x Abu Dhabi, UAETuesday 23 January 2018

High oil prices help Shell raise profits 11 per cent

High oil prices and production growth help Shell grow its profits in the first quarter

Royal Dutch Shellincreased its profit in the first quarter, helped by rising oil prices and production growth.

Current cost of supply net income - an industry measure of profit - rose by 11 per cent to US$7.7 billion (Dh28.28bn) in the first three months of this year.

Plummeting natural gas prices in the United States cut into its profit, but gas prices elsewhere, as well as a ramp-up in production at the company's gas-to-liquids plant in Qatar, compensated for the decline, and supported Shell's growing emphasis on gas markets.

"Energy demand fundamentals are robust, but with near-term volatility in energy prices as a result of economic and political events," said Peter Vosser, the chief executive of the Anglo-Dutch energy major. "In downstream and North American natural gas we see continued challenges for our industry."

Brent crude, the benchmark for European oil sales, averaged at $118.60 per barrel last quarter, up from $105.43 a year earlier. Meanwhile, the exploitation of shale reservoirs has led to US gas prices dropping to near a 10-year low.

The company managed to increase its total production by 1.4 per cent year on year to 3.55 million barrels of oil equivalent per day since the start of this year.

Projects such as the Caesar/Tonga deepwater oil development off US shores and the Pluto liquefied natural gas (LNG) terminal in Australia added to output. Shell's $20bn Pearl gas-to-liquids plant in Qatar, which started production last year, continued to increase output and should be at full capacity by the end of the second quarter.

While the US gas market is depressed, demand for LNG in Asia and Europe remains strong. Shell managed to capitalise on this, increasing its sales of the liquefied gas by 17 per cent to over 5 million metric tonnes. Its gas play was supported by the QatarGas4 LNG project, and increasing production in Nigeria.

Shell, Europe's largest energy player by market value, plans to produce more gas than oil by the end of this year. As part of its gas focus, the company this week tabled an offer of $1.8bn for Cove Energy, an explorer with a stake in a giant gas field lying off the shores of Mozambique.

The successful commissioning of Pearl in Qatar has also led to widespread speculation in the market that Shell would commit to a gas-to-liquids project in the US. Yesterday Simon Henry, the company's chief financial officer, said that it would be at least one year before Shell would make an investment decision on an expensive gas-to-liquids project in North America.

"The key question is whether they will now go ahead with another [gas-to-liquids] plant," said an analyst in London. "At the moment Shell seems to be focusing more on LNG."

Shell continued to reduce is downstream portfolio in the first quarter, shedding assets worth $300m.