Shell gas output drops 29% as Middle East conflict hits Qatari volumes

Shell's gas traders reaped gains from Middle East volatility in the second quarter, but lost Qatari volumes dragged integrated gas production down 29% from the prior period.

Shell said its gas-trading division expects significantly higher results than the first quarter, while integrated gas production fell to between 610,000 and 650,000 barrels of oil-equivalent a day, down from 909,000 boe/d in the first three months of the year.

"The production decline reflects the impact of the Middle East conflict on Qatari volumes," Shell said in its second-quarter outlook update published Tuesday. The company's oil traders also delivered a robust performance, with the chemicals and products division — which houses oil trading — expected to post results in line with the first quarter's $1.925 billion in adjusted earnings. That compared with a $66 million loss in the fourth quarter of last year.

LNG liquefaction volumes are expected at 7.4 million to 7.8 million metric tons, versus 7.9 million in the first quarter. Upstream production is forecast at 1.75 million to 1.85 million boe/d, roughly flat from 1.84 million in Q1, while marketing sales volumes are seen at 2.55 million to 2.65 million barrels a day, compared with 2.63 million.

The company's indicative refining margin rose to about $20 a barrel from $17 in the first quarter, while the indicative chemicals margin jumped to roughly $240 a ton from $139. Shell cautioned that given market dislocations, realized margins are lower than the calculated benchmarks.

Working capital is expected to swing to positive $1 billion to $6 billion after a negative $11.2 billion in the first quarter, which Shell attributed to unprecedented volatility in commodity prices. Tax paid is forecast at $2.6 billion to $3.4 billion, up from $2.3 billion.

The mixed update pits near-term trading windfalls from geopolitical volatility against structural production losses in a core profit center. Shell's integrated gas unit has been a key earnings driver, and the lost Qatari volumes raise questions about the durability of supply from one of the world's largest LNG exporters amid escalating regional tensions. Shell is scheduled to publish full second-quarter results on July 30, with consensus estimates compiled by Vara Research due July 22.

This article is for informational purposes only and does not constitute investment advice.