* Underlying profit down 6 pct, beats expectations
* Output stalls; Nigeria troubles continue into Q4
* "Evidence of weak economy all around us"
* Shares up 1.3 pct, outperforming index
LONDON, Nov 1 (Reuters) - World No. 2 oil company Royal Dutch Shell struggled to deliver production growth in the third quarter and warned it was seeing signs of economic weakness "all around us".
Underlying net profit fell 6 percent but came in ahead of investor expectations thanks to the strength in refining margins, Shell reported on Thursday. That margin strength was the result of supply shortages, not stronger demand, and the "downstream" refining performance masked a poor quarter for "upstream" oil and gas production and prices - the drivers of industry profits in the long term.
Simon Henry, Shell's Chief Financial Officer, outlined continuing difficulties with the company's Nigerian output and said the refining bright spot would be shortlived too.
"We're seeing evidence of a weak economy all around us in our downstream, marketing and our chemicals business, so the downstream rally overall could be short-lived," he told reporters on a conference call.
Shell reported current cost of supply (CCS) net profit, adjusted for charges, of $6.6 billion, down from $7.0 billion a year ago and ahead of analysts predictions of $6.3 billion.
The net charge for the quarter, at $432 million against a net gain of $245 million a year earlier, was largely down to a widely expected asset writedown to account for persistently weak U.S. gas prices and for UK tax changes.
Shell remains an extremely profitable company with healthy operating cash flow in the quarter of $9.5 billion financing net capital investment of $8.0 billion, and it has one of the best upstream output growth prospects in the sector over the coming three to four years.
"The upstream was (a case of) profit delivered as everybody had expected but beneath that volumes are actually quite weak, below 3 million barrels a day for the first time in three years in what's supposed to be a growth year," said Royal Bank of Canada analyst Peter Hutton.
THIEVES AND FLOODING
Production shut-ins in Nigeria due to security breaches there contributed to a fall in overall oil and gas production to 2.982 million barrels of oil equivalent a day from 3.012 million a year ago.
Even leaving out the impact of Nigerian troubles, divestments and other one-offs, Shell's oil and gas output grew only 1 percent. The struggle for output growth has been a feature of the third quarter earnings season for all the top oil companies so far.
Exxon Mobil is due to report later on Thursday, BP and Total reported earlier this week.
And both Henry and another Shell official said Nigerian output would get worse before it gets better.
In late October Shell's Nigerian venture declared force majeure on exports of Bonny and Forcados crude, citing damage caused by thieves who break open pipelines to steal crude and flooding that affected a third-party supplier.
"The problem that we're having is these repeated incidents. So you fix one, you go for a period and then you have another one. I'm pretty sure we'll get out of this one quickly, the difficulty is how long before the next incident," said Ian Craig, the vice president for production and exploration in sub-Saharan Africa.
CFO Henry said fourth quarter output from Nigeria would be down by another 20,000 barrels a day due to flooding in the Niger delta.
Shell paid out a third quarter dividend of 43 U.S. cents a share, unchanged from the second quarter and against 42 a year ago.
Some analysts said Shell's impairment charge of $354 million, mainly for its onshore gas properties in North America, might have been worse given the dramatic 38 percent drop in gas prices there.
"Impairments were more limited than some could have feared. Given Shell's position onshore gas in the US and given competitors' massive write down in Q2-12, some were fearing that Shell would have to carry the same exercise," said Cheuvreux's Dominique Patry in a note.
Shell shares were up 1.29 percent on Thursday at 2,152.5 pence, outperforming the sector index which was down 0.01 percent.