Shell Reports Sharply Lower Earnings as Energy Prices Ease

The News

Shell, Europe’s largest energy company, said Thursday that its profit fell 56 percent in the second quarter compared with the record-breaking earnings of a year earlier,to $5.07 billion.

The company blamed several factors for the falloff in adjusted earnings, including lower prices for oil and natural gas. Shell also said that earnings in liquefied natural gas, a crucial business for the company, were sharply lower partly because a less turbulent environment meant there were fewer opportunities to profit from trading.

Why It Matters

Shell’s performance, which came in below analysts’ forecasts, shows that the petroleum industry may have reached a certain equilibrium after an extended period of volatility stemming from the pandemic and the war in Ukraine. If so, large, petroleum-dominated companies like Shell remain very profitable even in a lower price environment.

Shell also continues to reward shareholders. The company raised its dividend 15 percent for the quarter, to about 33 cents a share. Shell also announced $3 billion in share buybacks, a slight decrease from $3.6 billion in the previous quarter.

Background

The energy industry has demonstrated resilience in the last few years despite a very volatile environment. Energy companies have managed to compensate for a sharp reduction of natural gas flows from Russia to Europe by bringing supplies from elsewhere, especially the United States. The global oil trade has also so far adjusted fairly smoothly to Western sanctions on Russian crude and refined products.

Those adjustments, along with muted demand growth in China, the world’s largest importer of energy commodities, have allowed prices to ease despite efforts to curb supplies by the Organization of the Petroleum Exporting Countries. Brent crude, the international benchmark, sold for an average of about $78 a barrel in the second quarter — a 31 percent drop from a year ago. Natural gas prices in Europe were 65 percent lower.

What’s Next

On a call with journalists, Wael Sawan, Shell’s chief executive, indicated that he thought there was a good chance that Europe could come through the next winter, a time when gas consumption typically soars, in decent shape.

“We are going into this European winter in a good place,” he said, with storage levels of the fuel high and the capacity for renewable energy growing.

However,Europe remains heavily dependent on imported gas, and Mr. Sawan said price pressures in the market over the winter could depend on outside factors such as the strength of demand in China and the weather. Last winter, Europe benefited from mild temperatures and reduced demand for energy in China.

Mr. Sawan, who became chief executive at the beginning of the year, has brought a skeptical approach to the company’s many businesses, including some of those Shell entered under his predecessor, Ben van Beurden.

In the transition to lower carbon energy, he is trying to focus on areas that he thinks fit well with Shell’s traditional strengths, like electric vehicle charging stations and biofuels. He said on Thursday that he did not think the company had what he called “a big differentiated advantage” in generating electricity with wind and solar energy. Shell plans to sell some electric power businesses, including an energy retailer in Britain, and it seems likely that others could go on the block.