APPEC: New energy won't dilute Vitol's razor-sharp focus on oil, gas - CEO

For the CEO of Vitol, one of the world's top independent oil traders, the vision is simple and clear -- embrace the change, but do not neglect the core.

Preparing for a changing energy landscape would need investments in new segments, such as renewables and power, but oil and gas trading would continue to be the company's core focus in the years to come, Russell Hardy said during a CEO conversation session at the S&P Global Platts Asia Pacific Petroleum Conference.

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"Our oil business is still a really important part of the company. I want to stress that. We are still very active in oil and we will continue to be active in oil," he said.

"We are putting money into new areas of the business, but not leaving behind oil or gas trading. We are creating new opportunities ahead and splitting our resources between traditional businesses and some of the new business opportunities that exist," he added.

For the global trader that shipped close to 340 million mt of crude oil and oil products in 2020, the fast-changing energy landscape and policies in regions like Europe had created the need to boost its competencies in power markets.

"We have invested over a billion dollars in renewable power projects. These are the sorts of things that we have to look at -- the direction that the company has to move in," Hardy said.

Evolving markets

Commenting on the possibility of new energy markets evolving in the scale equivalent of oil and gas, Hardy said it is still a distant dream.

"The likelihood of massive hydrogen transport is quite a long way off, except in localized pipeline solutions. In terms of mapping a physical international trading business model like crude and gas markets, I don't think it's an easy thing to do," he added.

"But in some areas where you could expect things to look quite similar is perhaps in the physical transportation of CO2 as a waste product. Capturing that CO2 and shipping it to a location where it can be stored and buried under the North Sea, for instance. That could turn into a physical commodity, although it's a negative energy source," he added.

He said that ammonia was getting a lot of attention for possibly becoming a solution for shipping, although there will not be a ship that is going to run on ammonia out in an ocean until 2024.

"This is a business that's going to ramp quickly, but from a low start. So from 2025 to 2030 -- the way LNG bunkers had developed over the last few years -- you could see ammonia in a similar path to that. Some opportunities will arise as a result of that for storage locations, bunker barges and supply chains, and will look a little bit like the fuel oil business," Hardy added.

Commenting on carbon markets, Hardy said there was still a lot of work to be done on clarifying legal standards on various issues, such as how to avoid double-counting of credits, and measurement of carbon footprint.

Rising oil and gas prices

Commenting on the near-term outlook for markets, Hardy said an improving oil demand scenario would need an even stronger supply response from oil producers to maintain the supply-demand balance.

"I think OPEC+ has done pretty well. The actions last year were fairly quick and fairly decisive. They have communicated their aims regarding getting stocks back to the five-year norm into the market and we are very close to that," he said. "But today, we are four million b/d behind where we were in 2019. So it's still a massive gap by any stretch looking at prior years."

But he added that the market was witnessing a lot of uneven swings, making it difficult to maintain that market equilibrium.

"There are a lot of uncertainties going forward. We have had a few start-stops in the last few months -- the lockdown in China in August, the lockdown in India in April. So the market has been going two steps forward and one step back. OPEC+ has been trying to manage that," he added.

Commenting on the outlook for gas markets, Hardy said dwindling gas inventories had taken prices to levels which is making it difficult to manage supply chains for industries, such as fertilizers and chemicals.

"Weather is going to have a dominant effect on the outcome. We are in for a few volatile months as we lead into the winter," he added. "We are worried because prices are very high and they are going to begin to affect industrial production across Europe and it's going to have an inflationary effect on households."

The S&P Global Platts JKM price was assessed at $26.797/MMBtu on Sept. 24. S&P Global Platts Analytics expects JKM to remain supported through the end of the year as Asia's seasonal demand picks up and markets globally compete for LNG supplies.