Shell forecasts trebling of refining profits

Energy major Shell announces indicative refining margin for Q2 of $28.04/bbl which is a sharp increase on $10.23/bbl in Q1

Shell is forecasting quarterly refining profits to increase between $1.1-1.3bn as it continues to benefit from high fuel prices and constrained supplies.

The indicative refining margin is $28.04/bbl compares with $10.23/bbl in Q1 and is set to lead to a positive impact of between $800-$1,200mn on Q2 results.

The share buyback programme of $8.5bn announced for the first half of 2022 was completed on July 5.

Highlights for the key divisions as follows:

Integrated Gas

  • Production is expected to be between 930-980,000bpd 
  • LNG liquefaction volumes are expected to be between 7.4-8mn tonnes, reflecting the negative impact of Sakhalin related volumes ($300-350mn)
  • Trading and optimisation results for Integrated Gas are expected to be lower compared to Q1
  • Additional one-off charges of around $200mn are expected including well write offs, provisions and commercial settlements

Upstream

  • Production is expected to be between 1,850-1,950 thousand barrels of oil equivalent per day, reflecting higher scheduled maintenance
  • Underlying Opex is expected to be between $2.4-$2.8bn
  • The share of profit of joint ventures and associates is expected to include a gain between $500-$700mn relating to portfolio, storage and working gas transfer effects

Chemicals & Products

  • Indicative chemicals margin is $86/tonne, compared to $98/tonne in Q1, leading to an expected loss for chemicals in Q2
  • Trading & Optimisation results are expected to be strong in Q2 although lower than Q1
  • Refinery utilisation and Chemicals utilisation are both expected to be within the outlook ranges
  • Underlying Opex is expected to be between $2.4-$2.8bn
  • Chemical sales volumes are expected to be between 3,000 and 3,400 thousand tonnes

Renewables and Energy Solutions

  • Renewables and Energy Solutions Adjusted Earnings are expected to be between $400-$900mn for Q2, benefiting from higher trading and optimisation margins for gas and power due to continued exceptional market environment in various markets

Revised commodity price outlook and impairment impacts

  • In Q2, Shell has revised its mid and long-term Oil and Gas commodity prices reflecting the current macroeconomic environment as well as updated energy market demand and supply fundamentals
  • The following Brent outlook has been assumed for impairment reversal testing: $80/bbl (2023), $70/bbl (2024), $70/bbl (2025) and long-term $65 (real terms 2022)
  • Aggregate post-tax impairment reversals in the range of $3.5 to $4.5bn of previously impaired assets are expected in the second quarter, primarily due to changes in commodity price outlook
  • Impairment reversals are reported as identified items and have no cash impact

Shell Nederland and Shell Overseas Investments recently took the final investment decision to build Holland Hydrogen I, which will be Europe’s largest renewable hydrogen plant once operational in 2025 (click here).

Shell has also been selected by QatarEnergy as a partner in the North Field East expansion project in Qatar, which is billed as the single largest project in the history of the LNG industry (click here).

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