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The energy crisis in Europe is finally over, the chief executive of Shell signalled, as market prices and volatility return to levels before Russia’s full-scale invasion of Ukraine in February 2022.
“We have seen that across the energy complex this quarter, maybe more so than any of the previous ones in recent times, that we are moving back to a normalised price and margin level that is pre-2022,” said Wael Sawan in an interview with the Financial Times, adding that gas, crude and power prices had all dropped back and become more stable.
Nevertheless, Sawan, who promised to slim down and focus Shell on its core business when he became chief executive in January 2023, said he was preparing the company for a bumpy ride through the energy transition.
After posting higher-than-expected adjusted earnings in the second quarter of $6.3bn, up from $5.1bn a year earlier, announcing cost savings of $1.7bn and reducing net debt by more than $2bn, Sawan said he would maintain both the dividend and Shell’s quarterly $3.5bn of share buybacks.
“We are creating the space to have more cash and decide what we want to do with it,” he said. “And we are continuing to position ourselves for what I am sure will be a non-linear, volatile, energy transition. We look to maintain consistency through not just good times but also some of the more challenging times.”
He said Shell aims to keep its target of returning 30 to 40 per cent of operating cash flow to shareholders not just during high oil prices, but also if they fall to $50 a barrel.
At $40 a barrel, he said Shell would continue to pay its dividend. “$40 to $50 would be a scenario that I don’t think we have seen last for much longer than 12 months at any point in the last couple of decades,” he added.
The fall in prices and volatility in Europe saw Shell’s renewable and energy solutions business, which includes power trading, post a $187mn loss, a 215 per cent drop from the quarter before. The oil major also said it had reduced its pipeline of renewable power projects under construction from 4.6GW in the first half of last year to 3.8GW.
Sawan said the loss was “not a massive surprise” because a lot of the unit’s earnings had come from high power prices. He added that the business was in a “heavy investment phase” and that while Shell has pledged to spend $10bn to $15bn between 2023 and 2025 on projects, they would not start to make money until the latter part of the decade.
Shell has recently paused work on its biofuels refinery in Rotterdam, but Sawan noted that it had taken a final investment decision on a large carbon capture project in Canada and on a new green hydrogen electrolyser in Germany.
