Shell Reports Decline in Profits Amidst Cooling Energy Prices

Shell, one of the prominent energy companies, has disclosed a decrease in profits for the year 2023, amounting to $28.2 billion (£22.3 billion), down from the record-high earnings of $39.9 billion in 2022 – the company’s highest in its 115-year history.

The surge in oil and gas prices triggered by Russia’s invasion of Ukraine in 2022 had propelled energy firms, including Shell, to achieve unprecedented earnings. However, the aftermath saw a decline in household bills but maintained at elevated levels.

The escalation in gas and electricity prices, along with petrol and diesel costs, began after the conclusion of Covid lockdowns. It reached its peak in March 2022 due to concerns over supply disruptions following the Ukraine war. The price of Brent crude oil peaked at nearly $128 a barrel but has since receded to around $80. Gas prices also experienced spikes but have moderated from their highest points.

In response to the windfall profits of energy companies, the UK government introduced the Energy Profits Levy, a windfall tax, to offset the extraordinary earnings and support a scheme subsidizing gas and electricity bills. Shell confirmed paying £178 million in UK windfall tax for 2022 and an overall tax of £1.1 billion in the UK for 2023, including £240 million under the Energy Profits Levy.

Despite the decline in profits, Shell returned $23 billion to shareholders in 2023, raising its dividend by 4% and initiating a $3.5 billion share buyback program over the next three months.

Shell attributed the profit reduction to lower oil and gas prices, reduced trading volumes, and narrower refining margins in 2023. The company experienced increased liquefied natural gas (LNG) trading, with many European countries turning to LNG as an alternative energy source following Russia’s cut in natural gas supplies.

While the profits for the final quarter of 2023 exceeded analysts’ expectations at $7.3 billion, down from the previous year’s record of $9.8 billion, energy analysts foresee ongoing unpredictability in oil and gas prices throughout 2024, especially considering the persistently high geopolitical tensions in the Middle East.

Shell’s Chief Executive, Wael Sawan, emphasized the company’s commitment to simplifying its organization in 2024, aiming to deliver more value with fewer emissions and focusing on the transition to cleaner energy.

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