Shell's First Quarter: A Financial Tightrope Walk

Shell's Q1 2026 update shows strong trading & refining margins offsetting gas production declines. Working capital outflow of $10-15B expected. New buyback program likely after current $3.5B plan ends.

As Shell prepares to close its current $3.5 billion share buyback program on May 1, the energy giant’s preliminary operational update reveals a quarter defined by powerful countervailing forces. Strong trading profits and refining margins are providing a crucial buffer against significant headwinds in gas production and corporate cash flow.

The company’s Integrated Gas segment is under clear pressure. Shell anticipates first-quarter 2026 production of 880,000 to 920,000 barrels of oil equivalent per day, a notable drop from the 948,000 boepd achieved in the final quarter of 2025. This decline is primarily attributed to the impact of the Middle East conflict on Qatari liquefied natural gas volumes, compounded by weather-related disruptions in Australia and other LNG outages. While the ramp-up of LNG Canada offers some relief, it only partially offsets these losses. LNG liquefaction volumes for the quarter are projected at 7.6 to 8.0 million tonnes.

In stark contrast, Shell’s trading and optimization businesses are firing on all cylinders. The company expects results from its Chemicals & Products and Renewables & Energy Solutions divisions to be significantly above fourth-quarter 2025 levels. The indicative refining margin improved to $17 per barrel, up from $14 in the prior quarter, with refinery utilization expected to reach a robust 95% to 99%. Marketing results are also forecast to be substantially stronger year-over-year. The Renewables & Energy Solutions segment alone is projected to post earnings between $200 million and $700 million, a sharp increase from $100 million in Q4 2025.

This operational split creates a complex financial picture. Shell foresees a substantial working capital outflow of $10 to $15 billion for Q1, driven by extreme commodity price volatility that impacts inventory and receivables. Additionally, non-cash net debt is expected to rise by $3 to $4 billion due to variable ship leasing components. Despite these pressures, Shell’s balance sheet entered the year from a position of strength, with net debt standing at $45.7 billion and a gearing ratio of 20.7% at the end of 2025.

The conclusion of the buyback program, managed by Morgan Stanley across venues including the London Stock Exchange and Euronext Amsterdam since February 5, will likely prompt an announcement of a successor initiative. Shell’s capital allocation framework commits to returning 40% to 50% of its operating cash flow to shareholders via dividends and buybacks. The Q1 dividend will be confirmed with the full results on May 7.

Ahead of that report, Vara Research will publish its company-compiled consensus on April 29. Beyond the quarterly numbers, Shell continues to expand its strategic footprint, having signed a memorandum of understanding with Greek energy firm Metlen for annual LNG deliveries of 0.5 to 1 billion cubic meters starting in 2027, utilizing Greek terminals and the Vertical Gas Corridor.