Gas glut triggers leak for Shell after profits fall to lowest since 2016

Royal Dutch Shell, the world’s biggest dividend payer, crashed to the bottom of the FTSE 100 on Thursday as a global gas glut and squeezed refining margins hammered profits.

The blue-chip staple of millions of pension funds disappointed the City with a surprise 26% fall in second-quarter profits to $3.5 billion (£2.9 billion).

That was the lowest result since the end of 2016 and well short of the $4.9 billion pencilled in by the City, sending shares in the supermajor down almost 5%, or 123p, to 2479.5p and acting as a handbrake on the wider FTSE 100.

Shell joins a host of energy firms struggling in a climate of lower gas prices which has seen liquified natural gas prices drop by more than half since the beginning of the year, thanks to new sources of production starting up.

Chief executive Ben van Beurden said the period “has seen challenging macroeconomic conditions in refining and chemicals as well as lower gas prices”. “This set of earnings is weaker than most were looking for and was below expectations in all the main divisions,” Morgan Stanley analyst Martijn Rats said.

Van Beurden, however, pointed to good performance on the cashflow crucial to maintaining a dividend which has not been cut since the Second World War.

Shell has focused on cash generation as a key measure of growth, targeting free cashflow of $25 billion to $30 billion a year between 2019 and 2021 and as much as $35 billion by 2025.