Energy giant Shell posts ‘momentous’ £12BILLION profits in 14-fold rise

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Shell has increased its profits nearly fourteen-fold to £12billion amid soaring oil and gas prices – with the energy giant revealing a bumper three months on the same day that the UK price cap is set to rise by around £650.

The London-based company collected $8.88 for every thousand cubic feet of gas it sold to customers in the last quarter of 2021 – with gas previously selling for less than half this amount only six months earlier, at $4.31.

Gas prices have been pushed up in the last year with Russia restricting supply to Europe and China by buying up more international gas shipments. Meanwhile, winds in Europe were unusually still last summer, meaning more gas was needed to replace the electricity that would otherwise have been produced by wind turbines.

The price rises have led to energy suppliers going out of business and contributed to soaring inflation, while from April 1 households will be hit with a hike in energy bills that will see the average hit nearly £2,000.

Shell’s chief executive Ben van Beurden said 2021 had been a ‘momentous year’ for the firm, but it came as the Chancellor is set to announce how the Government will help families pay soaring bills amid the cost of living crisis.

But Labour’s shadow Treasury chief secretary Pat McFadden said Shell’s bumper profits showed why a windfall tax was the best way to fund a support package for struggling families. He told Sky News: ‘They are planning share buybacks and increased dividends but they are not being asked to pay a penny towards the package.’

Taking aim at Rishi Sunak, Mr McFadden said: ‘He is not asking the oil and gas companies – who are making the most out of this – to pay a single penny towards this. Instead he is doing it on a buy now, pay later way.’

And shadow chancellor Rachel Reeves tweeted this morning: ‘Shell’s results are in – a year its own CEO calls ‘momentous’. Labour would keep bills low – with our plan that starts with a one-off windfall tax on oil and gas producers. But as Tory plans emerge – it seems they’d rather put the costs on working people’s credit cards.’

Mr Sunak will lead a press conference at 5pm today to set out his plans to help people cope with rising costs. 

For Shell the rises in gas prices, and an 18 per cent spike in the price at which its upstream business sold oil, helped propel it to a £12billion ($16.3billion) pre-tax profit in the fourth quarter of last year, compared with just £885.5 million ($1.2billion) in the third quarter.

Mr van Beurden said: ‘We delivered a very strong financial performance in 2021, and our financial strength and discipline underpin the transformation of our company.’

That transformation has included a move of Shell’s headquarters to the UK, a simplification of the company’s previously confusing share structure, and the dropping of the ‘Royal Dutch’ part of its name. Officially the company formerly known as Royal Dutch Shell is now just Shell plc.

These bumper profits have given Mr van Beurden the chance to treat his shareholders.

Combined with £4.1billion ($5.5billion) from the sale of a massive US oil field, he plans to return £6.3 billion (£8.5billion) to investors by buying back their shares.

‘Today we are stepping up our distributions with the announcement of an 8.5 billion dollar share buyback programme and we expect to increase our dividend per share by around 4 per cent for Q1 (first quarter) 2022,’ he said in an update to the stock market today.

Shell’s adjusted earnings reached £14.2billion ($19. billion) in 2021, more than four times its level a year earlier.

Mr van Beurden added: ‘We have a compelling strategy, with customers at its core. We have ambitious plans to generate shareholder value, to decarbonise our products and to provide energy to our customers while respecting nature.’

Regulators will reveal this morning that the energy price cap is to rise by around £650, taking the average household bill to nearly £2,000.

At the same time, the Bank of England is set to raise interest rates for the second month running, meaning higher mortgage payments for many homeowners.

Government sources said the Chancellor would this afternoon unveil a multi-billion pound package to help soften the impact on struggling families.

It is expected to involve a temporary rebate on all bills of around £200 – together with additional help for low-income households that could be worth an extra £300.

But this will not be enough to fully offset the devastating energy price hike – particularly as millions are about to face a rise in national insurance, council tax and other household bills.

Sources suggested that other options to slash bills, including scrapping VAT on fuel and cutting green levies, had been rejected – a decision that is likely to anger some Tory MPs.

Mr Sunak is set to outline his plans in the Commons this morning, before addressing the nation in a Downing Street press conference later.

But a Treasury source last night said the Chancellor would acknowledge that the scale of the increase in the cost of living was beyond what the Government could offset.

‘We cannot cover the entire cost,’ the source said. ‘We just have to make sure the help we give is as well targeted as we can.’ 

In other developments:

Boris Johnson vowed to press ahead with the controversial rise in national insurance in April;Official figures confirmed that rising energy, food and transport costs were swallowing up half the disposable income of the poorest;The CBI warned that Britain was caught in a ‘trap’ of low growth and high taxes;Mr Johnson clashed in the Commons with Sir Keir Starmer over the cost of living;Defence chief Sir Tony Radakin warned ministers that a Russian invasion of Ukraine would drive prices even higher;Downing Street feared a coordinated plot to bring down Mr Johnson as a string of Tory MPs went public in calling for him to quit.

The first move today will come from energy regulator Ofgem, which is expected to announce that the energy price cap will soar from £1,277 to more than £1,900 for the average household – a staggering increase of more than 50 per cent. 

Families with larger properties risk even bigger hikes – with some facing an increase of as much as £1,500. Analysts warn that, on current trends, the price cap will rise again in October to around £2,300.

At noon, the Bank of England is set to raise interest rates for the second time in two months, with the base rate increasing to 0.5 per cent – the highest level since March 2020.

Bank of England governor Andrew Bailey is expected to warn that the increase is needed to curb inflation, which rose to 5.4 per cent last month – the highest level for 30 years. Analysts fear further rate rises will follow.

