assets in our business, we will still have supply issues that will negatively affect us in the fourth quarter and in the fourth --first quarter, assuming the price moves as they currently are today.

The second question in terms of, sorry, the second question on.

Your opportunity loss monitor..

The opportunity loss, yes, indeed. So for the third quarter, the impact was around $300 million for the quarter in terms of the supply impact. So that's obviously material hit for the quarter.

And again, as we worked through that, that should be sorted hopefully by first, second quarter of next year and that will hopefully come back to our bottom line once we get those issues resolved. Next question, please..

We will now take our last question from Paul Cheng from Scotiabank. Please, go ahead..

Good afternoon, Thank you. Two questions. First, I think it's [Indiscernible], do you have a sensitivity that you can help us [Indiscernible] change in the natural gas price, how that impact on your refining margin capture on the per-barrel basis as well as in your refining [Indiscernible] on a per -barrel basis. That's the 1st question. 2nd Question.

I think, Jessica, we have heard some woman talking about LNG Canada, may have seen some calls over one investor dispute between the consortium in their ETC. Can you confirm whether that is the case and that way we are in terms of the course. If I can sneak in a [Indiscernible] one on a 7 billion of the additional cash return from the Permian sales.

Is there a timeline saying that when that that will be executed, is it for 12 months after the deal compete, or that don't really have a timeline. Thank you..

Good.

Huibert, you want to start with the first question?.

Understand correctly sensitivity in the changes of the gas prices impact on the refinery margin.

What I mentioned earlier is that we constantly are optimizing the impact of gas prices and then determining what slates we can make and we do that and then the different inputs we have in [Indiscernible] between our economics and scheduling teams in all our refineries together with the various trading teams. And that happens on a daily basis.

What obviously the exact impact is that will depend very much on the locality of the slate and the different feedstocks that we have.

So I don't have an exact number for that now, the only thing I can assure you is that obviously we're optimizing that and believe -- I firmly believe that, within the industry, our cooperation and integration between our energy and chemicals parks and our refinery's top-notch, and our trading and supply business is so top-notch that we do that very effectively..

Thanks Huibert. Paul, I believe the question was about the LNG plant being constructed in Canada, if I understood you correctly. And --.

It's the pipeline..

Pardon?.

The pipeline..

It's the pipeline. So there are discussions on the pipeline ongoing. We've had some challenges on the pipeline. There's nothing to announce at this moment in time. We're working with our contractor. So you can also direct inquiries to TransCanada as well, who is constructing the pipeline.

And there's no updates at this moment in time in terms of where that stands, what I would say is that the project itself is going very well. Like if we've reached 50% of completion, very pleased with the performance outside of Canada in terms of the supply chain and within Canada, particularly during the pandemic.

So, really pleased with the overall progress at the project has made to-date in terms of the $7 billion cash return. We're looking to do that, of course, we need to get the proceeds that the deal needs to close, we're hoping it closes in the fourth quarter.

Once it closes, and we receive the proceeds we're looking to distribute that to our shareholders as quickly as possible, but also as efficiently, which means at the best price in terms of -- and the best method, in terms of getting that back to our shareholders.

As I said, as quickly and as efficiently as possible, we're looking at different ways of doing that. But hoping to complete that very quickly as we go into 2022. With that I believe that's the last question, so I'm going to now say thank you to all of you for joining us today and for your questions.

I hope this has given you insights into our strategy delivery, absolute emissions reduction targets, and our performance in the third quarter of 2021. I wish you a pleasant end of the week, and I hope you and your families stay safe and well. Thank you..

And this concludes the session. Thank you for your participation. You may now leave the call..