Shell Expects Higher LNG Output But Flags Continued Refining Weakness — 2nd Update

By Christian Moess Laursen

Shell expects a rise in liquefied-natural-gas production and resilient gas trading in the third quarter, potentially offsetting continued refining margin weakness.

Europe's top energy company said Monday that it expects its trading result in its core integrated gas unit to be in line with the second quarter's, when the division contributed $2.675 billion in adjusted earnings.

Shell will likely have had to rely on strong gas trading to drive third-quarter earnings as weak oil prices and refining margins are expected to drag results across the European energy sector, according to analysts.

Oil prices have been under pressure through the quarter ended Sept. 30 due to concerns about the outlook for global demand. Brent crude prices ended the quarter at $71.70 a barrel, slumping from above $87 a barrel early in the period.

Meanwhile, continued weak refining margins are set to drag Shell's downstream result once again.

Last quarter, lower refining margins drove a 33% drop in Shell's chemicals segment's adjusted earnings. The company said Monday that performance is expected to be even lower in the third quarter, with its indicative refining margins down to $5.5 a barrel from $7.7 a barrel.

On the flip side, European gas prices rose around 14% through the quarter ended amid uncertainty around supplies into Europe, Barclays analysts said in a recent note. This will likely offset some of the hits on earnings from lower oil prices and refining margins.

Still, Barclays forecasts earnings to have declined 15% on average for Shell and its European oil-and-gas peers in the third quarter.

Shell, the world's largest trader of liquefied natural gas, lifted its production guidance for the period to between 7.3 million and 7.7 million metric tons from a previous range of 6.8 million-7.4 million tons. It produced 6.9 million tons on LNG in the second quarter.

It also raised its upstream output guidance, as it now expects to report between 1.74 million and 1.84 million barrels of oil equivalent a day, up from its previous outlook of 1.58 million-1.78 million daily barrels. In the second quarter, it produced 1.78 million daily barrels.

Analysts noted that the guidance for a stable on-quarter trading performance from Shell's integrated gas division stood out as a slight positive from Monday's update, as the market likely was expected a dip.

"While there are some puts and takes here, we think the positives outweigh the negatives," RBC Capital Markets analysts said in a note.

Shell's guidance for a working capital inflow of up to $4 billion should also give investors comfort around shareholder distributions, RBC noted.

Shares were up 0.7% at 25.97 pounds in morning trading in London.

Write to Christian Moess Laursen at christian.moess@wsj.com

(END) Dow Jones Newswires

October 07, 2024 05:12 ET (09:12 GMT)

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