- Bad weather in Australia hits LNG
- Oil and gas prices under pressure
- Shell failing to fire on all cylinders
The impact of Donald Trump’s new tariffs on energy prices and a cut to LNG (liquefied natural gas) volumes and natural gas production guidance conspired to send shares in Shell (SHEL) sharply lower on 7 April.
The FTSE 100 energy giant pinned the blame for the LNG output downgrade on the impact of cyclones and unplanned maintenance in Australia, triggering a 7.5% markdown in the oil major’s shares to a five-year low of £22.94.
GAS GUIDANCE LOWERED
Led by chief executive Wael Sawan, Shell guided for first-quarter LNG production of between 6.4 million and 6.8 million metric tonnes, below the group’s earlier forecast of 6.6 million to 7.2 million tonnes and the 7.1 million tonnes of LNG produced in last year’s fourth quarter.
Shell also said it expects integrated gas production of 910,000 to 950,000 barrels of oil equivalent, down from a range of 930,000 to 990,000 provided in its last quarterly report.
COMMITMENT TO VALUE CREATION
Back in March, Shell set a target of boosting sales of LNG by 4% to 5% per year through to 2030, reinforcing its market-leading position, part of its plan to ‘strengthen its commitment to value creation’ while maintaining a focus on performance, discipline and simplification.
In contrast to other energy producers, Shell maintained the climate targets it set out in its 2024 Energy Transition Strategy as it aims to ‘deliver more value with less emissions’.
UPPING ITS GAME
Russ Mould, investment director at AJ Bell, observed that one of Shell’s key strengths is its dominant position in natural gas, so it will disappoint shareholders that this part of the business is not firing on all cylinders.
‘Under CEO Wael Sawan the company has been looking to up its game to catch up with its US peers and Shell has done better at keeping pace than its UK-listed peer BP (BP.),’ said Mould.
‘Sawan has focused on stripping out costs, keeping a lid on spending and reducing net debt. He also scaled back green investments and insisted that anything in this arena had to stand up as a viable investment on its own merits.
‘However, the danger is that anything investors take from today’s update and Shell’s previous progress could be overtaken by events by the time it puts its first-quarter numbers out in full at the beginning of May.’
Mould added: ‘If oil and gas prices remain under pressure then efforts to improve financial performance could prove as forlorn as trying to make a souffle on a camping stove in the middle of a storm.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
