Shell, Putin, Ida and an optimistic Swiss bank

Royal Dutch Shell shares remain near their highest since February 2020 after today’s update, but price behaviour is being influenced by powerful figures.

Royal Dutch Shell (LSE:RDSB) investors eyeing a windfall quarter as the world's biggest seller of liquified natural gas (LNG) benefits from extreme moves in gas prices, tempered their expectations a little today.

The energy giant confirmed an expected boost to cashflows from soaring global natural gas prices, but this was offset in Shell's third-quarter update by the lowest LNG output since 2016 as a result of additional maintenance and other constraints.

There was also a $400 million (£294.4 million) hit to oil earnings from damage to facilities in the Gulf of Mexico caused by Hurricane Ida in August, leading UBS to describe the overall trading performance as one of “swings and roundabouts”.

Shares rose 1% or 17.4p to 1,680.6p, taking the rise since mid-September to 17% as a global shortage of gas supplies drives up all energy prices.

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There was some respite today as the UK natural gas price stabilised at about 250p a therm after Vladimir Putin raised the prospect of more supplies from Russia. Futures prices had peaked at more than 400p earlier on Wednesday, adding to market fears of a stagflation scenario of low growth alongside rising household and industry costs.

The price of LNG in Asia also had its biggest one-day increase on record during Wednesday and is up by about 500% in the space of a year as economies recover from the pandemic and emerging markets attempt to reduce their exposure to oil or coal.

The knock-on effect for Brent crude saw a price of above $80 a barrel earlier this week, with a switch in fuels being driven by gas prices now the equivalent of over $200 a barrel.

Shell, which accounts for about 20% of global LNG demand following its acquisition of BG Group in 2016, said cash flows from integrated gas will be “significantly impacted” by large margin inflows on the back of the prevailing gas and electricity price environment.

Liquefaction in the quarter is expected to be between 7 and 7.5 million tonnes (Mt), which compares with guidance for 7.4 and 8Mt and UBS's estimate for 7.5Mt. It will present third-quarter results on 28 October.

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UBS continues to have a “buy” recommendation and price target of 1,860p, which is based on a forward earnings multiple of 5.1 times and dividend yield of 3.9%.

The Swiss bank thinks Shell may look to step up its buyback programme in the final quarter, having completed just over half of the current $2 billion (£1.47 billion) commitment in the past two months.

Last month, Shell announced an agreement to sell all its Permian basin assets to ConocoPhillips (NYSE:COP) for $9.5 billion (£7 billion) in cash, meaning net debt is likely to be well below $50 billion (£36.8 billion) by the year-end.

UBS said: “With a commitment to fund $7 billion (£5.15 billion) in additional shareholder distributions from the Conoco deal plus an abundance of cash flow from operations Shell is faced with the task of trying to get the buyback done in reasonable time.”