How Has Shell’s Downstream Portfolio Been Performing?


Jan. 10 2017, Updated 9:06 a.m. ET

Shell’s refining margin indicators

Regional refining margins in the areas in which Royal Dutch Shell’s (RDS.A) refineries operate are indicators of Shell’s margin performance. These margin market indicators are the US West Coast (or USWC) margin, the US Gulf Coast Coking (or USGCC) margin, the Rotterdam Complex margin, and the Singapore margin.

In 3Q16, Shell’s Downstream segment’s earnings fell 21% compared to 3Q15 due to its narrowing refining margins. The USWC margin contracted $9.8 per barrel over 3Q15 to $11.7 per barrel in 3Q16. The USGCC margin contracted to $9.3 per barrel in 3Q16. The Rotterdam Complex and Singapore margins contracted to $1.5 per barrel and $1.9 per barrel, respectively.

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Shell’s downstream capacity

Royal Dutch Shell has 3.1 MMbpd (million barrels per day) of refining capacity. The company’s refining capacities are spread globally. The chief portion of Shell’s capacity, which is ~39%, is in the Americas. This portion is followed by 35% capacity in Europe and Africa and 26% capacity in Asia and Oceania. The refining capacities of ExxonMobil (XOM), BP (BP), and Chevron (CVX) stand at 5.1 MMbpd, 1.8 MMbpd, and 1.8 MMbpd, respectively.

Shell’s Downstream portfolio

As with its Upstream portfolio, Shell is reorganizing its downstream portfolio. On one hand, the company is divesting its assets, and on the other hand, it’s expanding its existing asset base.

Shell has divested assets including its stake in Vivo Energy in Africa, its refining and marketing assets in Denmark, its stake in the Shell Refining Company in Malaysia, Tongyi Lubricants in China, Butagaz in France, its downstream assets in Norway (mostly retail, commercial fuels, and supply and distribution logistics), and 185 service stations across the United Kingdom.

Along with these divestments, Shell is expanding its downstream asset base. The company is progressing with its debottlenecking project at its Scotford refinery, which should raise the hydrocracker capacity 20%. Shell is also constructing a solvent deasphalting unit at the Pernis refinery, which should increase production of higher value, lighter refined products.

If you’re looking for exposure to refining and marketing sector stocks, you can consider the iShares U.S. Oil & Gas Exploration & Production ETF (IEO). The ETF has ~21% exposure to refining sector stocks.


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