Shell Trading Fuels Profits Amid Expected Drop in Gas Production

Shell has reported a strong performance in its trading business, which is expected to significantly boost earnings in the second quarter. However, the company cautioned that its overall gas production volumes are projected to fall sharply during the same period, primarily due to damage sustained by its Qatari facility.

The company's "trading and optimisation" earnings within its gas division are anticipated to be considerably higher than in the first quarter, benefiting from the price volatility in energy markets influenced by the ongoing Middle East conflict. Oil majors have generally seen increased profits amid such market conditions.

Shell forecasts that its integrated gas production will range between 610,000 and 650,000 barrels of oil equivalent per day (boed) in the second quarter. This represents a substantial decrease from the 909,000 boed produced in the first quarter. The decline is attributed to damage at Shell's Pearl gas-to-liquids facility in Qatar, which ceased operations in mid-March after an attack on the Ras Laffan Industrial City. Repairs are estimated to take approximately one year.

Middle Eastern operations account for about 20%, or 550,000 boed, of Shell's total oil and gas production, with Qatar representing around 10% of that figure.

Beyond gas production, Shell's chemicals and products unit is also showing positive trends. The indicative refining margin is expected to improve to approximately $20 per barrel from $17 per barrel in the first quarter, and the indicative chemicals margin is forecast to rise to about $240 per tonne from $139 per tonne. Despite these improvements, Shell noted that realized refining and chemicals margins remain below benchmark levels due to market dislocations.

The company also anticipates an improvement in its working capital, projecting a cash inflow of $1 billion to $6 billion in the second quarter, a significant turnaround from an $11.2 billion outflow in the first quarter. This shift is attributed to the impact of unprecedented volatility in commodity prices.

Market analysts acknowledge the strength in Shell's trading and refining earnings, even as oil prices have decreased from their geopolitical peaks. The company's shares saw a 2.3% increase, or 67.00 pence, to 2,979.50 pence on Tuesday, adding to a 16% rise over the past year. Analysts also highlighted the resilience of Shell's diversified business model, which allows its trading, refining, and cash generation capabilities to offset production challenges, positioning it as a robust performer in the energy sector.