Weaker base chemicals margins to hit Shell Q4 results

Tom Brown

07-Jan-2022

LONDON (ICIS)–Shell’s chemicals division profits are expected weaker quarter on quarter for the closing three months of 2021, the producer said on Friday, as commodity chemicals margins continue to weaken

Division profitability and joint venture earnings in the space are expected to be weaker quarter on quarter when the UK-headquartered oil and gas major formally reports its financial results in early February.

“Chemicals margins as well as associated JV earnings are expected to be significantly lower than the third quarter 2021, primarily due to weaker base chemicals margins,” the company said in an update note released on Friday.

The forecast indicates that Shell’s chemicals earnings will have fallen for the second half of 2021 as a whole, with the division adjusted earnings of $395m in the third quarter representing a substantial decline from the $670m generated during the prior three-month period.

Shell had attributed the third-quarter decline to weaker margins for base and  intermediate chemicals lines as prices normalised, as well as the impact of Hurricane Ida on the US Gulf Coast in September.

The aftermath of Ida has continued to weigh on company chemicals earnings in the fourth quarter, Shell said, as well as the impact of a lengthy maintenance period at its Scotford, Canada, facility.

The company took down several production units at the site for maintenance from the start of September until late October.

While most units are back online, a problem at the Scotford ethylene glycol plant discovered during the maintenance means the facility was expected to remain idle at least through early 2022.

Due in part to the maintenance and Hurricane Ida recovery work, Shell projects that total capacity utilisation will be 74-78% for the division during the quarter, compared to 78% during the preceding three months.

Total chemicals sales volumes are expected at 3.3m-3.6m tonnes, a substantial decline from earlier projections of 3.5-3.9m tonnes for the period.

The outlook is brighter for the company’s integrated gas earnings, which are expected to perform substantially better than in the third quarter on the back of rocketing spot prices due to shortages in parts of the world that drove values to near-record highs.

the impact of the emergence of the Omicron variant was more strongly felt for the oil products division, which is expected to be post stable earnings year on year but weaker quarter on quarter, with seasonal factors and exchange rate issues in Turkey also expected to weigh on performance.

A $5.5.bn share buyback from the remaining proceeds of the company’s sell-down of its US Permian shale play assets was decided at a 31 December board meeting, the first held since the company opted to move management to the UK as part of a restructure of its corporate operations.

The company is expected to post final fourth-quarter earnings on 3 February.

Thumbnail picture source: Shell

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