Operational Strategy
and Excellence

Sustainability in the strategy |GRI 103-2|

Thinking ahead.

The challenges and transformations that move society are, for us, the catalysts of the innovations that we intend to boost in our sector. In this context, sustainability takes center stage in all operations.

Each crop year, we improve a circular business model, with maximum utilization of the raw material per planted hectare. The result is our prominent position in the production of Second-Generation Ethanol (E2G), which is the biofuel made from sugarcane bagasse and straw. E2G can increase ethanol production by up to 50% on the same planted area, which is a milestone in the search for efficient land use. In addition, it favors future generations, since the E2G lifecycle emission is 35% and 93% lower than standard ethanol and gasoline, respectively. We have already reached the mark of producing 211 liters of ethanol with one ton of biomass ─ last crop year, we produced 12 million liters of E2G.

We invest in other energy fronts, but biofuel is one of the most significant because we believe in its enormous impact on society. The evolution of global energy demand and agricultural practices makes ethanol a product with a space reserved in the future agenda, especially considering the technological advances in the use of this biofuel.

The gasoline-ethanol mileage ratio

Recently, a study called Análise Estatística de Desempenho e Performance de Combustíveis (Statistical Analysis of Fuel Performance), developed by the Mauá Institute of Technology, with the support of the Sugarcane Industry Union (UNICA), revealed that the average performance of ethanol compared to gasoline³ in vehicles tested, varied, in consumption, from 70.7% to 75.4%. The results show that the economic viability of ethanol may go beyond the more usual 70% ratio found in the Brazilian Vehicle Labeling Program (PBEV), since there are other characteristics of engine performance that should be considered.

3 The study compared regular ethanol and gasoline marketed in Brazil, which contains 27% anhydrous ethanol.

On another front, the same biomass makes it possible to generate clean electricity ─ an operation that allows for self-sufficiency at our 26 production units, of which 13 already market the surplus bioelectricity.

With a key role in stimulating our operations in this segment, biogas assumes another part of the sustainable production chain. The production project for energy generation is under development at the Bonfim unit, in the municipality of Guariba, Araraquara region (SP).

Sugar ─ another product derived from our raw material, if consumed with balance and moderation, is a source of energy and carbohydrate necessary to the human diet. The World Health Organization (WHO) recommends consumption of up to 5% daily calories from sugar, which is equivalent to 25 grams of a diet of 2,000 kcal/day. The sugarcane industry is very engaged in this whole issue and, through UNICA, we support the campaign called Doce Equilíbrio (Sweet Balance), which, in partnership with health experts, seeks to raise public awareness about the importance of sugar. Click here to learn more.

Improving the portfolio also involves promoting the best journey for our consumers. In this sense, we invest so that our consumers can feel that they can rely on Shell as a point of support - be it for the excellence and quality of its products and services, or for a more humanized service at all our stations.

With business continuity in mind, we have prepared a study to identify risks and opportunities posed by climate change for our business and facilities, encompassing reputational, operational, regulatory, and market aspects. In the study, we used long-term climate models from the Intergovernmental Panel on Climate Change (IPCC), and we rely on major involvement of the company's strategic leadership.

The results we have obtained reinforce that we are on the right track, and that our business may seize many opportunities, especially regarding regulatory and market aspects. The study will be used internally in our leadership’s long-term strategic planning.

We are attentive in order to keep ahead of market changes and guarantee the best solutions, capable of gaining the loyalty of clients and partners, generating high returns for shareholders, and maintaining, in employees, the pride of belonging to our team.

In this sense, we envision for the coming years:

• Search for new markets and geographies.
• Strategic business in our entire portfolio.
• Integrated energy company.
• Approach in products and solutions.
• Strategic partners for B2B clients.
• Consumer experience.

Click here for more information. |GRI 201-2|

Biofuels in the global scenario |GRI 103-2|

Um setor em transformação.

In the face of the global scenario following the Paris agreement, several countries are seeking to implement initiatives focused on a low-carbon economy, that is, with lower greenhouse gas emissions (GHG). The use of biofuels on a global scale has been predominant in this context.

In December 2017, the incentive program to national production of biofuels, RenovaBio, received a presidential sanction, from which a six-month deadline was set for defining: decennial and annual decarbonization goals; individual goals for distributors; scores for energy efficiency of the mills; and a study of the new market for decarbonization credits (CBios), to be traded on the stock exchange.

Based on the initiative, an innovative GHG emissions assessment mechanism was introduced in Brazil, with which biofuel producers are encouraged to implement practices with lower emissions intensity. With the program, the Federal Government expects to double the supply of ethanol to 50 billion liters, a result from nearly USD 40 billion in private investments, which should benefit 1,600 municipalities and create about 750,000 jobs.

We support RenovaBio and work with producers and distributors to build a robust and perennial program that will result in a more positive balance for the Brazilian low-carbon economy and for combating climate change globally. In addition, the program indicates that Brazil is aligned with the major global economies, such as Japan, the European Union, and the United States, as it recognizes the benefits of conventional and second-generation biofuels.

In line with the global relevance of the topic, we have quantified, since our inception, greenhouse gas emissions (GHG) resulting from our activities. To this end, we follow the guidelines of The Greenhouse Gas Protocol – main international reference for the quantification of corporate emissions – and of its national version, the Brazilian GHG Protocol Program.

GHG emissions by scope in tCO₂ eq |GRI 305-1, 305-2, 305-3|

Scope 1: Direct emissions resulting from activities controlled by the company.
Scope 2: Indirect emissions resulting from electricity acquired from the network.
Scope 3: Other indirect emissions, especially from the supplier chain.

