Shell (SHEL.UK) is doing well even though the winter supply problems and energy crisis have not materialized. Natural gas is seeing unprecedented sell-offs, and oil prices, despite the fuel embargo from Russia, have fallen from wartime highs on a wave of fears of a global recession.

In 2022 Shell’s profit rose more than 100% y/y to around $40 billion. In Q4 2022, the company reported record quarterly financial results, and full-year profit significantly beat the previous record set in 2008. Shell paid out $6.3 billion in dividends in Q4 and plans another $4 billion share buyback. Source: BBC

UK ‘windfall tax’

In the UK, controversy over ‘Big Oil’ profits is growing in the face of a planned 40% increase in energy prices in April.

Shell is in a complicated position because it is based in the UK, but produces a relatively small amount of oil and gas in British waters. It paid $134 million (£110 million) in taxes on its UK operations in 2022 (about 1% of the company’s $13 billion in taxes in 2022) but expects up to a 350% increase in that amount in 2023.

Companies operating in the UK already pay 40% tax on oil and gas profits. However, they can reduce it by deducting the costs of shutting down oil rigs, advances on future investments and losses from earlier years.

The UK estimates that between 2022 and 2028, the higher 40% windfall tax will bring about £40 billion to the budget, collected from all companies operating in British waters. However, Shell will be probably able to deduct more than 90% of the cost of new exploration and production, reducing the final tax.

Circumventing sanctions?

In a wave of ‘Guardian’ reports, controversy has grown around Shell, which is accused of circumventing sanctions by exploiting a ‘loophole’ in the system, i.e. importing Russian oil and its derivatives to Europe via Turkey, which has become the Kremlin’s import hub.

An analysis of data from Kpler by the Global Witness group showed that Shell has imported more than 600,000 barrels of refined products from Turkish refineries into the Netherlands since December 5.

It is impossible to prove whether the products definitely came from Russia, but Turkish refineries import huge quantities of cheap oil from Russia, which are then refined or blended with crude from other countries.

In 2022 Turkey imported 143 million barrels of oil from Russia, a 50% year-on-year increase. Shell announced its intention to withdraw from trade with Russia, last March, following the outbreak of war in Ukraine.

A Shell spokesman denied media reports of sanctions, the company accounted for 11% of LNG shipments to the EU, easing supply pressures caused by sanctions on Russia.

RNG – BioLNG

Shell has completed the acquisition of Europe’s largest producer of renewable natural gas (RNG), Nature Energy. According to the company, the acquisition is expected to generate double-digit profits, thanks to its broad customer portfolio.

Nature Energy has 14 operating plants and produced about 6.5 million MMBtu of RNG in 2022. More than a third of the company’s 30 new projects are in mid- to late-stage development in Denmark, the Netherlands and France, and could deliver up to 9.2 million MMBtu per year by 2030.

RNG is a biomethane that works similarly to conventional gas and can be used in existing infrastructure (also as a BioLNG), while not releasing harmful methane into the atmosphere, allowing it to be processed.

Source: xStation5

Shell (SHEL.UK) shares, D1 interval. The stock, despite the correction of the last few days, has been doing very well recently despite the decline in oil prices (yellow chart).

The main support for the stock is the SMA200 (red line), which has been limiting the space for declines for 2 years. Lower levels worth noting are the 23.6 and 38.2 Fibonacci retracement of the upward wave started in 2020.