By Ron Bousso
LONDON (Reuters) - Nearly a third of Shell PLC (LON:SHEL)'s profit in the fourth quarter of 2023 came from the $2.4 billion it made in trading liquefied natural gas (LNG) as it captured strong demand ahead of winter, three sources close to the company told Reuters.
Shell (LON:RDSa) did not disclose how much it made on LNG trading when it reported fourth quarter net earnings of $7.2 billion on Feb. 1. The British company rarely gives details of the performance of trading beyond general descriptions. The profit turned on LNG underscores the importance of gas in its portfolio.
Two of the sources said the quarterly profit from LNG trading was among the highest in Shell's history.
A Shell spokesperson declined to comment on the profit figure.
Shell, the world's largest oil and gas trader, has LNG operations worldwide that allow it to benefit from regional shifts in demand and pricing.
The strong performance was a result of the opening of trading opportunities, known as arbitrages, between eastern and western markets as the northern hemisphere's winter set in, CEO Wael Sawan said on Feb. 1.
Arbitrage opportunities have narrowed since the start of the year due to a drop in natural gas prices as a result of ample supplies and mild winter conditions, he added.
Shell accounted for nearly 17% of global LNG trading volumes of 404 million metric tons in 2023, according to company data.
Shell's gas trading hasn't always paid off.
Reuters reported in November 2022 that Shell's trading division recorded a loss of nearly $1 billion in the third quarter of the year after traders were caught out by a sharp rally in European gas prices when Russia halted supplies.
Shell has previously said that trading operations are expected to provide a 2% to 4% lift to the company's return on average capital employed, which reached 18.8% in 2023.
DOMINANCE
Shell expects oil, gas and power trading to play a key role as it negotiates the energy transition. Trading can help boost returns from oil and gas and shield the company from fluctuations in commodity prices.
Shell's dominant position in the LNG market will be particularly important in the long term,
"Shell has built scale to be able to dominate LNG trading through gas volumes and a large fleet of tankers," said Christyan Malek, global head of energy strategy at J.P. Morgan. "This scale will also allow Shell to dominate trading in LNG even through a downturn in gas prices."
Malek said Shell would likely continue to hold a dominant position in the LNG market, allowing it to benefit from market dislocations for decades.