Shell to close petrol stations as supermarkets step up price war

Royal Dutch Shell, the oil giant, is cutting the number of petrol stations that it operates in Britain because of heated competition from supermarket rivals.

Royal Dutch Shell, the oil giant, is cutting the number of petrol stations that it operates in Britain because of heated competition from supermarket rivals.

Despite charging some of the highest overall prices in Europe, which have bought scattered protests from consumers and triggered a price war, the Anglo-Dutch company said yesterday that its British petrol stations struggled to make a profit.

Paul Skinner, head of refining and marketing, said: "Over the past three years, we've made a virtual nil return on gasoline retailing in the UK.... We have essentially matched [supermarkets' cuts] and have found profitability to be very low indeed."

He said Shell would close some unprofitable outlets, with a "net downward movement in the number of sites". He declined to give numbers. Shell currently has about 1,300 outlets in Britain, down from 1,382 at the end of March, when there was a national total of 13,716.

Shell executives say supermarket chains, including J Sainsbury and Wal-Mart-owned Asda, hold a pricing advantage over Shell and other oil companies that operate chains nationwide.

Mr Skinner said as supermarkets had fewer sites, each of which was heavily used, and they could buy bulk gasoline supplies selectively, they had the ability to discount pump prices aggressively.

The situation for Shell has become so acute that the modest returns on its British gasoline sales are underpinned by income from associated retail operations, including forecourt shops.

Mr Skinner said there was no question that Shell was looking to quit the forecourt operations altogether in Britain.

About three quarters of British pump prices are tax and duties, and Shell says the industry component of the total charge paid by UK customers is among the lowest in Europe.

The news came as the company unveiled record profits for the first half, driven by sharply higher crude oil prices and gains from its cost-cutting programme. Shell said the adjusted current cost of earnings reached $6.54bn, 81 per cent ahead of last year and in line with analysts' expectations.

Sir Mark Moody-Stuart, Shell chairman, said; "A lot of that [increase] is price but in every business we have cost reductions."

The company, which has targeted $4bn in annual cost savings by 2001, said it had achieved $2.94bn and was ahead of schedule to meet its goal. "In the longer term, [crude] prices are bound to come down again," Sir Mark said.

Brent crude averaged $26.90 a barrel in the first six months of this year, compared with $13.40 in the same period of 1999. Shell estimates that while prices will slip, they will hold above $20.

The group announced a 3.1 per cent increase in Royal Dutch's dividend to 0.67 euros, and a 3.6 per cent rise in Shell's dividend to 5.7p. Shell shares closed up 7p at 555p.

Lasmo, the oil exploration and production company, also reported strong results yesterday. It said pre-tax, pre-exceptional profit hit £126m in the first half, a ten-fold increase.