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Shell's Q1 2016 gas realizations slump 36% on year, LNG volumes rise

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Shell's Q1 2016 gas realizations slump 36% on year, LNG volumes rise

London — Shell, which in mid-February became a much bigger player in global gas markets with the closure of its $54 billion deal to buy BG Group, saw its realized gas prices slump in the first quarter of 2016, while its LNG sales received a boost from the BG consolidation.

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CEO Ben van Beurden also said Shell would continue to reduce spending, capture cost opportunities and manage the company's financial framework in light of the continued lower price environment.

In an earnings statement Wednesday, Shell said its Q1 gas price realizations globally fell 36% year on year to an average of $3.58/Mcf ($3.47/MMBtu) from $5.62/Mcf in Q1 2015.

In Europe, price realizations fell below $5/Mcf for the first time in at least five years, averaging just $4.89/Mcf in Q1, down 29% year on year.

Article Continues below...

But it was in the US where the slump continued to be keenly felt, with Shell's average gas price realizations falling to just $1.69/Mcf in Q1, compared with $2.83/Mcf in the same quarter of 2015.

And Shell's Asian gas price realizations in Q1 fell to $4.23/Mcf from $5.75/Mcf the previous year.

"There was a sharp decline in prices compared with a year ago -- the realized gas price was 36% lower with a strong decline in gas prices seen in all markets," Shell CFO Simon Henry said on a quarterly conference call.

Henry said there had been a recovery in oil and gas prices recently, "but it is far too soon to be calling a break in the weaker environment."

LNG SALES, GAS OUTPUT

While Shell's sales prices slumped, LNG sales rose in Q1 on the back of its BG acquisition, reaching 12.29 million mt -- 25% higher than in the same quarter last year.

LNG liquefaction volumes of 7.04 million mt in Q1 were 14% higher than for the same quarter a year ago, of which BG contributed some 1.58 million mt.

Total gas production soared in the quarter to 10.905 Bcf/d compared with 9.421 Bcf/d in the same period of 2015, again boosted by BG.

European gas output represented around 30% of the total at 3.28 Bcf/d, while North American production was 1.59 Bcf/d, or 15% of the total.

The remainder was produced in Asia (3.54 Bcf/d), Oceania (1.25 Bcf/d), Africa (855 MMcf/d) and South America (386 MMcf/d).

"The combination with BG is off to a strong start," van Beurden said.

He said that capital investment in 2016 would likely be down on the previous guidance of $33 billion at closer to $30 billion, which is some 36% lower than combined Shell and BG investment in 2014.

Henry added that Shell was keenly focused on reducing both capex and operating expenditure.

"Now we've got under the hood of BG, capital spending is clearly trending toward $30 billion. We are taking cost out of projects and projects out of the funnel," he said.

He added that operating costs were trending much lower toward $40 billion in 2016, 20% lower than pre-combination figure of some $52-$53 billion.

That, he said, meant a $30 billion reduction in combined capex and opex.

Shell is looking ahead with a view to keeping opex down as though prices would stay low "forever."

"Lower for longer is the mantra on capex. Lower forever is the mantra on operating expense," Henry said.

--Stuart Elliott, stuart.elliott@spglobal.com
--Edited by Alisdair Bowles, alisdair.bowles@spglobal.com