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Shell Stumbles: Takes $2 Billion Hit, Whines About Weak Gas Trading

Posted by John Donovan: 5 July 2024

In the latest episode of “Shell Can’t Catch a Break,” the oil giant is poised to take a hit of up to $2 billion in post-tax impairments. Why? Because they’re pausing construction on their much-touted biofuels plant in Rotterdam and offloading their chemicals refinery in Singapore. All this drama while Europe’s largest energy company grapples with weak market conditions and a downturn in their golden goose: gas trading.

Apparently, Shell’s integrated-gas segment, usually the crown jewel of their profit empire, isn’t looking too hot this quarter. They predict results will be lower than the first quarter, where they enjoyed a cushy $3.68 billion in adjusted earnings. Seasonality, they say. But hey, at least it might match last year’s second quarter of $2.5 billion. Small victories, right?

On Friday, Shell let the world know they’re expecting to book an impairment after tax between $1.5 billion and $2 billion. The reasons? Weak European market conditions and a massive drop in U.S. renewable fuel-credits prices. This has squeezed profit margins tighter than a sardine can. It’s no wonder they hit the brakes on the Dutch biofuels plant, which was supposed to churn out 820,000 metric tons of biofuels a year. Even their biofuels market rival, Neste, saw its shares nosedive nearly 50% this year, and BP is also pulling back on biofuels investments. Misery loves company, it seems.

Shell’s Rotterdam project is now in limbo, expected to cost them a write-down between $600 million and $1 billion. The Singapore refinery sale will set them back another $600 million to $800 million. It’s almost as if investing in fossil fuels isn’t as profitable as destroying the planet once was. Who knew?

But wait, there’s more! Shell also expects its LNG volumes to drop to between 6.8 million and 7.2 million metric tons this quarter, down from last year’s 7.2 million tons and the first quarter’s 7.6 million tons. Although gas prices in Europe have rallied, thanks to strong demand in Asia amidst heat waves and supply outages, Shell is still not seeing the windfall they’d hoped for.

Upstream production is expected to be slightly better, ranging from 1.72 million to 1.82 million barrels of oil equivalent (BOE) a day, compared to last year’s 1.70 million BOE a day. First-quarter production was a bit higher at 1.87 million BOE a day, netting them $1.93 billion in adjusted earnings. Small mercies for Shell

RBC Capital Markets analyst Biraj Borkhataria noted that today’s update offered tidbits for both the optimists and the pessimists. “LNG volumes were as expected, while upstream production was stronger than previously guided, and oil trading surprised to the upside,” he wrote in a note to clients. Well, at least someone’s trying to find the silver lining.

As if that wasn’t enough, Shell’s chemicals and products segment, along with its marketing segment—which includes electric vehicle charging, wholesale commercial fuels, and lubricants businesses—are expected to stay in line with the first quarter’s results. It’s all just another day in the chaotic life of Shell.

Mark your calendars for August 1st, when Shell will reveal its second-quarter results. Will it be a tale of woe or a surprising turnaround? Stay tuned, because with Shell, you never know what kind of corporate soap opera you’re in for next.

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