Shell Adjusts LNG Production Forecast, Shares Decline
Shell Adjusts LNG Production Outlook
Shares of Shell (BS: SHEL) experienced a downturn as the company revised its liquefied natural gas (LNG) production expectations. This adjustment followed the company’s assessment of its fourth-quarter liquefaction capabilities.
Revised Production Estimates
Shell has now set its LNG production guidance for the fourth quarter in the range of 6.8 to 7.2 million tonnes, a slight adjustment downward from the previous estimate of 6.9 to 7.5 million tonnes. This change signals the energy giant's responsiveness to current market conditions.
Challenges in Integrated Gas Operations
The challenges faced by Shell’s Integrated Gas segment have heavily influenced this revision. Analysts at RBC Capital Markets characterized this information as a “weak trading update,” indicating signs of struggle across various business units, including oil, gas, and power.
Factors Contributing to the Downgrade
Several elements contributed to the downward revision of Shell's LNG outlook. Among these, decreased gas trading volume in the current quarter stands out, aggravated by the expiration of vital hedging contracts. This situation has imposed significant pressure on Shell’s market operations.
Operational Performance Decline
In addition to the issues with gas trading, Shell pointed out the lack of feedgas availability and reduced cargo liftings as substantial contributors to their revised production forecast. These challenges reflect a broader decline in operational performance throughout Shell's entire portfolio.
Impact on Chemicals Margins
The company has also reported deteriorating margins in its chemicals division, with profits falling to $138 per tonne from $164 in the previous quarter. Furthermore, oil trading profitability has plummeted, which analysts partly attribute to periodic seasonal influences.
Potential Increase in Lease Liabilities
Shell also cautioned about a possible increase in lease liabilities, estimated between $4 to $6 billion, linked to its LNG Canada and Pavilion LNG projects. The implications of these liabilities could further influence Shell's financial strategies moving forward.
Analysts Maintain Positive Outlook
Despite these challenges and adjustments in forecasts, RBC analysts continue to uphold an “outperform” rating on Shell's stock. They believe that the company’s long-term outlook remains promising, assuring shareholders that the returns policy stays proactive.
Frequently Asked Questions
What is Shell's revised LNG production estimate?
Shell's new LNG production estimate for the fourth quarter is between 6.8 and 7.2 million tonnes.
Why did Shell lower its LNG outlook?
The reduction is attributed to weaker gas trading, lower feedgas availability, and fewer cargo liftings, amidst broader operational performance issues.
How have chemicals margins changed?
Chemicals margins fell to $138 per tonne from $164 in the previous quarter, reflecting a decline in profitability.
What do analysts predict for Shell's long-term performance?
Analysts maintain an “outperform” rating, believing Shell's long-term prospects are strong despite the current hurdles.
What are the potential lease liabilities mentioned?
Shell warned of a potential increase in lease liabilities ranging from $4 to $6 billion due to its LNG Canada and Pavilion LNG projects.
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