Shell has confirmed it will pay just under £400m in windfall taxes this year relating to its UK operations, after unveiling bumper first quarter profits of £7.6bn.
The first quarter earnings came in just shy of the £7.9bn profits Shell posted in the fourth quarter of 2022 – when it revealed a record year of £32.2bn profit – but came in above the £7.2bn profits posted 12 months ago, when Russia’s invasion of Ukraine saw oil and gas prices soar to near-record highs.
By contrast, the first quarter of 2023 saw gas and oil prices plummet amid reduced demand and concerns of financial instability, with China’s economy slowly recovering from its zero-Covid shutdown.
Oil is currently trading at $72.60 per barrel following hawkish hikes to interest rates from the Federal Reserve and gloomy manufacturing data from China.
Meanwhile, gas is trading below 90p per therm as Western markets head into summer, having peaked at an all-time high of £8 per therm last year amid a sustained supply squeeze from the Kremlin.
The energy giant attributed its hefty earnings to strong operational performance across all of its sectors, enabling it to hand a further £3.2bn to shareholders in buybacks.
The increased profits were driven by higher output from Shell’s liquefied natural gas division, which has been ferrying supplies into storage tanks across Europe for over a year, contributing to £3.9bn earnings for the integrated gas division.
While this was down on last quarter’s £4.8bn profits for the sector, its chemicals and fuels production division doubled its earnings to £1.8bn, thriving from growing profit margins.
Shell weathers windfall tax hurdles
Only a small minority of Shell’s operations are UK-based, with the energy giant spread across 70 countries, confirming an effective global tax rate of 34 per cent during the first quarter of the year.
This enables Shell to minimise the effects of the windfall tax on its bottom line, even as the company’s profits become a lightning rod for controversy with consumers grappling with record energy bills and a cost of living crisis.
The government has toughened the Energy Profits Levy on North Sea producers, extending its duration from 2025 to 2028 and hiking the effective tax rate to 75 per cent.
The move has proven divisive, with some warning the measure will deter investment in domestic energy supplies.
Earlier today, Ithaca Energy boss Gilad Myerson spoke against any further hikes to the windfall tax, warning the Energy Profits Levy will gradually make the UK more reliant on carbon-intensive imports to meet its consumption needs and put the country’s environmental goals at risk.
Myerson, executive chairman of Ithaca Energy, told City A.M. the Energy Profits Levy was not harming international oil majors, which generate revenues across multiple continents, but was instead directly impacting independent UK domestic oil and gas operators.
He said: “Because of the windfall tax, we’ve seen a significant reduction in investment in the UK North Sea and accelerated decline in production, which will only lead to higher UK energy prices. This will exacerbate the cost of living crisis and further hamper the UK’s sluggish economic recovery,” he said.
Labour, however, has called for the windfall tax to be toughened further and for investment relief to be scrapped.
Ed Miliband MP, Labour’s shadow energy and net zero secretary, said: “It is staggering that Rishi Sunak and the Conservatives continue to refuse to implement a proper windfall tax to make the energy companies pay their fair share.
“Labour would bring in a proper windfall tax on oil and gas giants to freeze council tax this year. Politics is about choices. Labour is on the side of working people while the Conservatives are bunging billions to oil and gas giants.”