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How Shell’s Restructured Downstream Portfolio Looks

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Mar. 13 2018, Updated 7:33 a.m. ET

Shell’s downstream portfolio

Royal Dutch Shell (RDS.A) focuses on fully integrating its value chain. One of its vital components is its downstream segment, essentially a value-maximizing segment. Shell has been refining its downstream portfolio to include only its most competitive projects.

Shell has exited many downstream projects, including prominent ones such as Showa Shell, the Motiva JV (joint venture), and the SADAF JV. It sold its 33% stake in Showa Shell Sekiyu KK to Idemitsu in 2016. Shell has parted ways with Saudi Aramco in its refining and marketing JV, Motiva Enterprises, whose assets are now divided between Saudi Aramco and Shell. The separation was completed in 2017. Shell also completed the sale of its 50% stake in SADAF petrochemicals to SABIC in 2017.

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Along with divestments, Shell also plans to modernize, upgrade, and expand its existing asset base. In its chemical segment, it’s expanding its Alpha olefins capacity in Geismar in Louisiana and constructing a liquids cracker and derivatives segment in Nanhai, China. Both projects are expected to start up in 2018–2019. Also, its Pernis solvent deasphalting project in the Netherlands is expected to start up in 2018–2019.

Shell is also building a large petrochemical complex in Pennsylvania that’s expected to begin in 2020 or later. Shell also continues to upgrade and modernize its refineries to derive higher-value lighter products.

So Shell is creating a competitive downstream portfolio capable of shielding itself in periods of lower upstream earnings. Let’s also take a look at Shell’s refining capacities and recent downstream performance.

Shell’s downstream capacity and performance

Shell has ~3 MMbpd (million barrels per day) of global refining capacity. Refining capacities for ExxonMobil (XOM), BP (BP), and Chevron (CVX) are ~4.9 MMbpd, ~1.9 MMbpd, and ~1.7 MMbpd, respectively.

In 4Q17, Shell’s downstream segment earnings rose 4% compared to 4Q16. The geographical refining margins where Shell’s refineries operate point to Shell’s refining margin. All four areas showed a mixed trend in the quarter. While its Gulf Coast coking margin and its Singapore margin declined 6% YoY and 7% YoY, respectively, in 4Q17, its US West Coast margin and its Rotterdam complex margin rose 2% YoY and 20% YoY, respectively.

In the next part, we’ll look at Wall Street analysts’ ratings for Shell.

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