Shell's Integrated Gas segment is now expected to produce between 610,000 and 650,000 barrels of oil equivalent per day, a figure significantly lower than the 909,000 boe/d reported in the first quarter.

The company's oil and gas trading division is anticipated to deliver strong second-quarter results, continuing the robust profitability trend seen earlier this year.

Key Highlights

The volatility in energy markets stemming from Middle East geopolitical tensions has benefited Shell's trading operations. However, a reduction in gas supply from Qatar has led to a substantial decline in the company's overall natural gas production, highlighting the mixed impact of the conflict on major international energy firms.

The trading arm of Shell (NYSE: SHEL), whose shares rose 3.12%, continues to benefit from the significant energy market fluctuations caused by the Middle East conflict. Yet, the company is also experiencing a major drop in its natural gas output due to supply reductions from Qatar, illustrating how the regional strife presents both advantages and drawbacks for large energy corporations.

The British energy giant stated on Tuesday that its natural gas trading performance is expected to be significantly higher in the second quarter compared to the first, driven by elevated gas prices. Due to pricing lags in gas procurement contracts, the benefits of these price increases are set to be realized this quarter. Shell's crude oil trading business is also poised to post impressive results, extending the strong profit momentum established at the start of the year.

Since the outbreak of conflict between the US and Iran in February, international oil and gas prices have trended upwards, and the disruption in global energy supply and demand has created profitable arbitrage opportunities for Shell's large-scale trading operations.

The performance of Shell's crude oil trading segment is expected to be in line with the first quarter. The company does not disclose trading profits separately, but the Chemicals & Products division, which houses the crude trading business, reported adjusted earnings of $1.925 billion in Q1, successfully reversing a loss from the fourth quarter of last year.

For most of the second quarter, geopolitical tensions supported higher oil prices. However, prices retreated sharply in mid-June following a preliminary peace agreement between the US and Iran. Despite slow progress in talks, shipping supplies through the Strait of Hormuz—a passage for about 20% of the world's crude—have gradually resumed, leading several analysts to lower their oil price forecasts for the remainder of the year. Nonetheless, sporadic clashes between the sides continue to cause intermittent price volatility.

While trading profits are surging, the geopolitical conflict has severely impacted production in Shell's Integrated Gas segment.

In its trading statement, Shell indicated that Integrated Gas production will decline significantly quarter-on-quarter. Benefiting from stable production at other overseas oil and gas assets, the company slightly raised its production guidance to a range of 610,000 to 650,000 barrels of oil equivalent per day, up from a previous forecast of 580,000 to 640,000 boe/d. The segment produced 909,000 boe/d in the first quarter. The core reason for the substantial production drop is the conflict's impact on supply facilities in Qatar, one of the world's most important natural gas exporters.

Shell disclosed in May that damage and shutdowns at facilities in Qatar reduced its overall production by approximately 10%. Shell operates the world's largest Pearl Gas-to-Liquids (GTL) plant in Qatar and holds a 30% stake in a liquefied natural gas (LNG) plant operated by QatarEnergy.

Speaking at a CEO summit in June, Shell's Chief Executive Wael Sawan stated that the Pearl GTL plant was attacked by Iran in March, damaging one production train, which the company aims to repair and restart by early next year. Another production train has been completely shut down and will resume operations once the situation in the Strait stabilizes.

Shell has raised its second-quarter liquefied natural gas production guidance to a range of 7.4 to 7.8 million tonnes, up from a previous forecast of 6.8 to 7.4 million tonnes.

Upstream (oil and gas exploration and production) output is now expected to be between 1.75 million and 1.85 million barrels of oil equivalent per day, higher than the previous guidance range of 1.62 million to 1.82 million boe/d.

The company's indicative refining margin is projected to rise to around $20 per barrel from $17 per barrel in the first quarter, with refinery capacity utilization nearing 100%.

Shell's share price was up 3.2% in early trading on Tuesday.