Shell 3Q24 Results | Climate Transition Insights
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Despite stronger-than-expected 3Q24 earnings, driven by solid performances in Integrated Gas, Upstream, and Marketing segments, Shell continues to face challenges in its Renewables & Energy Solutions (RE&S) segment. Adjusted earnings for RE&S were -$162m, marking consecutive quarterly losses as the company scales back its strategy. The company reiterated it remains committed to oil and gas, with a focus on LNG growth. While Shell continues to frame LNG as a decarbonisation lever, its impact will be minimal.
Our view
These developments, combined with biofuels setbacks last quarter, highlight a key issue in Shell’s strategy: meeting its emissions intensity target will likely require an increased reliance on offsets. Given FY24 performance to date with minimal changes to its reported sales portfolio, Shell is expected to exceed the 20 Mt of offsets retired in FY23 to achieve its 9-12% NCI reduction target, up from 6-9% last year.
3Q also saw Shell maintain its focus on prioritising shareholder distributions over investment. FY24 capex guidance was downgraded to under $22bn from the previous $22-25bn, while announcing $3.5bn in buybacks for 4Q24. Over the past 12 months, Shell distributed 43% of its CFFO, surpassing its 30-40% target range.
Priority questions ahead of 2025:
1) Quantification of levers to achieve net carbon intensity (NCI) targets:
How much of the emissions reduction from oil product sales will come from divesting refineries and retail sites? The company is targeting 15-20% by FY30, and refinery and retail site sales are identified as key levers in meeting Shell’s target.
How much will offsets contribute to Shell’s NCI targets? Shell’s offset surged 5x in FY23, with 20 Mt surrendered accounting for over half of their FY23 NCI progress.
2) Increases in low-carbon investment:
What would Shell need to increase low-carbon capex ambition in line with peers? Shell ranks last among peers, with a ~19% short-term target compared to other Euromajors (28%-50%), and is one of only two companies, alongside Eni, without an FY30 investment target.
Key findings
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3Q24 results saw capex continue the decline seen in the first two quarters, falling 12% from 3Q23 to $4.95bn. This was materially driven by a -$393m decrease in Marketing (-43% on 3Q23) and a -$250m decrease in Renewables & Energy solutions (-38% on 2Q23). Shell downgraded FY24 capex to <$22bn, previously $22-25bn.
Oil and gas production grew 4% to 2.81 M boe/d from 3Q23, due to ramp-ups and lower maintenance in Integrated Gas, and new production in Upstream. The company guided to 2.65-2.91 M boe/d for 4Q24, which puts implied production for FY24 at 2.80-2.86 M boe/d, up 0.1%-2.5% from FY23.
3Q adjusted earnings beat expectations despite a 3% decline YoY to $6.0bn. Growth was driven by Shell’s Integrated Gas (+14% to $2.9bn), Upstream (+10% to $2.4bn), and Marketing segments (+64% to $462m). However, this was largely offset by a sharp decline in the Products segment, which fell $1.1bn, down 66% YoY, due to weaker refining and trading margins.
Shell maintained buybacks of $3.5bn to be completed in 4Q24. The company reported 43% of CFFO distributed over the last 12 months, exceeding its guidance of 30-40%.
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Shell’s 3Q24 results reflect ongoing challenges in its Renewables & Energy Solutions (RE&S) segment as it scales back its strategy.
The segment’s capex has declined year-on-year for a third consecutive quarter, down 38% to $409m, with adjusted earnings at -$162m, marking consecutive quarterly losses. The retreat from power puts RE&S capex at $1.3bn for the first nine months of FY24, down from $1.7bn in FY23.
Shell’s Renewables pipeline continues its decline, down 6% from 3Q23 to 45 GW. At the same time, the company continued its focus on gas. Earlier this month, Shell agreed to acquire 100% of RISEC Holdings, owner of a 609 MW combined-cycle gas power plant in Rhode Island, USA. The deal is expected to close in 1Q25.
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Shell’s 4Q guidance signals its FY24 NCI target will lean heavily on offsets, as the outlook for FY24 refined oil sales growth (+4-496 kboe/d) dwarfs renewables 800 MW of additions (+6-14 kboe/d equivalent). With oil and gas production expected to grow up to 2.5%, and LNG sales run-rate flat on FY23 (~67 Mtpa) - little has changed in Shell’s portfolio.
This comes after last quarter, where Shell paused construction at its biofuels facility in Rotterdam due to technical considerations, reporting a post-tax impairment of $783m in Marketing. These developments highlight a broader issue with the company’s strategy; Shell will struggle to meet its emission intensity target without a material use of offsets and divestments.
Last year, 20 Mt (about 12% of the global offset market) of offsets accounted for ~50% of Net Carbon Intensity reductions, allowing Shell to reach the lower end of -6%-9% NCI target for FY23. The company’s FY24 NCI target jumps to -9-12%, likely increasing offset usage.
Looking ahead, if Shell intends to use power to decarbonise, the company would need to sell the electricity generated from ~88 GW of renewable capacity, either from the company or from third-parties, to reach the upper end of its FY30 NCI target without relying on additional offsets.
