Shell warns of weak Q2 earnings amid chemicals and gas slump

Shell (SHEL.L) expects quarterly earnings to be hit by weaker trading in its integrated gas division and losses at its chemicals and products operations, it said this week ahead of second-quarter results due on July 31.

The energy group’s chemicals business suffered unplanned maintenance at its Monaca polymer plant in the United States while trading in its chemicals and products business was significantly lower than in the first quarter, it said.

Shell shares were down 2.9 per cent at 25.52 pounds by 1133 GMT, against a 1.3 per cent decline for the wider European energy sector (.SXEP).

RBC downgraded its forecast for Shell’s second-quarter net income to $3.6 billion from $4.8 billion after the trading update while Citi analysts cut theirs to $4.1 billion from $6.3 billion.

Shell has previously said it wanted to explore strategic and partnership opportunities for its chemicals assets in the United States and might close some chemicals businesses in Europe.

A weaker trading performance was probably to be expected, but the trading update points to a significantly worse than expected downstream performance, said RBC analyst Biraj Borkhataria.

In its oil-focused upstream division, Shell raised the lower end of its guided output, projecting 1.66 million to 1.76 million boed, up from the previously forecast 1.56 million to 1.76 million boed.

The business is expected to record a $200 million exploration write-off, it said without providing further detail.

For its integrated gas division, Shell gave production guidance of 900,000 to 940,000 barrels of oil equivalent per day (boed), compared with the company’s previous projection of 890,000 to 950,000 boed.

LNG production by the world’s biggest LNG trader is set to come in at 6.4 million to 6.8 million metric tons in the second quarter, it said, compared with a previous range of 6.3 million to 6.9 million tons.

A Shell spokesperson declined to comment when asked for further detail.

While trading results in its integrated gas division are expected to be significantly lower than in the first quarter, Shell is targeting a 4-5 per cent annual increase in LNG sales over the next five years and 1 per cent annual production growth.

Adjusted earnings at its marketing division, meanwhile, are set to rise from the first quarter on sales volumes of 2.6 million to 3 million barrels per day (bpd), slightly below previous guidance of 2.6 million to 3.1 million bpd.