As an important management tool, we invest in the quality of this information and, therefore, in addition to voluntarily auditing the results, we obtain over 80% of the direct emissions in an automated manner.

For more information on renewable energy and energy efficiency, click here. |GRI 302-1, 302-2, 302-3, 305-1, 305-2, 305-3, 305-4|

Highlights of the operation

Operations aligned with strategy.

New operations |GRI 102-10, 103-2|

In 2017/2018, we completed the process of acquiring the Santa Cândida and Paraíso production units, located respectively in Bocaina and Brotas, in the State of São Paulo. Thus, we began operating with a total installed crushing capacity of 73 million tons of sugarcane per crop year.

This shows that the crushing capacity did not decrease, even with the temporary hibernations, announced in November, of the units of Tamoio in Araraquara, (SP), and Dois Córregos, in Dois Córregos, (SP).

This decision reflects the lower availability of raw materials in these municipalities and aims toward greater logistics and production efficiency. This way, the sugarcane previously sent to the now hibernated units is now sent to the other units.

Bioenergy |GRI 103-2|

We are one of the largest producers of electricity from biomass, with a capacity to supply a city with a population of up to 10 million.

We continue to invest in expanding our potential. We are developing our biogas plant in Araraquara (SP), and promoting the expansion of cogeneration at the Caarapó unit in Mato Grosso do Sul, which will increase our current installed capacity from 940 MW to 1,000 MW.

Reflecting the importance of the work developed, we were invited to participate in the 2017 edition of Progress Makers, Citibank's worldwide campaign that shows the positive impact of companies on society.

More power in the energy market ¹

We announced a joint venture with energy trader WX Energy. The new company is expected to competitively trade in the free market. In this way, we will contribute to the development of a market that already accounts for 28% of the electricity traded in the country and should double in size in the coming years. In addition, we will be even closer to our customers, since we are going to expand our supply of integrated energy solutions. Click here to learn more.

1 Fact subsequent to the period covered by the report.

Investments in terminals

This crop year, we completed and inaugurated a fuel distribution terminal in Marabá (PA), with capacity to handle up to 500 million liters per year.

The operation, supported by the economic development company in Pará (Companhia de Desenvolvimento Econômico - CODEC), offers differentiated products under the Shell brand and ensures infrastructure for regional development. During the installation and operation process, nearly BRL 100 million were invested.

The investment gives us autonomy to supply fuel to Southeastern Pará, which includes important industrial, agricultural, and commercial centers, as well as important highways (Belém-Brasília, Transamazônica, and Marabá-Belém), railroads, and an airport ─ which already has Raízen operations under the Shell brand for supplying aircraft.

Also in Pará, we will expand the fuel storage structure of the Port of Santarém. In Miritituba, a new fuel terminal is under construction, and will consist of a river terminal for private use. The goal is to capture the region's waterway potential, as well as to monitor the significant increase in demand induced by the growth of grain logistics.

We also began building a fuel distribution base at the Port of Itaqui, in the industrial district of São Luís (MA), whose operation is expected to begin in 2020. Nearly BRL 200 million are being invested in this operation.

Project One

We focus on every detail of our logistics operations in order to optimize our own assets (fuel terminals) and our carrier partners (trucks). Extracting the most from the assets means more operational efficiency and lower costs.

In this sense, we developed Project One, through which we look at our road network in detail and help our partners program each operation more accurately. In doing so, we reduced the risk of inefficiency in scaling, from the number of trucks used to the exact loading time. The goal is to have 100% of the fuel fleet covered by the project by the end of the 2018/2019 crop year.

Paired routes

An empty truck is an underutilized asset. To avoid this, we take advantage of returning trucks to carry cargo. To this end, we have a tool that identifies the opportunities for this paired logistics, providing savings in freight contracts to the extent that it guarantees more profitability for our partners’ assets.

In 2017/2018, the volume transported through this mode was approximately 570,000 m³, up 28% compared with the previous crop year. This represents nearly 140 trucks less on the roads of the country, providing environmental benefits and reducing risks of accidents.

Beyond borders ¹

At the beginning of the 2018/2019 harvest, we took our first step outside Brazilian territory and announced the acquisition of Shell's assets in Argentina. With this operation, we will assume a network with 645 service stations, a refinery, a lubricants plant, three land terminals, and two fueling stations at airports, as well as Liquefied Petroleum Gas (LPG) assets ─ which will give us an annual sales volume of approximately 6 million liters.

1 Fact subsequent to the period covered by the report.

New Shell V-Power

In October 2017, we introduced the new generation of premium gasoline, Shell V-Power, on the domestic market ─ the first global launch of the brand, which reached 26 countries simultaneously. The product is already sold at the over 6,000 Shell stations in Brazil.

Focusing on high performance, the new Shell V-Power is recommended for all types of cars, including models with engines subjected to high loads, such as turbocharged and direct fuel injection engines, and vehicles heavier than conventional cars.

The product has the new Dynaflex technology ─ exclusive to Shell ─ which reduces friction between parts such as valves, piston rings, pumps, and fuel injector nozzles, resulting in even more cleaning and protection for the engine.

Over 170 technicians and scientists were involved globally. There were tens of thousands of hours of research and development over more than five years to achieve this level of technological evolution in fuel. Technicians and drivers from the Ferrari Formula 1 team also collaborated with Shell to develop the product.

The launch demonstrates our alignment with consumer demand, who benefit from a better driving experience and, in the long run, longer engine performance.