MOSCOW (MRC) -- Oil major Shell warned Friday of lower earnings and underwhelming output in the fourth quarter of 2019, weighed down by a weaker economic outlook as well as challenging trading conditions at its gas trading division, adding that it expects impairment charges of up to USD2.3 billion, reported S&P Global.
"Based on the macro outlook, post-tax impairment charges in the range of USD1.7-2.3 billion are expected for the quarter," the company said as it released a partial snapshot of results ahead of its 2019 earnings statement. It did not specify which assets it was referring to.
Shell said it expects its upstream production to range between 2.775 million-2.825 million b/d of oil equivalent in the fourth quarter of 2019, fairly stable compared with the 2.809 million boe/d in the fourth quarter of last year.
The warning does however contrast with the company's previous guidance in October, when it said it expected oil and gas production to return to growth, although at the time it also flagged concerns over the health of the global economy, arguing that it was threatening to delay plans to cut debt and boost shareholder returns.
Integrated gas production will average 920,000-970,000 boe/d, while LNG liquefaction volumes will likely range around 8.8-9.4 million mt, down from Q3 2019 but up from Q4 last year.
Shell said the performance of its LNG trading division is expected to be average, adding it will be down from Q3 2019 but it will be approximately in line with Q2 2019.
The LNG market has been experiencing a supply glut this year, putting pressure on trading margins. Spot gas prices in Asia and Europe have nosedived in 2019 amid a wave of new LNG plants coming onstream and subdued gas demand growth in Asia.
On the downstream side, Shell said its refining margins will be impacted by the continued weak macro environment amid slower oil demand growth.
Refinery availability in Q4 will be down to around 91% and 93% compared with 94% in Q4 2018, while oil products sales will be between 6.5 million-7 million b/d.
"Marketing margins are expected to be lower due to seasonal trends, and weaker compared to the fourth quarter 2018 due to crude price movements impacting retail margins," it added.
Shell also said an additional well write-offs in the range of USD100 million-200 million are expected compared with Q4 2018, although no cash impact is expected.
Amid a weaker macro environment, the major said full-year 2019 capital expenditure will be at the lower end of its USD24 billion-29 billion range.
As MRC wrote previously, in the first week of December 2019, Shell Singapore restarted its naphtha cracker in Bukom Island following a two months maintenance shutdown since the beginning of October 2019. Thus, this cracker was taken off-stream for the turnaround on 1 October 2019. The cracker is able to produce 960,000 tons/year of ethylene and 550,000 tons/year of propylene.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polyprolypele (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,724,670 tonnes in the first ten months of 2019, up by 7% year on year. Shipments of all PE grades increased. The estimated PP consumption in the Russian market in January-October 2019 totalled 1,066,520 tonnes, up by 7% year on year. Supply of block copolymers of propylene (PP block copolymer) and homopolymer of propylene (homopolymer PP) increased, demand for statistical copolymers (PP random copolymer) decreased.
Royal Dutch Shell plc is an Anglo-Dutch multinational oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the biggest company in the world in terms of revenue and one of the six oil and gas "supermajors". Shell is vertically integrated and is active in every area of the oil and gas industry, including exploration and production, refining, distribution and marketing, petrochemicals, power generation and trading.
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