Big swings in natural gas and electricity prices, along with the devastating impact from Hurricane Ida, will impact Royal Dutch Shell plc’s bottom line in the third quarter, the integrated major said Thursday.

Ida

In a preview of its quarterly results, the Anglo-Dutch producer said the Integrated Gas segment, which includes its substantial liquefied natural gas (LNG) portfolio, “is expected to be significantly impacted.”

While LNG volumes are forecast to be lower sequentially and year/year, the “trading and optimization results are expected to be higher compared to the second quarter 2021.” Shell did not provide any trading figures.

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LNG volumes are likely to be 7-7.5 million metric tons (mmt), “reflecting feed gas constraints and maintenance.” For comparison, Shell reported 7.8 mmt in 3Q2020 and 8.9 mmt in 3Q2019. 

Shell, the undisputed global leader of natural gas trading, also had reported a shortfall in LNG sales and volumes during 2Q2021, down by 8% sequentially to 7.49 mmt from 8.16 mmt. However, some of the maintenance-related issues cited had been expected to be quickly resolved.

However, natural gas prices are soaring, and global demand has escalated.

“Cash flow from operations excluding working capital is expected to be significantly impacted by large variation margin inflows on the back of the prevailing gas and electricity price environment,” Shell stated in its regulatory filing. “These inflows are expected to be higher” than in 2Q2021.

When Ida stormed through the Gulf of Mexico (GOM) in late August, Shell suffered extensive damage to some offshore facilities, which cut into upstream volumes in the quarter. 

Shell expects to record a $400 million impact to overall earnings and cash flow in 3Q2021 because of Ida. Ida is forecast to knock down oil production earnings by $200-300 million, with the refinery arm taking a hit of $50-100 million.

Upstream output also is likely to be lower in 3Q2021 because of Ida.  

Shell expects to see its upstream output decline to 2.0-2.1 million boe/d. Ida alone reduced 3Q2021 output by an estimated 90,000 boe/d. 

For comparison, upstream production in 3Q2020 was 3.9 million boe/d, and Shell posted 3Q2019 production of 3.9 million boe/d.

Refining processing capacity is forecast to be 70-74%, off from an earlier forecast of 73-81%. Utilization in 2Q2021 was 76%.

Shell recently said it has restarted its Olympus oil production platform in the deepwater GOM following partial repairs to the West Delta-143 (WD-143) transfer station. Shell’s two other oil platforms in the Mars corridor, Mars and Ursa, remain shuttered pending repairs to WD-143. Repairs are not expected to be completed until the end of the year or early 2022.