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Shell’s Downstream Segment: Project Update and Margins in Q1

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Shell’s downstream portfolio

Royal Dutch Shell (RDS.A) focuses on fully integrating its value chain—a vital component of the downstream segment. The downstream segment is essentially a value-maximizing segment. Before we discuss the downstream margin trend in the first quarter, let’s discuss Shell’s downstream project updates.

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In April, Shell announced the divestment of its stake in SASREF to Saudi Aramco for $631 million. Shell intends to consolidate its positions towards its integrated hubs. The company plans to raise its flexibility, proximity to vital markets, and integration of the trading network.

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To high grade the downstream portfolio, shell installed two crude oil tanks at its Bukom refinery. The installation will likely enhance the storage capacity at the site by 1.3 million barrels of crude oil—right ahead of IMO 2020. Higher capacity will likely improve the refinery’s flexibility and enhance the supply and distribution, which will likely result in the procurement of best value crude for the refinery.

Shell’s refining marker margins

Now, let’s look at Shell’s downstream margins in the current quarter. Shell publishes regional refining industry marker margins and chemicals marker margins for the areas where it operates. In the first quarter, the downstream margin and chemical margins fell YoY (year-over-year).

In the first quarter, all four of the regional margins—the Rotterdam Complex margin, the USWC (US West Coast) margin, the USGCC (US Gulf Coast Coking) margin, the Singapore margin—fell YoY. The USGCC margin fell 68% YoY to $2.6 per barrel in the first quarter—the highest among its peers. Also, the USWC, Rotterdam, and Singapore margins fell 24% YoY, 9% YoY, and 40% YoY, respectively, in the first quarter.

Shell’s important regional chemical markers fell YoY. The US ethane, the Western European naphtha, and North East-South East Asia naphtha margins fell 21% YoY, 17% YoY, and 48% YoY, respectively, in the first quarter.

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