Europe’s tumbling gas prices caused profits at Shell to slump by almost a third in the last quarter after denting the earnings in its gas trading business.
Gas prices in Europe fell by almost a fifth between April and June this year after a sudden ceasefire forged between Iran and Israel eased fears that gas deliveries via the strait of Hormuz might be disrupted by conflict.
The biggest weekly slump in gas prices in almost two years helped to dent Shell’s adjusted earnings for the second quarter, which fell by almost a third from last year to $4.26bn (£3.22bn).
However, profits at Europe’s largest fossil fuel company were still higher than City forecasts, which had predicted a larger drop in profits to $3.7bn, allowing Shell to continue handing out bumper payouts to its shareholders.
Shell attributed the profit drop to “lower trading and optimisation margins” as well as lower prices for oil and gas. In addition to the fall in European gas prices, Brent crude was trading below $68 a barrel at the end of the quarter, down sharply from more than $86 a barrel a year earlier.
Despite the fall in profits and a rise in debt, Shell is continuing to pump money back to its investors through share buyback schemes. It announced it would spend $3.5bn buying back shares in the third quarter of the year.
Shell’s chief executive, Wael Sawan, said the company had delivered a strong operational performance in “a less favourable macro environment”.
Gas prices were rocked by the Middle East conflict and were also weaker after a slump in Chinese energy demand amid fears that Donald Trump’s trade tariffs would hinder its economic growth.
Lower demand for gas in China meant more shipments of liquefied natural gas (LNG) in the global market were available to European buyers, which helped to cool market prices.
The weaker gas prices, although challenging for Shell, have meant lower bills for households. In the UK, the government’s energy price cap fell by 7% from July and was expected to remain at a similar level from September, according to forecasts.
Sawan told CNBC: “The tricky thing was, it was non-fundamentals-based volatility. And what I mean by that is this wasn’t fundamental changes to supply demand balances. This was not a change to physical commodity flows. This was really sort of paper-induced volatility, and that is not what we typically trade into.”
Derren Nathan, the head of equity research at the investment platform Hargreaves Lansdown, said a recent rise in oil prices should help Shell’s financial performance improve in the third quarter of the year.
“Shell’s second-quarter earnings hit a bit of an oil patch, with lower commodity prices, a weaker trading environment and unplanned downtime at its chemical plants all playing their part,” he said.
Shell’s profits continue to anger environmental campaigners, after the company last year rolled back decarbonisation targets.
Robin Wells, the director of Fossil Free London, a campaign group that protested outside Shell’s headquarters on Wednesday night, said: “We are now in a new normal of record-breaking heat, created by corporations like Shell. This will mean devastation and mass loss of human life. Climate scientists have warned us that this new normal will spell the end of human civilisation by 2100. It’s time for destruction to stop raising billions in profit.”
