How Shell Is Restructuring Its Downstream Portfolio


Aug. 30 2017, Updated 9:06 p.m. ET

Shell’s downstream portfolio

Royal Dutch Shell (RDS.A) focuses on fully integrating its value chain, a vital component of which is the downstream segment. Downstream is essentially a value maximizing segment. Thus, Shell plans to refine its downstream portfolio to include only the most competitive projects.

Shell has exited many downstream projects including prominent ones like Showa Shell, Motiva JV, and its SADAF joint venture. Shell sold a 33% stake in Showa Shell Sekiyu KK to Idemitsu in 2016. Shell has also parted ways with Saudi Aramco in its refining and marketing joint venture Motiva Enterprise LLC. The assets of Motiva are now divided between Saudi Aramco and Shell. The separation was completed in May 2017. Shell also plans to complete the sale of its 50% stake in SADAF Petrochemicals to SABIC in 2017.

Article continues below advertisement

Along with divestments, Shell also plans to modernize, upgrade, and expand its existing asset base. In the chemical segment, the company is expanding its alpha olefins capacity in Geismar, Louisiana, and constructing its liquids cracker and derivatives segment in Nanhai, China. Plus, Shell is also building a huge petrochemical complex in Pennsylvania. Shell continues to upgrade and modernize its refineries to derive higher value, lighter products.

Thus, Shell is all set to create a competitive downstream portfolio, capable of shielding it during periods of downturn in upstream earnings. Let’s also look at Shell’s refining capacities and recent downstream performance.

Shell’s downstream capacity

Shell has 3.1 MMbpd (million barrels per day) of global refining capacity. The main portion, around 40% of its capacity is in the Americas. Europe and Africa hold 34% of its capacity, and Asia holds around 26%. The refining capacities of ExxonMobil (XOM), BP (BP), and Chevron (CVX) stand at 4.9 MMbpd, 1.9 MMbpd, and 1.8 MMbpd, respectively.

Shell’s downstream performance in 2Q17

In 2Q17, downstream segment earnings rose 39% compared to 2Q16 due to the better refining environment. All four areas where Shell’s refineries operate have shown improvement in the quarter. Also, Shell’s refinery utilization rate and petrochemical plant availability have improved in 2Q17 compared to 2Q16.

Move on to the next part to learn about Shell’s overall strategy.


More From Market Realist