Shell has lowered its gas production outlook for the final quarter and indicated that trading in its gas and chemicals sectors is expected to be “significantly lower” than in the preceding months.
In a trading statement released on Wednesday, ahead of its quarterly earnings report scheduled for January 30, Shell expressed a more cautious stance after several quarters of exceeding expectations. Jefferies analysts predict this update could lead to a reduction of over 10% in the anticipated earnings of $5.4 billion for the quarter.
Biraj Borkhataria from RBC Capital Markets described the news as negative, citing declines across various sectors including oil, gas, and power. He adjusted his net income forecast for the quarter down from $5.1 billion to $3.9 billion. Following the news, Shell’s shares dipped by 1.5% in early trading in London.
This update follows ExxonMobil’s announcement that its upstream sector would experience a setback of $500 million to $900 million due to falling oil prices in the fourth quarter. An additional decrease of $200 million to $1.8 billion is anticipated in the energy products division, which encompasses refining and trading, primarily owing to reduced industry margins.
The announcements from both companies hint at a challenging conclusion to 2024 for oil and gas producers, with lower and less volatile oil prices affecting both their upstream operations and trading activities. Morgan Stanley analyst Martijn Rats noted a general decrease in market vigor, attributing this to the normalization of price fluctuations post the geopolitical crises in Ukraine and the Middle East.
Shell revised its gas production forecast due to scheduled maintenance at its significant Pearl facility in Qatar. The new expectation is between 880,000 and 920,000 barrels per day, a drop from the earlier estimate of 900,000 to 960,000 b/d. Additionally, as the world’s leading trader of liquefied natural gas (LNG), Shell expects a decrease in LNG volumes compared to the previous quarter, forecasting between 6.8 million to 7.2 million tonnes, down from 7.5 million tonnes in the third quarter.
Shell’s gas trading is anticipated to be significantly impacted by the conclusion of hedging contracts initiated to mitigate price risks after Russia’s invasion of Ukraine. The company had announced its withdrawal from all Russian ventures, including a 27.5% stake in the Sakhalin-2 LNG project.
Moreover, Shell expects a significant drop in its chemicals and products trading results compared to the previous quarter due to seasonal influences, specifically noting an expected loss in its chemicals segment. The company is also set to incur a non-cash post-tax impairment between $800 million and $1.2 billion on its renewables sector, acknowledging that it lacks a competitive edge in green energy production.
Despite the soft tone of the update, analysts like Borkhataria believe it may lead to downward revisions in consensus earnings expectations, although he does not foresee an impact on shareholder returns or the broader outlook.