Energy giant Shell has just confirmed that it took home a record profit last year, increasing its earnings by a whopping 53%.
But just how did this happen while we are in a cost of living crisis – and should the government turn to larger windfall taxes to rectify it?
How much has Shell made?
Shell earned £68.1 billion in 2022 (£32.2 billion once taxes are considered) even though it was a year when energy bills soared for all UK customers, and the country was plunged into an energy crisis.
Its profits were even higher than Shell expected to make, and the highest profit in its 115-year history.
It’s among the highest ever profits recorded by a UK company, increasing 53% against the previous year before taking into interest, tax and depreciation, as well as amortisation.
Off the back of this, the company has been able to increase its shareholders’ dividend payouts to 15% and pay £3.2 billion to its shareholders through a new share buyback programme.
Shell shares were also 3% higher at 2,438p on Thursday morning, giving the energy giant a market valuation of around £170 billion.
Why has it made so much money?
The Ukraine war has forced countries to wean themselves off Russian fuel imports, meaning gas prices around the world have soared.
While the UK uses very little gas from Russia, it has not shielded its from price rises across Europe which are very dependent on Russia’s supplies.
Gas stocks were already being stretched after countries in Asia and Europe used a significant amount during a long winter last year, and the lifting of Covid lockdowns saw energy usage skyrocket too.
All of these costs were then passed onto consumers.
In the UK, the average cost of a litre of unleaded is at a record high of 191.5p in July, while the average price of a litre of diesel reached 199.02p.
And the majority of profits came from Shell’s gas operations, particularly the booming liquefied natural gas sales.
Shell also suffered significant losses throughout the pandemic, which were not subsidised at the time – meaning it’s reluctant to share its profits now.
Shell is also not the only energy company to have benefitted from this set of circumstances.
Exxon Mobil has recorded net profit of £45.25 billion in 2022 too, another record high for the Western oil industry.
In the meantime, inflation is at 10.5%, interest rates at a 15-year-high of 4% and a recession looms.
Is it time for a larger windfall tax?
There are growing calls for the companies to pay a larger windfall tax.
The government already imposed a 25% windfall tax on energy companies last year, before increasing it to 35%.
However, it applies to profit made in the UK, in the North Sea.
For most energy giants, that is a very minor part of where they get their oil and gas from.
Companies also get tax breaks worth 91p for every £1 invested.
Shell has also said it paid £1.5 billion in windfall tax charges to the UK and EU (£109 million went to the UK) for last year.
It expects to pay £405.7 million due to the UK windfall tax this year, too.
What do critics say?
For most people, Shell is still earning too much.
Paul Nowak, general secretary of the Trades Union Congress, said that the profits were “obscene” and an “insult to working families”.
Unite general secretary Sharon Graham said that people will be “aghast at the scale” of the “astronomical profits”.
Freya Aitchison, a campaigner from Friends of the Earth, said it was “yet another obscene profit” at a time when “millions are being forced into fuel poverty”.
Elena Polisano, senior climate justice campaigner for Greenpeace UK, said: “Shell is profiteering form climate destruction and immense human suffering.
“While Shell counts their record-breaking billions, people across the globe count the damage from the record-breaking droughts, heatwaves and floods this oil giant is fuelling. This is the stark reality of climate injustice and we must end it.”
Shadow climate change secretary Ed Miliband said: “As the British people face an energy price hike of 40 per cent in April, the government is letting the fossil fuel companies making bumper profits off the hook with their refusal to implement a proper windfall tax.
“Labour would stop the energy price cap going up in April, because it is only right that the companies making unexpected windfall profits from the proceeds of war pay their fair share.”
Lib Dem leader Sir Ed Davey said: “Rishi Sunak was warned as chancellor and now as prime minister that we need a proper windfall tax on companies like Shell and he has failed to take action.”
He said that the companies should be taxed “properly” and the government should ensure household bills don’t increase again in April when its energy price guaranatee ends.
What does Shell have to say?
Shell chief executive Wael Sawan said: “Our results in Q4 and across the full year demonstrate the strength of Shell’s differentiated portfolio, as well as our capacity to deliver vital energy to our customers in a volatile world.
“We believe that Shell is well positioned to be the trusted partner through the energy transition.”