European energy companies are raking in
record profits - as sky-high bills squeeze
their customers' wallets
Energy providers Centrica and Shell both just booked record profits as fuel costs rise.
Europe is experiencing a gas crisis, with one key benchmark doubling in two months.
British households' energy bills could have tripled by the end of the year, according to the consultancy firm BFY.
Soaring gas prices are bad news for consumers - but they're helping major energy companies to rake in record-breaking profits.
UK-listed oil and gas major Shell and Centrica, a utility, reported record-breaking quarterly profits this week.
Shell posted quarterly profits of 11.5 billion pounds ($13.6 billion) - up 92% from a year ago - while British Gas owner Centrica hauled in 1.3 billion pounds ($1.6 billion).
Soaring oil and gas prices have helped the two firms to achieve those historic results. Brent crude and WTI crude have both spiked over 30% year-to-date, while benchmark Dutch TTF natural gas futures have risen by 112% since the start of June.
"It comes as no surprise that Centrica and Shell have performed very strongly again this quarter, with earnings resulting in an $11.5 billion profit, a new record for Shell," Infosys Consulting strategist Simon Tucker said. "It's clear we are currently in a commodities super cycle with supply limited and demand high – and this is likely to be the case for the next three to five years."
European prices for natural gas, coal and power have surged this year, largely because of disruption to fuel supply from Russia, which provides around 40% of the region's gas needs alone. EU sanctions on Moscow over the war in Ukraine have resulted in tit-for-tat closures of key sources of energy supply, which has driven inflation to multi-year highs, squeezing consumers, but bringing a windfall to fuel providers.
And it isn't just UK energy companies that have seen their profits soar.
Norwegian firm Equinor paid out an additional $3 billion dividend to shareholders earlier this week after a strong second quarter, while France's Total SE saw its adjusted income treble to $9.8 billion.
Goldman Sachs strategists warned Europe's energy crisis is likely to last until at least 2025 earlier this week.
"We expect European gas prices will ultimately be driven higher once again during summer 2023, as price-driven demand destruction becomes top of mind once more," a team led by the bank's head of natural gas research Samantha Dart said in a recent research note. "A more sustained lower-price environment is not likely in Europe in our view until 2025."
But the record-breaking profits come as consumers grapple with soaring fuel costs.
The energy consultancy firm warned this week that UK households could see their fuel bills rise to just under 3,500 pounds ($4,280) by the end of 2022 - meaning the figure would have tripled in the space of a year.
Analysts called for the oil and gas firms to reinvest their sky-high profits to help boost supply, which could be one route to easing Europe's energy crisis.
"Every effort possible must be made to reduce energy use and improve supply," Infosys's Tucker said. "Investment can also be directed towards the clean-up of bad industry practices like flaring and spillage of oil, which will open up significant waste reduction potential."
BP expected to report soaring profit days after Shell and Centrica slammed
Pa City Staff - Friday
Bosses at BP will likely be nervously eyeing the headlines that fellow energy giants Shell and Centrica generated this week as they prepare to present their own set of bumper profits.
© PA WireFuel prices
The oil giant is expected to have made far more than twice of what it pocketed in profit a year ago.
It comes as bosses at Centrica and Shell were branded “money-grabbing” on one front page on Friday. “Profits in misery,” another said.
The businesses both combed in big profit increases as they benefited from higher prices for oil and gas around the world.
BP will continue to reap the reward of elevated oil prices in the second quarter with healthy profits expected this time round
Analyst Laura Hoy
The amount that Shell was able to sell its gas for more than tripled in the last year from 4.31 dollars to 13.85 dollars per thousand standard cubic feet.
Undoubtedly some of this will rub off on BP, one of Shell’s big rivals, though just how much, and how much anger it stokes, remains to be seen.
The answers will come on Tuesday.
Analysts expect underlying replacement cost profit – a measure that BP likes to use – to reach 6.8 billion dollars (£5.6 billion) for the second quarter. It would be an increase from 2.8 billion in the same period a year ago.
“BP will continue to reap the reward of elevated oil prices in the second quarter with healthy profits expected this time round,” said Hargreaves Lansdown equity analyst Laura Hoy.
“Capital expenditure in oil and gas is on the decline as BP marches forward with its transition to renewables.
“The recent Windfall Tax imposed by the UK government is still looming over the industry.
“But given that projects within the industry take years – or even decades – to set up, it should have little impact on the group’s investment plans. Still, any update from management on potential implications will be welcomed.
“Aggressive spending on lower carbon assets means this will also be an area of focus for investors.
“These yet unproven projects could become a cash furnace to oil profits, so any update on BP’s aims to generate returns of 8-10% in this part of the business could move the needle.”
She said investors will also be looking for extra information on BP’s exit from Russia. It has decided to sell off its 20% stake in Rosneft, which the company jointly owned with the Kremlin.
But it could be easier said than done. “Eager buyers are not expected to emerge any time soon,” Ms Hoy said.
“That means continuous write-downs are anticipated as the value of this asset declines.”
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