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Since he started trading commodities in the 1990s, Bill Reid began to worry that he had seen all this and things would start to become “a bit boring.” But that was before governments, consumers, and banks began to vigorously support the energy transition.
“I am not so optimistic about our industry… for a long time,” Castleton Commodities International’s CEO told the Financial Times. “What is certain is that the next 15 to 30 years will not be the same as the past 15 to 30 years.”
Fossil fuels, especially oil, provide substantial returns for commodity traders navigating the extreme market volatility of the pandemic. But the industry now believes that the shift away from hydrocarbons is not a threat, but an opportunity for profit, because it wants to help the management world shift to cleaner forms of energy.
The market leader has Put cash into renewable energy And hope to expand in the fast-growing market (such as carbon trading), while continuing to invest in oil projects, it is expected that there will be a supply gap in the next ten years.
The eagerness to play a bigger role in the fields of solar, wind and hydrogen energy is not without risks. Competition in these markets is fierce, and returns are much lower than oil trading. The dual-track strategy of investing in clean energy and fossil fuels also makes companies vulnerable to criticism from activists who are increasingly influencing the corporate world.
But according to consultant and former trade finance banker JF Lambert, “large oil traders make so much money, but they are capable of making some mistakes”.
For Trafigura Executive Chairman Jeremy Weir, the two-track approach is not a contradiction, because the switch to clean fuels and electrification cannot be achieved overnight. “We can’t turn off the lights,” he said at the FT Commodities Global Summit last week.
Trafigura has announced plans to build or purchase 2 GW of solar, wind and electricity storage projects through a joint venture.It is expected to invest approximately Reach USD 2 billion by 2025Will said that electricity and renewable energy will become a “very strong third pillar” of its business.
“I think this may be an important profit contributor to our company,” he said. “Within five years, definitely within ten years.”
While building the renewable energy and power sector, Trafigura is spending 7.3 billion euros to acquire a 10% stake in Eastern Petroleum. Huge project With the support of Russian President Vladimir Putin.
“The energy transition will require this oil,” Will said. In return for its investment in Vostok, Trafigura will receive cheap barrels of Russian crude oil to promote its huge trading business.
Victor, the world’s largest independent oil trader, also invested in the Arctic project and announced an agreement this month Vostok 5% stake.
CEO Russell Hardy predicts that next year oil demand will return to the level of 100 million barrels per day before the pandemic and rise to 105 to 110 million barrels per day before peaking in 2030.
“Compared to demand, there will be a gap in oil production between 2025 and 2035, so we do think we can invest some money in this area,” Hardy said at the Financial Times summit in the UK.
Widow also spent $1 billion on US shale assets this year. Chief Financial Officer Jeff Delapina believes that as energy giants and banks exit and leave funding gaps, commodity traders are playing a role in financing upstream oil production. “It will help, but it will not fill the loopholes,” he said.
Hardy insisted that Vitol’s focus will be on energy transition projects, especially renewable energy that has invested $1 billion in capital. He also expects that electricity trading will become the company’s “core competitiveness” because of the need to understand how the electricity market operates in a decarbonized world.
“Compared with the oil market, their pricing methods are more complicated because they are very localized,” he said.
Geneva-based Gunvor is another large trader looking to expand power trading, but it will also continue to trade oil. It expects strong demand for oil in the next 10 years and sees it as a major transformation of clean-burning natural gas fuel.
“Coal is the backbone of power generation. In different parts of the world, the use of coal is actually increasing,” Gunvor CEO and co-founder Torbjörn Törnqvist wrote in the Financial Times. “Said at the summit. “The nearest alternative is natural gas.”
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At the same time, as the government considers pricing mechanisms for harmful greenhouse gases, carbon trading is attracting industry attention.
“Many counterparties are high-emissions people,” Mercuria co-founder Marco Dunand said, Mercuria spends half of its investment in energy transition projects. “And all of them are looking for solutions to reduce carbon emissions.”
“There is huge commercial potential there,” added Alex Sonner, Glencore’s head of oil and gas marketing. “The carbon market will grow exponentially.”
Hannah Hauman, head of Trafigura carbon trading, said at the summit that carbon is likely to be 10 times larger than the crude oil market.
However, it is not clear whether these new markets can be as profitable as oil, which helped Gunvor, Trafigura, Victor and Glencore set profit records last year.
Trafigura’s power and renewable energy sector (including carbon) lost money in the six months to March, but the sector is expected to be profitable in the second half of the company’s fiscal year.
“When you trade electronics, you trade them every second. There are no warehouses and no tanks…. Where you can store electronics. There are no ships,” said Laurent Segalen, clean energy investment banker and founder of consulting group Megawatt-X . “So I think the profit type of electricity trading is not like that of oil and gas trading.”
Nigel Scott, global head of structured trade and commodity financing at Sumitomo Mitsui Banking Corporation, believes that the challenge for commodity traders and the new entities they are setting up is that they are “entering lower profit margins.” .. It is more like a utility type business”.
But as the peak of oil demand is approaching and lenders are becoming more and more nervous about fossil fuel loans, commodity traders may have no choice but to develop.
“For most oil traders, this is an unknown big step,” Lambert said. “But the concept of’Tina’ applies: there is no choice.”
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