Chemicals and Products

Chemicals and Products includes refineries which turn crude oil and other feedstocks into a range of products. It also includes chemicals manufacturing plants with their own marketing network. We move products around the world for domestic, industrial and transport use. The business also includes pipelines, trading of oil, oil products and petrochemicals, and the extraction of bitumen from mined oil sands which is converted into synthetic oil. We are expanding our product portfolio to include sustainable chemicals made from bio-based and circular feedstocks. We are also repurposing our refineries into energy and chemicals parks to help us meet customers' low-carbon and sustainability needs.

Business conditions

For the business conditions relevant to Chemicals and Products, see "Market overview".

Chemicals manufacturing plant utilisation

Utilisation is defined as the actual usage of the plants as a percentage of the rated capacity. Chemicals manufacturing plant utilisation was 11 percentage points lower than in 2022, mainly due to planned and unplanned maintenance.

Refinery utilisation

Utilisation is defined as the actual usage of the plants as a percentage of the rated capacity. Refinery utilisation was in line with 2022.

Chemicals and Products sales

Chemicals sales volumes were 8% lower than in 2022, mainly because of lower demand driven by oversupply and a weak economic outlook.

Refining & Trading sales volumes were 8% lower than in 2022 due to lower Trading sales volumes in the USA and Asia.

Earnings 2023-2022

Segment earnings in 2023 were 66% lower than in 2022, reflecting lower Products margins (decrease of $1,528 million), mainly driven by lower refining margins and partly offset by higher margins from trading and optimisation. The segment earnings also reflected higher depreciation charges (increase of $546 million) due to the start-up of operations at Shell Polymers Monaca in the USA. These losses were partly offset by higher Chemicals margins (increase of $612 million).

Segment earnings in 2023 included the following:

• net impairment charges and reversals of $2,204 million, mainly related to the Chemicals assets in Singapore;
• charges of $84 million related to redundancy and restructuring; partly offset by favourable movements of $213 million related to the fair value accounting of commodity derivatives.

These charges and gains are part of identified items and compare with 2022, which included:

• net impairment charges and reversals of $226 million;
• legal provisions of $149 million;
• unfavourable movements of $147 million related to the fair value accounting of commodity derivatives;
• tax charges relating to the EU solidarity contribution of $74 million; partly offset by gains of $223 million, related to the sale of assets; and
• gains of $104 million, related to the remeasurement of redundancy and restructuring costs.

In 2023, Adjusted Earnings from Chemicals accounted for (44)%, Refining for 66% and Trading and Supply for 78%. The decrease in Adjusted Earnings of $1,029 million was driven by the following:

• Products Adjusted Earnings were $778 million lower than in 2022, mainly driven by lower refining and oil sands margins and partly offset by higher margins from Trading & Optimisation.
• Chemicals negative Adjusted Earnings were $251 million more than in 2022, mainly because of higher depreciation and operating expenses, partly offset by higher margins and Income from associates.

Prior year earnings summary

Our earnings summary for the financial year ended December 31, 2022, compared with the financial year ended December 31, 2021, can be found in the Annual Report and Accounts (page 66) and Form 20-F (page 70) for the year ended December 31, 2022, as filed with the Registrar of Companies for England and Wales and the US Securities and Exchange Commission, respectively.

Cash flow from operating activities

Cash flow from operating activities was primarily driven by Adjusted EBITDA, working capital inflows of $609 million, cash inflows relating to commodity derivatives of $529 million, and dividends (net of profits) from joint ventures and associates of $300 million. These inflows were partly offset by the timing impact of payments relating to emission certificates and biofuel programmes of $1,224 million, non-cash cost-of-sales (CCS) adjustments of $627 million, and tax payments of $484 million.

Cash capital expenditure

Cash capital expenditure decreased by $0.6 billion in 2023 mainly because of the completion of construction of our cracker facilities in Pennsylvania, USA, in 2022. Our cash capital expenditure is expected to be in the range of $3-4 billion in 2024.

Portfolio and business developments

Significant portfolio and business developments:

• In November 2022, we commenced operations of our Pennsylvania Chemical project, Shell Polymers Monaca (SPM). The facility was not fully functional during 2023 due to operational and start-up challenges.
• In June 2023, Shell announced its intention to conduct a strategic review of energy and chemicals assets on Bukom and Jurong Island in Singapore.
• In January 2024, we announced the final investment decision to convert the hydrocracker of the Wesseling site at the Energy and Chemicals Park Rheinland in Germany into a production unit for Group III base oils.

* Non-GAAP measure (see Non-GAAP measures reconciliations).