Shell gas earnings 'significantly higher' despite problems in Australia

Gas trading arm performed well in fourth quarter, but outages brought down LNG production

The update seems to indicate that Shell has overcome issues it had in its integrated gas trading division. AFP
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The oil and gas company Shell said its gas operations performed well and its earnings were “significantly higher” in the final quarter of 2022.

Shell released its last outlook update on the fourth quarter of 2022 before releasing its full results on 2 February.

The update seems to indicate that Shell has overcome issues it had in its integrated gas trading division, at a time when rivals were cashing in on Europe's rocketing natural gas prices — largely brought about by the Russian invasion of Ukraine.

Shell's third-quarter results were dented by weaker refining performance and a slump in LNG trading.

The LNG trading division recorded a loss of nearly $1 billion in the third quarter, after traders were caught out by a sharp rally in European gas prices when Russia halted supplies.

Shell’s output of LNG in the fourth quarter was between 6.6 million and 7 million tonnes, down from 7.2 million in the previous three months, after prolonged outages at its Prelude and QGC projects in Australia.

Because of a sharp increase in profits, Shell expects a windfall tax bill in Europe and the UK of $2 billion. Reuters

Nonetheless, Shell is on track to post record annual profits for 2022, having posted earnings of $30 billion in the first three quarters, just shy of the 2008 record profit of $31 billion.

“There’s probably a bit of relief from investors around integrated gas trading. Last quarter was poor and they were adamant it wasn’t structural. So it’s good to see good numbers coming through on that front,” said Biraj Borkhataria, an analyst at RBC Capital Markets.

Shares in Shell moved more than one per cent higher in London.

Windfall taxes

Meanwhile, because of its sharp increase in profits, the company expects to amass a windfall tax bill in Europe and the UK of around $2 billion, on top of the $360 million of levies the company has already announced.

Several governments across Europe and Britain have imposed windfall taxes on energy companies to rein in excess profits made off the back of soaring energy prices after Russia's invasion of Ukraine.

This year could bring a more mixed and subdued performance for the energy companies and markets, as the world continues to contend with the impact of Russia’s invasion of Ukraine, a global economy that's slowing and China’s effort to lift Covid-19 restrictions.

Crude oil has tumbled more than 40 per cent from its 2022 peak, while the current mild weather has sent European natural gas prices plunging to levels last seen before the invasion.

It all points to opportunities and challenges for Wael Sawan, Shell's new chief executive, who has only been in the top job a few days.

Lebanese-born Sawan has been with Shell for 25 years, and most recently headed up the company's Integrated Gas, Renewables and Energy Solutions division.

Updated: January 06, 2023, 1:40 PM