Mr Sunak will respond with his plans, while issuing a warning on the dangers of inflation and a vow to bring public spending under control. He is then expected to give a press conference in Downing Street in the afternoon.

Today’s package is likely to be less generous than it first seems. The £200 rebate will be funded by government loans to the energy firms worth around £6billion. Firms will be required to pass on the cash directly to consumers in the form of a rebate.

But the suppliers will have to repay the money in later years via a ‘clawback’ levy on bills, meaning consumers will ultimately return the money they receive this year.

The industry, which proposed the scheme, had initially asked for £20billion in order to spread the entire cost of the price spike over a period of years.

But, with prices forecast to remain high for at least two years, the Treasury was unwilling to set a precedent of artificially freezing bills at an unknowable cost to the taxpayer.

The second strand of assistance will be targeted at millions of families on means-tested benefits and will not be recouped by the Treasury. Industry sources suggested this could provide an extra £300 to poorer families. The cost to the Treasury would be £2-£3 billion.

Ministers have discussed a range of options for distributing the cash, including using the existing Warm Home Discount Scheme, which is worth £140 a year, making Universal Credit more generous, or giving a council tax rebate to homes in bands A to C. The Treasury declined to say which option the Chancellor had chosen.

A series of independent surveys has found widespread evidence of families having to choose between heating and eating.

The Resolution Foundation think-tank warned that April looks set to be a ‘cost of living catastrophe as energy bills and taxes rise steeply overnight’.

The hardship comes at a time when oil and gas giants are making billions from the global spike in gas prices. This has sparked calls from Labour for a windfall tax.

Research by Age UK suggests older people who are struggling with the cost of heating will need at least £500 in support to stay warm and keep the lights on.

Spokesman Caroline Abrahams said: ‘The number of older people who are worried about being able to heat their homes is staggering and should be a source of shame for this Government. Millions of older people across the UK are absolutely dreading the imminent price cap announcement.

‘Every single day we are hearing heart-breaking stories from desperate older people who are being forced to choose between heating and eating. This isn’t a looming crisis, it’s already upon us. Millions of older people are suffering.’

Today, a debt management charity said it had been ‘inundated’ with inquiries from people choosing between ‘heating and eating’.

Sylvia Simpson, project director at Leeds charity Money Buddies, told BBC Radio 4’s Today programme that the charity is even seeing people with incomes struggling to pay their bills.

She said: ‘We see it in clients coming to us every day, we are inundated with people coming to see us.

‘We had one recently where she was choosing between heating her home or eating a warm microwave meal as she turned the fire off to turn the microwave on.

‘Lots of people are coming in with different inquiries relating to their budgets and how they can manage and it’s not just the poorest of people as well.

‘We’re getting nurses, you know people that have an income as well, but are faced with that choice of whether to heat or eat.’

And the chief executive of trade body Energy UK called on the Government to act with the industry to deal with the ‘once-in-a-generation international gas price crisis’.

Emma Pinchbeck told BBC Breakfast: ‘The energy industry has already put up millions of additional pounds of extra support through this winter.

‘We could see the prices rising from September so we knew it would be really tough for people.

‘The point is that this is record-breaking levels of gas prices and what we’ve been doing is trying to get Government to act with us as other governments across Europe have been.’

She noted that with gas prices up ‘something like 900% since the start of last year, most European governments have put in place additional support both for customers and businesses’.

She went on to say: ‘Of course it’s right that the industry looks after its customers, it’s a really shocking price rise for many people. Our point is, I don’t think that the industry can do this alone and particularly not with the state of our retail sector in the UK’.

She also said that the retail sector is on average seeing negative margins as it subsidises customers amid soaring wholesale gas prices.

She told BBC Breakfast: ‘At the moment, because of the gas price, most energy suppliers are losing £300 to £400 per customer.

‘So at the moment, the energy companies are subsidising energy for our customers and that’s one of the reasons that we think it’s important, just as other governments have done, to act now so that we can make sure that we have a stable industry, but also that customers get the kind of help that they need’.

She added: ‘The overall profit margin for the energy retail sector over the last two years has been -1 per cent.

‘On average most companies are losing money and that’s a really bad thing, we’ve seen the retail market failures, we’ve had, to date, 20-odd suppliers exiting the market. There are then costs to that for customers that are also rolled into your bills.’ 

Meanwhile Mr McFadden warned that households were facing a ‘triple whammy’ of rising energy bills, tax hikes and wages failing to keep pace with inflation.

He told Sky News: ‘People are really worried about this, they don’t know how they are going to pay. Even before these rises have been announced, people have been so fearful they have been turning their heating off.’

Mr McFadden added: ‘This is just one part of a triple whammy that’s coming at households right now – you’ve got the energy price rises which we are talking about today, you’ve also got tax rises coming in April, you’ve got declining real wages.

‘These three things are coming together to squeeze household incomes in a way that we haven’t seen for many, many years.’

And Foreign Office minister James Cleverly said the crisis in Ukraine was partly to blame for soaring energy bills.

Mr Cleverly told Times Radio: ‘The situation in Ukraine has played a part in what has been a global increase in wholesale gas prices and that’s had a knock on effect through the supply chain right through to the energy companies in the UK and ultimately to people’s bills.’

He said the Government already had targeted support in place for pensioners and lower-income families and had increased the minimum wage.

But he added: ‘My understanding is the Chancellor will be making further statements later on, we absolutely recognise the pressure this puts on some families and so that’s why both our general support and our targeted support is so important and that’s why I’m very, very proud we put those support packages in place.’