Shell, one of the largest oil and gas companies in the world, experienced a significant decline in its yearly revenues in 2023 as a result of the drop in energy prices. This decline marked a significant contrast to the company’s previous successful year, where it recorded its highest-ever earnings of $39.9 billion in 2022. However, in 2023, the company’s profits decreased to $28.2 billion, reflecting the impact of the declining energy market.
The decrease in Shell’s earnings can be attributed to several factors, including the global geopolitical situation and a general decrease in energy prices. One notable event that significantly impacted oil and gas prices was Russia’s invasion of Ukraine. The invasion led to widespread concerns about supply shortages, causing energy prices to soar. This resulted in record profits for many energy companies, including Shell. However, these prices were not sustained, and as geopolitical tensions eased, energy prices began to stabilize.
Despite the decline in energy prices, there have been some positive effects on the economy, particularly for households. Since 2022, household costs, including gas, electricity, gasoline, and diesel prices, have seen a decrease. This was primarily due to the drop in global energy prices, which led to a reduction in the cost of raw materials and production. However, this downward trend was temporarily disrupted in March 2022 when the Ukraine conflict broke out, leading to a sharp increase in energy prices due to concerns about supply disruptions.
For instance, Brent crude oil prices reached a peak of approximately $128 per barrel following the invasion, only to drop subsequently to around $80 per barrel. Similarly, the price of gas experienced a similar rise and fall. Nonetheless, despite the decline in prices, oil corporations such as BP and Shell achieved record profits in 2022.
In response to this windfall, the UK government introduced the Energy Profits Levy, a windfall tax imposed on energy companies’ “extraordinary” revenues. This tax aimed to mitigate the impact of rising energy prices on consumers and subsidize gas and electricity rates. While Shell did not disclose the amount it paid in windfall tax in 2021, it admitted to paying £634 million in the UK windfall tax, contributing to a total of £1.2 billion in UK taxes paid by the corporation in 2023.
The decline in Shell’s earnings in 2023 likely resulted in the lower windfall tax figure. In the past, the company had stated its expectation of paying more than $500 million (£395 million) in taxes. Despite the challenging financial climate, Shell announced a share repurchase program of $3.5 billion, scheduled for the next three months. Additionally, the company declared a 4% dividend increase, totaling a remarkable $23 billion returned to shareholders in 2023.
Shell attributes the decline in its earnings to multiple factors, including falling oil and gas prices, reduced trading volumes, and decreased refining margins. Refining, a process that converts crude oil into various products like diesel, experienced a decline due to the reduced demand and decreasing prices. However, the company saw an increase in trading volumes for liquefied natural gas (LNG) in 2023. This rise was mainly driven by several European governments turning to LNG as an alternative when Russia cut off their natural gas supplies.
Despite the challenges faced, Shell remains determined to adapt and deliver value with a reduced environmental impact. Wael Sawan, the chief executive of Shell, highlighted the company’s commitment to simplifying its organization and focusing on reducing emissions as it enters 2024. With a shifting energy landscape and the need for sustainable solutions becoming increasingly apparent, Shell aims to navigate these changes while continuing to be a leading player in the industry.
