Energy giants Shell and Centrica enjoy soaring profits as prices rise

July 28, 2022

Shell has reported record profits of $11.5bn (£9.4bn) for the second quarter, more than double last year's figure of $5.5bn (£4.5bn).

The oil giant had already smashed its own quarterly record at the start of the year when it clocked up profits of $9.1bn (£7.2bn), but the sums continued to rise into Q2.

Shell attributed the enormous numbers to higher prices, refining profits and gas trading, though this was partly offset by lower liquefied natural gas trading.

Its shareholder returns will remain "in excess of 30% of cash flow from operating activities," it said.

The record cash flowing into energy companies like Shell has reignited calls for a tougher windfall tax on additional profits on oil and gas, the prices of which have soared as Russia invaded Ukraine and threatened to cut off gas supplies to Europe.

Meanwhile, British Gas owner Centrica enjoyed £1.3bn operating profits in the first six months of 2022, five times the amount from the same period last year of £262m.

Britain's largest energy supplier was able to restore its dividend as profits soared, boosted by asset sales and rocketing energy prices.

However, the firm took a hit to British Gas, whose first-half profit fell 43% from £172m in 2021 to £98m this year.

A UK price cap on the most widely used domestic energy contracts is set to rise to £3,850 in January, almost triple the amount from October last year (£1,277 a year), contributing to rising inflation and a cost of living squeeze.

Friends of the Earth energy campaigner Sana Yusuf said the bulk of Shell's profits "should be used to insulate our homes and help cash-strapped households pay for their heating this winter, rather than developing more fossil fuel projects that roast the planet."

In May, the then chancellor Rishi Sunak announced a new 25% levy on the extraordinary profits the oil and gas sector was making, on top of the existing 40% tax rate, in order to fund help with the cost of living crisis.

But companies could avoid most of the additional tax bill after the former chancellor doubled the relief they can get for investing in new oil and gas extraction from 46p for every £1 invested in the UK to 91p.

CEO Ben van Beurden today told CNBC the oil price for the first half of this year was comparable to that in 2013. But since then, Shell has "significantly improved our portfolio," divesting more than $80 billion worth of assets showing discipline with its CapEx.

"So a lot of hard work to make the company a better company. So yes, of course, when then oil prices come back to where they were in 2013, you see stronger results. That's not a windfall. That's the result of a lot of hard work," Mr van Beurden said.

The oil major has acknowledged the worry about high energy costs and support needed to help ends meet.

But says it needs to sustain investment to secure supplies oil and gas the UK needs today, while allocating spend for future low carbon energies.

Read more: Everything you need to know about windfall tax

Mr van Beurden said Shell was currently spending a third of its combined $55bn OpEx on CapEx on the energy transition, which they were aiming to increase to half by 2025. "So we are definitely stepping up the investments there," he said

Its energy transition strategy, released last year, sets out a target to wind down its oil and gas production, including divestment, by 1-2% a year through to 2030.

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