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Shell profits to take hit from gas trading margins

Shell has faced criticism over profits (Anna Gowthorpe/PA) (PA Wire)
Shell has faced criticism over profits (Anna Gowthorpe/PA) (PA Wire)

Unstoppable energy juggernaut Shell has warned investors that its third quarter profits will slip due to a hike in refining costs and the downturn in the gas trading market.

The business said that its liquefied natural gas (LNG) trading in the period would be “significantly lower compared to the second quarter”  as a result of “seasonality and substantial differences between paper and physical realisation in a volatile and dislocated market.”

Shell has been under fire of late for raking in huge profits during a cost of living crisis that - at one point - could have seen some households pay up to £7,000 for their annual energy bill, prior to UK Government intervention.

Just yesterday, outgoing Shell boss Ben van Beurden called for a business tax to help poorest consumers meet energy costs.

It said that the third quarter dip would be due to a decrease in refining margins that have now dropped to $15 ($13.2) a barrel compared with $28 (£24.7) a barrel in the previous three months.

This is the first chink in the financial armour Shell has shown for some months, as in July , the business reported record profits of $11.5bn (£9.4bn) for the second quarter, more than double last year’s figure of $5.5bn (£4.5bn).

The firm said that cash flow from operations (CFFO) was impacted by working capital outflows of an estimated $2.5billion (£2.2 billion).

Shell said that the adjusted earnings and CFFO price and margin sensitivities were “indicative” and could be “subject to change”.

“These are in relation to the full-year results and exclude short-term impacts from working capital movements, production seasonality, cost-of-sales adjustments and derivatives.

“Sensitivity accuracy is subject to trading and optimisation performance, including short-term opportunities, depending on market conditions”, the company said.

It added that “volatility” could lead to  a boost in cash flow during September from the combined effect of price impacts on inventory, changes in inventory volumes, including gas storage margining effects on derivatives and movements in accounts payable and receivables balances.

Shell’s liquified gas volumes are expected to be between 6.9 and 7.5 million tonnes. Production is expected to be between 890 and 940 thousand barrels of oil equivalent per day.

The company’s stock price dropped nearly 4% in early trading this morning to 2,290 pence.