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Shell trimmed its gas production forecast for the fourth quarter and warned that trading in its gas and chemicals divisions would be “significantly lower” than in the previous three months.
Wednesday’s trading statement, which comes ahead of Shell’s quarterly results on January 30, struck a more muted tone following a run of quarters in which the FTSE 100 oil major has consistently beaten expectations.
Analysts at Jefferies estimated that the update could lead to a cut of more than 10 per cent to a consensus prediction of $5.4bn of earnings in the fourth quarter.
“We see the release as negative, with weakness across a number of divisions and weaker trading across oil, gas and power,” said Biraj Borkhataria, an analyst at RBC Capital Markets, who cut his net income forecast for the quarter from $5.1bn to $3.9bn. Shares fell 1.5 per cent in early trading in London.
Shell’s update came after ExxonMobil said on Tuesday that its upstream business would take a hit of between $500mn and $900mn as a result of lower oil prices in the fourth quarter. It said its energy products division, which includes refining and trading, would be down by between $200mn and $1.8bn driven by lower industry margins and timing effects.
Together, the two updates suggest oil and gas producers had a difficult end to 2024, with weaker and less volatile oil prices hitting both their upstream and trading businesses. “Commodity prices . . . have pointed towards a degree of quarter-over-quarter softness,” said Martijn Rats, an analyst at Morgan Stanley.
He added that the price spikes and troughs of the past few years, as energy markets reacted to the wars in Ukraine and the Middle East, had now “normalised”, leaving fewer arbitrage opportunities in global markets.
Shell said it was trimming its gas production forecasts for the fourth quarter due to planned maintenance at its giant Pearl plant in Qatar. It now expects to report production of between 880,000 and 920,000 barrels a day compared with a previous estimate of 900,000 to 960,000 b/d.
The world’s biggest liquefied natural gas trader is expecting LNG volumes to have fallen in the period compared with the previous three months, in part because of fewer cargoes in the period. It has forecast 6.8mn to 7.2mn tonnes for the three months to the end of December, compared with 7.5mn tonnes in the third quarter.
Trading in Shell’s gas business is forecast to be “significantly lower”, due to the expiry of hedging contracts that Shell took out in 2022 and 2023 to protect itself from potential price risks following Russia’s full-scale invasion of Ukraine. The company said at the start of 2022 that it would withdraw from all its Russian joint ventures, including its 27.5 per cent stake in the Sakhalin-2 LNG facility.
On Wednesday, it said its chemicals and products trading result would also be “significantly lower” than the previous quarter due to “seasonality”, with adjusted earnings in its chemicals subsegment expected to reflect a loss.
Shell also said it would take a non-cash, post-tax impairment of between $800mn and $1.2bn on its renewables business. Wael Sawan, Shell’s chief executive, has acknowledged that the oil major does not have a competitive advantage in producing green energy, and Shell is now writing down the value of its renewable generation assets in Europe and North America, according to a person familiar with the matter.
Shell’s update “looks soft relative to current expectations”, Borkhataria said. He added: “We expect the update to drive downgrades to consensus earnings expectations,” but that it did “not expect weaker results to impact shareholder returns or the broader outlook”.