Gas deals delivered a blowout performance for Shell in the final quarter of 2022, driven by strong LNG sales.
Chief Financial Officer Wael Sawan, who hosted his first conference call since taking over, joined CFO Sinead Gorman from London on Thursday as they dissected fourth-quarter and 2022 results. Sawan previously headed the integrated natural gas division. Earlier this year, he took over from retired CEO Ben van Beurden.
Integrated Gas results for the fourth quarter of 2022 were excellent, but Gorman cautioned that a quarter is not a year.
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“Looking at the last 12 months, our overall usage of Integrated Gas as a physical asset as well as the transactional and optimization part has done really well,” she said. “When you look at that, of course transactional optimization played a key role… …but I wouldn’t look at it on a quarterly basis … it’s much better to look at it across 12 months.”
In the fourth quarter of 2022, Shell’s consolidated natural gas production declined sequentially from 924,000 boe/d in the third quarter of 2022 to 917,000 boe/d in the fourth quarter of 2022. Outages at the Prelude LNG facility in Australia and the Curtis LNG facility in Queensland reduced sequential production.
Overall liquefied volumes fell sequentially from 7.24 tonnes to 6.78 million tonnes as equity supply of LNG decreased. However, LNG sales jumped 7% from 15.66 metric tons in the third quarter of 2022 to 16.82 metric tons in the fourth quarter of 2022.
Notably, Shell delivered a total of 194 LNG cargoes to EU countries and the UK in 2022. That’s about five times the company’s usual year, Sawan said.
“Importantly,” Sawan said, “we typically have a portfolio that targets the northern hemisphere winter, so we try to extend” the period from October to March.
“And the way we’ve done that is usually to supplement our equity production with third-party production. The best way to look at some fundamental performance is to look at the volumes we’ve delivered over the past two years. You’ll see, in terms of that volume , with some variation from quarter to quarter.”
Equity and third-party gas volume
Shell’s upstream gas supply rose to 3.067 Bcf/d in Q4 2022 from 2.995 Bcf/d in Q3 2022.
The CEO explained that the company creates value in the integrated natural gas business in a number of ways.
“Of course, on the asset side, you can see how many equity products we’ve sold. And then we’ve created a lot of value in terms of transactions and optimization of the business.” “
Shell hedging, he said, is about “managing our exposure so that we look at it over the course of the year, not just quarter by quarter. We don’t manage quarter by quarter. That’s why you sometimes Seeing disruption on a quarterly basis like Q3 2022. That doesn’t mean the underlying business isn’t strong. It just means you have to look at it from a broader perspective.”
Natural gas is at the top of the list as Western Europe continues to add gas storage options and China’s economy expands as Covid restrictions are lifted. Last year’s Russian invasion of Ukraine redrawn the global gas market and expanded opportunities for Shell, Savan said in an interview with Bloomberg Television on Thursday.
“Our gas business continues to grow in a world that is desperate for gas right now, and I think it will be for a long time to come,” Sawan is reported to have said. Furthermore, gas “plays a role in the transition to lower-carbon resources. play a key role”.
To compensate for the loss of Russian gas pipeline exports to Europe, “there has been a huge amount of rewiring of energy flows over the past year, and we expect that to continue,” Savan told Bloomberg Television. “It’s going to be a multi-year journey. I A reminder to those who look to the future and assume the worst is behind them.”
Ensuring sufficient equity production and third-party volumes is key for Shell’s gas trading arm, Sawan said on a conference call.
After a fire in December, Prelude LNG is “up and running and performing well” again. Shell still has “considerable storage space” in global production.
“Of course, in terms of winter, it’s mild at the moment; warmer, if you want to call it that. So we’ve got to race when the races are going on as well.”
Still, equity upstream production has declined, with only a meager oil and gas portfolio in Europe. Shell has sizeable shares in Italy, the North Sea and Norway. Global opportunities also exist in Brunei, Kazakhstan, Malaysia and Oman.
However, Sawan said the largest share of Shell’s equity production comes from the US and Brazil.
“It’s fair to say there are some considerations in Europe,” he said. Rather than producing oil and gas, though, “we think Europe has made more progress in the energy transition. We’re seeing more in terms of incentives in Europe.
“We see that we have the ability to leverage to some extent our position in Germany and the Netherlands, as well as our marketing position in Europe, aviation, commercial road transport and passenger transport.
“Those are well-suited to play a role in the energy transition, which fits in with where Europe wants to be,” Sawan said. “So I see a big part of our focus…the investments we’re making, like offshore wind in the Netherlands, green hydrogen in the Netherlands…the opportunity to continue decarbonizing for customers in Germany and Italy and so on going forward…
“While we remain committed to our oil and gas business in the rest of the world … I think the disproportionate capital flows into Europe are a theme of the energy transition.”
He acknowledged that the Russian war “did not boost that confidence” when it came time to transition to low-carbon fuels in 2022.
“We’ve seen ad hoc interventions, interventions on windfall taxes, interventions on price gaps in certain areas, nationalization, etc. Of course, these are extreme conditions. I totally understand that. But anytime you start from trying to manage risk Turning to trying to manage prices creates all sorts of concerns in a long-term investment firm like ours.”
However, Sawan reiterates that low-carbon projects are only a small (albeit growing) part of the business.
“Let me… be absolute on this. We will strive for strong returns in any business we are in. We cannot justify low returns. Our shareholders deserve to see us pursue strong returns.
“If we can’t deliver double-digit returns in a business, we need to question very seriously whether we should stay in that business, absolutely. We want to keep chasing lower, lower and lower. carbon emissions, but it has to be profitable.”
Different Transition Risks
Sawan pointed out to investors that upstream businesses don’t always have 20 percent returns and that efforts related to the energy transition have a different risk profile.
“On a commodity basis, you’re going to find that the risk is usually in the range of … 10% to 15%. We also need to be able to see these types of returns on an integrated value chain basis in renewable energy, and that’s what we’re looking at The point … it’s important to say we’re going to continue to focus on value and returns.”
Last year, he noted, “Energy security was a top priority. The world mobilized. We saw policy progress… The Lower Inflation Act was introduced in Europe and the US, evidence of a shift from ambition to action… …
“The world needs a secure supply of affordable energy and, at the same time, needs this energy to be increasingly low-carbon in order to transition to a net-zero emission energy system. In short, the world needs a balanced energy transition.
Shell plans to “pursue the most attractive projects that we come across,” Sawan said. “We don’t have specific constraints…Obviously, we think we have more opportunities in gas right now because we’re able to add a lot of value.”
However, “we still believe that oil has a role to play. A big part of what we announced a few years ago was how we’re going to really prune the portfolio to make the products that we have as an upstream business higher quality. I think we’ve done a lot of that.” So what you’re seeing now is a lot more strength and stability in the industry … I want to extend that strength and stability into the next few years.”
Net income for the fourth quarter of 2022 climbed to $10.41 billion ($1.47 per share) from $11.46 billion ($1.49) a year earlier. Net income will be $42.3 billion ($5.76 per share) in 2022, compared with $20.1 billion ($2.59 per share) in 2021.