Shell expects its indicative refining margin to rise from $24 a barrel in the second quarter to $42 in the third, giving its products business a stronger economic backdrop ahead of results later this month. Integrated Gas production is also expected to increase to between 740,000 and 780,000 barrels of oil equivalent per day, compared with 631,000 in the previous quarter.
Part of that production increase reflects portfolio change rather than purely organic growth because the third-quarter range includes assets acquired from ARC Resources, with the transaction completing on 2 September. Shell’s update therefore combines underlying operating movements with the first contribution from businesses that were not present for the whole of the previous quarter.
Stronger refining economics are accompanied by weaker indicators elsewhere in the downstream portfolio. Shell expects its indicative chemicals margin to fall from $270 a tonne to $208, while refinery utilisation is forecast at between 93% and 97% compared with 102% in the second quarter.
Low water levels on the Rhine are affecting utilisation at the Rheinland refinery, showing how physical constraints can limit production even when market conditions make refining more profitable on the company’s indicative margin measure. Marketing sales volumes are expected to remain broadly stable at between 2.55 million and 2.65 million barrels per day, although adjusted earnings from the division are forecast below the second-quarter level.
Trading and optimisation in both Integrated Gas and Chemicals and Products is expected to remain broadly in line with the previous quarter. Taken together, the numbers indicate that stronger refining conditions are not translating into a uniform improvement across downstream operations because chemicals, utilisation and marketing are moving differently.
The figures remain an outlook rather than final results. Shell says the ranges are subject to finalisation before third-quarter numbers are published on 29 October, while the indicative refining margin itself is not a direct forecast of segment profit because actual earnings also depend on utilisation, crude slate, product mix, trading and operating costs.
Upstream production is expected to sit between 1.735 million and 1.835 million barrels of oil equivalent per day, against 1.824 million in the second quarter, and Shell anticipates around $300m of exploration well write-offs. LNG liquefaction volumes are expected at between 7.2 million and 7.6 million tonnes, compared with 7.7 million tonnes previously.
Cash flow will also contain substantial timing effects that complicate a simple reading of operating performance. Shell expects around a $2.5bn outflow linked to the timing of payments for German fuel emissions certificates, while net debt will reflect the cash consideration and assumed debt attached to the ARC transaction alongside changes in variable components of long-term shipping leases.
The quarter therefore combines stronger refining margins and higher integrated-gas output with weaker chemicals economics, lower expected marketing earnings and sizeable balance-sheet and cash-flow movements. Shell’s diversified model means those factors can move in different directions at the same time, which is why the update is more useful as an operating bridge than as a standalone earnings forecast.
The increase in the indicative refining margin from $24 to $42 a barrel is nevertheless material. Refining margins measure the spread between crude input values and the market value of the products a refinery produces, so a wider spread can improve returns when plants are able to operate efficiently, even though final earnings still depend on a broader set of variables.
Shell’s full results on 29 October will show how those movements translate into earnings, cash generation and debt. Until then, the update points to a much stronger refining environment while preserving significant variation across gas, upstream production, chemicals, marketing and cash flow.
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