Shell Flags Q4 Chemicals Loss Despite Steady Upstream and LNG Performance

Shell PLC issued a cautious trading update on Thursday, January 8, 2026, warning investors that its Chemicals and Products division will likely pull down year-end results with a projected fourth-quarter loss. While the energy giant’s core oil, gas, and LNG production remains resilient, a “perfect storm” of compressed margins and significant tax-related cash outflows is weighing on its downstream portfolio.

According to the update, indicative chemicals margins are expected to drop to $140 per metric ton—a 12.5% decline from the $160 recorded in the third quarter. The earnings hit is further exacerbated by a $0.3 billion non-cash deferred tax adjustment within its joint ventures and a “significantly lower” performance in its trading and optimization division compared to the previous quarter.

Upstream Resilience and the “Adura” Effect

In sharp contrast to the struggling chemicals segment, Shell’s upstream and integrated gas businesses continue to show operational discipline. Oil-focused upstream production is guided at 1.84 million to 1.94 million barrels of oil equivalent per day (boed). Notably, these figures now incorporate the impact of the Adura JV, the newly launched North Sea independent producer formed with Equinor that became operational on December 1, 2025.

The LNG portfolio also remains a pillar of strength, with liquefaction volumes projected between 7.5 million and 7.9 million tonnes—a steady climb from the 7.3 million tonnes reported in Q3.

The $2.7 Billion German Cash Hit

The most striking figure in the report for cash-flow analysts is a projected $2.7 billion temporary outflow. This is primarily tied to two regional factors in Germany: a $1.5 billion payment for emissions certificates under the German Fuel Emissions Trading Act (BEHG) and a seasonal $1.2 billion payment for mineral oil taxes. While these are timing-related “working capital” movements that do not reflect underlying earnings power, they represent a significant short-term dent in the company’s cash flow from operations (CFFO).

Refining margins provided a rare bright spot for the downstream segment, edging up to $14 a barrel from $12. However, this was insufficient to offset the structural pressures facing the global chemicals market, which has been mired in oversupply for much of the past year.

Summary

Shell’s Q4 2025 trading update reveals a stark divergence in its portfolio. While upstream oil and LNG production remain on track—aided by the new Adura JV—the Chemicals and Products segment is bracing for a loss driven by $140/tonne margins and weak trading. A massive $2.7 billion cash outflow in Germany for taxes and emissions certificates further complicates the quarter’s cash flow narrative, despite improved refining margins.

Frequently Asked Questions (FAQs)

Q1: Why is Shell’s Chemicals division losing money? 

The segment is being hit by a drop in margins to $140/tonne, “significantly lower” trading results, and a $0.3 billion non-cash deferred tax adjustment.

Q2: How is Shell’s oil production performing in 2026? 

Upstream production is steady, guided at 1.84–1.94 million boed, which now includes production from the Adura UK Upstream JV.

Q3: What is the Adura JV? 

Adura is a joint venture between Shell and Equinor that launched in December 2025, becoming the UK’s largest independent North Sea producer.

Q4: What is the $2.7 billion cash outflow mentioned by Shell? 

This is a timing-related payment for German emissions certificates (~$1.5B) and German mineral oil taxes (~$1.2B) that will impact Q4 cash flow.