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Royal Dutch Shell the world’s largest “speculator” home

Shell’s search for profits widens even as the oil price climbs

• Shell now ‘world’s largest trader’ as well as oil major
• Plans to explore in Arctic, Iraq, Russia and deep sea

Terry Macalister: Thursday 3 February 2011 20.07 GMT

Shell earned the majority of its profits in 2010 not from pump sales, but from exploration and development. Photograph: Andy Rain/EPA

As Shell fought to dismiss accusations today that it was cashing in on high oil prices, the company gave a new insight into how it has racked up billions in profit by revealing itself as the “world’s biggest trading business”.

Peter Voser, Shell’s chief executive, said he felt the pain of motorists struggling to pay record fuel prices, pointing out that the Anglo-Dutch oil company was also suffering in its refining and marketing businesses. But critics dismissed that argument, saying that $16bn of the $18.6bn earned by the company over the past 12 months came from the “upstream” operations of exploration and development.

While refining profits have been noticeably thin for all oil companies in recent years, Shell has found other ways of boosting its profits even further by buying and selling products for its own and third-party interests.

Simon Henry, the chief financial officer, made the unusual disclosure today that Shell “may now be the world’s largest trading business” – not just in oil, but also chemicals, natural gas and even carbon dioxide. He denied the company acted as a “speculator”, but admitted that volatility – when prices gyrate wildly up and down – was the point at which any trading unit would make the most money.

The company declined to disclose how many traders were now employed in a business that has increasingly attracted the attention of banks and other non-industry players. The role of such intermediaries is a sensitive issue given that the Middle East oil cartel, Opec, has often blamed them for driving up prices irrespective of actual supply or demand.

Shell sells petrol and diesel in Britain through 900 branded sites but owns 600 of them; the rest are controlled by third-party dealers who have the freedom to charge their own prices.

Supermarkets tend to be the retail price-setters, and City analysts confirm there are no great profits to be made, which is why the number of outlets has plunged over the past five years.

Most of Shell’s 100,000 employees are not working at the pumps in a UK service station but in offices, refineries and offshore platforms in more than 80 countries across the globe.

Non-essential Shell staff have just been evacuated from Egypt, but others are still moving into Iraq, where the company is still pressing ahead with new plans to develop the huge Majnoon and West Qurna fields. In Qatar, Shell has been spending more than $20bn (£12.5bn) and has employed more than 50,000 workers to build new gas-to-liquids plants, where gases are transformed into synthetic liquid fuels, and liquefied natural gas facilities.

Shell is also busy building up its positions in the deep waters of the Gulf of Mexico and off Brazil, despite the safety concerns triggered by BP’s Deepwater Horizon spill.

That is a more obvious way of expanding the bottom line, as are takeovers, but Voser declined to comment on speculation that his company had considered a move on BP at the height of its Gulf crisis.

The Anglo-Dutch company has just won new exploration rights off Greenland along with Statoil of Norway and expects to start drilling wells in two to three years. But it has been forced to shelve plans for offshore exploration of Alaska owing to a continuing lack of permits and tighter safety requirements following the Gulf accident. Voser said he was still hopeful of moving ahead with drilling in the Beaufort Sea in 2012 but admitted: “Critical permits continue to be delayed and the timeline for getting these permits is still uncertain.”

Shell said it was also planning to forge closer links with Rosneft and Gazprom in Russia though he dismissed the idea of a share swap similar to the one just arranged between BP and Rosneft.

Shell might have made fourth-quarter profits of $5.7bn (£3.5bn) and paid out dividends of $10.2bn during 2010, the highest level of any company in Europe, but it was not its best ever result, and was not enough for the City either. Shell’s shares fell 3%; analysts at broker Collins Stewart complained that the figures were “disappointing”. Voser said he, too, was not satisfied with the final quarterly results, and Shell claimed it could still do better – partly through the selling-off of further non-core assets such as the Stanlow refinery in Cheshire.

While he believed the current high crude price might not last because of the “cushion” provided by spare capacity among Middle East producers, he said the commodity boom disrupted by recession in the west “may return”. That could please investors and pension funds but will look like the road to ruin for the hard-pressed British motorist.


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