Shell Sees Gains in Gas Production Amid Declining Refining Margins

Shell’s recent performance has been bolstered by improved gas trading and production, although the company continues to face challenges with diminishing refining margins.

The company has adjusted its liquefaction volume guidance, now estimating between 7.3 million and 7.7 million tonnes, an increase from the previous range of 6.8 million to 7.4 million tonnes, and higher than the 6.9 million tonnes reported in the second quarter.

Analysts from Barclays have revised their forecasts, anticipating a 3 percent rise in net operating income for Shell’s integrated gas division, projecting it to reach $2.8 billion.

In what is typically a slower third quarter, Shell’s gas trading sector is expected to deliver results that exceed expectations, maintaining earnings comparable to the previous quarter.

Shell’s CEO, Wael Sawan, noted in August that the gas price volatility that was exacerbated by the energy crisis following Russia’s invasion of Ukraine has returned to pre-2022 levels. He expressed optimism about more stable seasonal price fluctuations as the winter months approach.

However, the refining sector remains under pressure, with margins decreasing to $5.50 per barrel, down from $7.70 in the previous quarter. The chemicals division is anticipated to report losses for the third quarter when results are disclosed on October 31.

Earlier this year, Shell suspended its plans for one of Europe’s largest biofuel facilities, leading to an earnings hit of nearly $800 million. Additionally, the chemicals sector faced a $708 million impairment largely associated with the divestment of its Singapore refineries.

Refining margins within the petrochemical sector have faced challenges since the start of the year, negatively impacting earnings in the chemicals and products division.

Analysts predict adjusted earnings of $26.3 billion for the current year, a decrease from $28.3 billion in the previous year.

Sawan has vowed to take decisive actions to enhance performance and concentrate capital on the most lucrative areas, particularly within oil and gas sectors. He has aimed to streamline operations and focus on areas of competitive advantage, such as liquefied natural gas production and trading.

Despite its strong performance, Shell’s valuation remains lower compared to its U.S. counterparts, raising discussions about the possibility of moving its listing from London to New York to close this valuation disparity. In efforts to regain investor confidence, Shell has extended its significant share buyback program, announcing an additional $3.5 billion in repurchases, marking the 11th consecutive quarter of buybacks ranging from $3 billion to $4 billion.

Like many companies in the oil and gas sector, Shell’s shares have seen an uptick in recent weeks, coinciding with ongoing conflicts in the Middle East and a surge in oil prices. Brent Crude, the global benchmark, surpassed $80 per barrel amidst escalations in the region, with recent trading showing an increase of 2.7 percent at $80.15 per barrel.

The company’s shares closed at £26.38, reflecting a rise of 60.5p, or 2.3 percent.