Why Are Shell's Profits So High When We're In An Energy Crisis?

The energy giant has more than doubled the amount it can take home compared to last year.
Shell has recorded record profits even though the energy crisis is ongoing
Shell has recorded record profits even though the energy crisis is ongoing

Shell has reported its profits have more than doubled compared to last year, reaching a whopping total of £8.2 billion in across just three months.

Considering Russia’s invasion of Ukraine has triggered a rise in oil and gas prices across Europe, and a subsequent energy crisis, how come the suppliers are taking so much extra profit?

Here’s what you need to know.

How much has Shell made?

Quite a lot, it turns out.

Shell has just announced it made $9.5 billion (£8.2 billion) in the third quarter of 2022, between July and September.

During the same period in 2021, it made $4.2 billion (£3.62 billion).

This £8.2 billion profit is less than the record-breaking amount Shell announced for the second quarter of this year ($11.5 billion or £9.92 billion), as energy prices have declined slightly since then.

Still, Shell had been expecting its record-breaking profits to have come to an end by now – so this cash fall is an unexpected bonus for the energy giant.

This also means in 2022 alone, the company made $30 billion (£25.8 billion) – more than double how much it made in the first nine months of 2021.

It will subsequently provide its shareholders with 15% increase in their regular dividend, and return another $4 billion (£3.5 billion) to shareholders buying back shares over the next three months.

Shell has paid shareholders $26 billion (£22.4 billion) so far across 2022.

It’s also on track to break its record annual profit in 2008 of $31 billion (£26.75 billion), unless there is a sudden collapse in oil and gas prices over the rest of the year.

Is it just Shell?

No – energy giant TotalEnergies released results on Thursday and confirmed it had $9.86 billion (£8.51 billion) in profit.

A year ago, they had made just $4.77 billion ($4.11 billion).

So, what’s causing energy bills to go up then?

If the energy giants are able to make record profits, why can’t the companies just subsidise household bills to reduce the effect of the energy crisis?

Well, it all comes down to wholesale prices, especially the soaring price of gas.

Gas stocks were already being stretched after countries in Asia and Europe used a significant amount during a long winter last year.

This drove up the prices, while the lifting of Covid lockdowns saw energy usage skyrocket.

Then there was the invasion of Ukraine by Russia, where Moscow has started to use energy supplies as leverage to discourage Europe from aiding Ukraine.

While the UK uses very little gas from Russia, this has not shielded its from price rises across Europe (some countries on the continent sourced up to 40% of its natural gas supplies from Russia).

These costs were then passed onto consumers.

Shouldn’t energy companies be struggling too?

Shell suffered from a loss of almost £14.7 billion in 2020 during the pandemic, and the oil price collapse of that same year (prices fell to negative figures for the first time in history). This led producers to ask buyers to take the commodity as they had no storage for it.

With no-one offering to subsidise their losses then, they are unlikely to want to share their profits now.

Once the global lockdowns lifted, energy companies benefitted with businesses keen to make up their losses. The war in Ukraine increased the price of energy too, with less supply but more demand making oil and gas a more expensive good.

As energy giants head back into the black again, they’re also claiming they need to use this extra money to invest in modern technology they weren’t able to in 2020, because of the commodity price collapsing.

The market is incredibly volatile as well – 28 energy supplies have collapsed since June last year because of the wholesale price spike. They couldn’t pass the cost onto consumers because of the energy price cap.

It’s also worth noting that energy bills from households are not the main source of profit.

Big money comes from employing traders to buy and sell commodities produced by other firms to make profit on fluctuations in the market.

Extremes in prices can create healthy margins, as traders sell oil and gas for more than double the price they received it months earlier.

Extracting oil and gas is also a source of profit.

Fossil fuels campaigner at Global Witness, Jonathan Gant, also told the BBC that the oil and gas companies were “architects and beneficiaries” of a “broken energy system”.

Is the government going to do anything?

It has already imposed a 25% windfall tax on energy companies, but it applies to profit made in the UK, in the North Sea.

For most energy giants, that is a very minor part of where they get their oil and gas from.

Cabinet minister Nadhim Zahawi also told BBC’s Today programme that Shell and other energy giants paid “double the corporation tax” and a windfall tax.

He said prime minister Rishi Sunak had brought in the windfall tax because it had an “incentive for investment”, claiming: “We need them to invest in the North Sea assets to grow our production.”

But, the government recently limited its Energy Price Guarantee scheme to just six months – meaning typical household gas and electric bills could soar to £4,347 come April.

Climate group Greenpeace have also called for a “proper tax” on the energy giant’s profits.

The campaign group’s UK senior climate adviser Charlie Kronick said: “While Shell continues to bank billions, how many more households need to be forced into fuel poverty before the government wakes up?

“The only way to address the interlocking cost of living, energy security and climate crises is a street-by-street rollout of home insulation combined with a massive lift in ambition for renewable energy.”

Liberal Democrat leader Sir Ed Davey also claimed that the Tory government was not doing enough, as its refusal to properly tax energy giants “is an insult to families struggling to pay their energy bills”.

What does Shell say?

Shell’s chief executive Ben van Beurden said on Thursday the giant was delivering “robust results at a time of ongoing volatility in global energy markets”.

He also claimed the company was “working closely” with government and customers to “address their short and long-term energy needs”.

Early in October, van Beurden also suggested the government tax energy firms more to help the poor with their bills.

He said: “Protecting the poorest, that probably may then mean that governments need to tax people in this room to pay for it.”


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