Shell announces financial impact of gas market fluctuations and hurricane
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Royal Dutch Shell Plc said the turbulent third-quarter events, from large swings in gas and energy prices to the hurricane, will have a significant impact on its finances.
The company gave a first glimpse of what could be a windfall for the oil majors. From Europe to Asia, there has been unprecedented volatility in commodity prices from gas and coal to minerals and food products.
There are indications that Shell’s gas trading operations have been on the right side of these trends. Analysts at Jefferies said in a note that the company’s trading update “should be well received” as production volumes were affected less than expected. “The focus will be on positive drivers of cash flow generation during the quarter,” the bank said.
Shell said in a statement on Thursday that cash flow from operations would be boosted “significantly” by higher margin flows associated with higher energy and gas prices. On the flip side, Hurricane Ida, which shut down a large area of oil and gas production in the Gulf of Mexico, will have an overall negative impact on adjusted earnings of $400 million.
According to Shell’s statement, the company’s trading division, a secretive operation whose earnings are difficult to predict, is expected to achieve higher results from gas compared to the second quarter. Margins will be lower from chemicals and higher in refining.
The company said that a $1 per million British thermal unit increase in the price of the gas standard in Europe, based in the Netherlands, would normally boost Shell’s adjusted profit by $150 million. The first-month TTF contract jumped more than $18 in the third quarter and has risen since then, according to data compiled by Bloomberg.
“We see the statement as constructive, mainly due to comments about improved LNG trading this quarter,” RBC analyst Biraj Borkhataria wrote in a note. However, the trading performance in the third quarter is likely to be higher than in the previous three-month period, according to Borkhataria.
(Updates with analyst comments from the third paragraph.)
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