Royal Dutch Shell (NYSE:RDS) outlined the progress the company is making on the three-year strategic plan that began in 2010, seeking to reassure investors on the macro environment for energy demand over the next generation. These details and other information on its operations were disclosed during a strategy update given by the company.

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Energy Overview
The management of Royal Dutch Shell believes that economic growth in non-OECD countries over the next generation will generate significant growth in long-term demand for energy. This growing energy mix will continue to be dominated by hydrocarbons despite the push for alternative forms of energy.

While the industry is tilting toward the development of oil and other liquids at the expense of natural gas, Royal Dutch Shell is still a firm believer in the future of natural gas and expects strong growth in demand here as well.

This long-term belief in natural gas is based on the commodity's status as the cleanest of all fossils fuels and its abundant presence in most parts of the world.

Royal Dutch Shell expects 50% of its production to be natural gas in 2012, and has conventional and unconventional exploration and development underway, as well as liquefied natural gas and gas to liquids projects.

Capital Investment Upstream
Royal Dutch Shell is in the midst of a four year capital spending program of approximately $125 billion, with more than 80% of this budget devoted to the upstream segment as the company works to develop its massive resource base.

Royal Dutch Shell expects twenty new upstream projects to start up before 2014, with 800,000 barrels of oil equivalent (BOE) per day of new production from these projects.

In Canada, an expansion at the Athabasca Oil Sands Project has reached full capacity of 100,000 barrels per day. Royal Dutch Shell owns 60% of this project, and Chevron (NYSE:CVX) and Marathon (NYSE:MRO) each own 20%.

In the Middle East, the Qatargas 4 LNG project also reached maximum capacity in 2011, and the Pearl gas to liquids project in Qatar is also ramping up according to plan. These three projects added 170,000 BOE per day of production in the second quarter of 2011 and are expected to add 400,000 BOE per day at the peak.

Efficient Profitability Downstream
Royal Dutch Shell plans to remain involved in the downstream area, which includes refining and marketing and various other businesses. The company's goal here is to find profitable opportunities across its suite of businesses while operating as efficiently as possible.

Many other integrated oil companies have decided to shed downstream operations through spinoffs or initial public offerings. Conoco Phillips (NYSE:COP) was the latest to announce such a plan and will become a pure upstream exploration and production company, separating its downstream businesses.

Royal Dutch Shell cut $2.5 billion in costs here in 2009 and 2010, and is targeting an additional $1 billion in cuts in the 2011 and 2012 timeframe.

RDS is also looking for areas to grow in the downstream, and the company has found an opportunity in Brazil where it is involved in retail marketing and biofuels. The company is involved in a joint venture with a Brazilian operator and has 4,500 retail sites in that country and a 20% market share.

The Bottom Line
Royal Dutch Shell has a detailed strategy in the upstream and downstream segments, and appears to be progressing well in implementing company goals. One question that investors should consider is whether the gloomy outlook for the economy threatens the macro assumptions underpinning the company's huge investment through 2014. (For additional reading, take a look at Peak Oil: Problems And Possibilities.)

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