Author: Ricardo Perez

Targray, a global leader in the supply of renewable fuels, feedstock, and supply chain solutions, is proud to announce its new partner membership within Green Marine, a renowned voluntary environmental certification program for the North American and European maritime industries.
This strategic engagement solidifies Targray’s commitment to decarbonizing maritime shipping, a sector which consumes more than 330 million metric tonnes of fuel each year, while reinforcing the company’s support of the global transition to low-carbon fuels.

The maritime industry is at a critical juncture with increasing pressure to reduce its carbon footprint and greenhouse gas emissions. Targray’s Green Marine membership highlights the company’s dedication to leveraging its global reach and expertise to contribute significantly to the reduction of greenhouse gas emissions in the maritime sector.

“Maritime shipping is the backbone of global trade, and the industry’s transition to low carbon fuels is essential for a sustainable future,” said Targray President, Andrew Richardson. “Targray’s international presence uniquely positions us to support bunker fuel suppliers and their customers worldwide in the journey toward sustainability and decarbonization.”

Green Marine is a leading non-profit North American environmental certification program for the maritime industry which expanded to Europe in 2020, with a mission of going beyond regulations and fostering real environmental improvement in the maritime industry. They engage stakeholders, including ship owners, ports, terminals, and shipyards, in their commitment to continuous improvement.

About Targray

Targray is a leading global provider of commodities and advanced materials for the renewable fuels, solar, battery and agricultural commodity sectors. Supported by a vast rail fleet and terminal network, the company is an international leader in the sourcing, transportation, storage, trading, and supply of biofuels and feedstock. Its innovative solutions help energy suppliers meet the growing demand for low carbon transportation fuels.

Targray’s Environmental Commodities business offers leading expertise in environmental products & services including renewable energy certificates, carbon credits and offsets for voluntary and compliance carbon market around the world.

Since 1987, Targray has worked with partners in over 50 countries to create sustainable value across the supply chain. The company is committed to delivering solutions that help reduce the world’s carbon footprint while enabling customers to create safer, more reliable products for consumers around the world.

About Green Marine

Green Marine is a voluntary initiative which helps its participants to improve their environmental performance and targets key environmental and maritime transportation issues related to air, water and soil quality, biodiversity protection, and community relations. Founded in 2007, Green Marine quickly distinguished itself through its credibility and its capability to foster the continual improvement of the environmental performance of its participants. Initially conceived for the St. Lawrence and Great Lakes maritime sector, the binational environmental certification program quickly generated unexpected interest in the industry and now has a North American reach.

In 2019, Green Marine collaborated with Surfrider Foundation Europe to export the environmental certification program to France to give birth to Green Marine Europe in 2020. The Green Marine Europe environmental certification program operates on the same proven model as the North American program.

Targray, November 23, 2023

IHI Corporation (IHI) and Royal Vopak (Vopak) have signed a Memorandum of Understanding (MOU) to jointly explore the development and operation of efficient, high value-added ammonia terminals in Japan. IHI and Vopak will furthermore assess a collaboration outside of Japan.

The collaboration focuses on large-scale ammonia storage terminals, strategically positioned for the economical distribution of ammonia. Ammonia plays an important role as a fuel for reducing carbon emissions from thermal power generation and as a hydrogen carrier, both in Japan and abroad. In addition, the study will examine the possibility of streamlining the operation of ammonia terminals to enhance price competitiveness, as well as the conversion and supply of various hydrogen derivatives.

IHI is currently working toward the realization of a decarbonized society through the development of integrated technologies from upstream to downstream, including fuel ammonia production, storage, and utilization. IHI is Japan’s leading manufacturer of ammonia storage tanks, having designed and constructed approximately 70% of all ammonia storage tanks in Japan. Currently, IHI is developing comprehensive technology for large-scale ammonia receiving terminals utilizing the large storage tank technology that IHI has cultivated in the field of LNG storage tanks.

With over 20 years of ammonia storage experience, Vopak has extensive knowledge on safe handling and storage of ammonia to facilitate the development of large-scale ammonia import, storage and distribution infrastructures. Currently, Vopak has ammonia storage operations in China, Saudi Arabia, Singapore, Malaysia and in the US. Most recently in the United States, Vopak and its global partners are collaborating on the pre-FEED for the development of a large-scale, low-carbon ammonia production and export project on the Houston Ship Channel.

“We are pleased to begin joint discussions with Vopak on the development and operation of ammonia terminals. As demand for ammonia continues to grow, we recognize the need to rationalize terminal operations and strengthen price competitiveness in order to meet this demand. We will leverage the strengths of both companies to form a terminal that can be utilized in the future and to build a robust supply chain.” said Jun Kobayashi, Board Director, Managing Executive Officer, IHI Corporation.

“We are excited to work with IHI and look forward to collaborating together as we advance the commitment of both companies towards a low-carbon future. As we embark on this journey, we envision synergies between both companies that will create innovative solutions to accelerate the development of new supply chains for the energy and feedstocks of the future,” said Chris Robblee, President of Asia & Middle East, Vopak.

Vopak, Yusuke Saito, November 21, 2023

Clean energy is flush with growth potential and these stocks stand ready to benefit.

Air Products & Chemicals (APD): This pick offers a diversified play on green hydrogen backed by a solid core business.

BP (BP): While this is a controversial pick if clean energy is what you’re after, this gas titan has announced plans to build out its alternative energy arms with a focus on hydrogen.

Plug Power (PLUG): This group has a stronghold on the hydrogen fuel cell market.

Economies around the world are turning to clean energy sources in a bid to slow global warming, and that’s brought hydrogen stocks into demand. Hydrogen on its own is nothing new. Chemical companies have been producing and selling it for years. But using it as an energy source is a new concept. At present, it makes up around 0.1% of the world’s energy mix. That’s expected to surge to 10% by 2050 if we continue to push for net zero. And while 10% isn’t a massive slice of the pie, the growth between 0.1% and 10% in just over two decades opens the door for opportunity.

When it comes to hydrogen stocks to buy now, you have two strategy options. The first and more obvious choice is to go all-in on a company supporting the transition. That means companies that make and sell the technology we need to turn hydrogen into power efficiently. Ideally, you’re looking for a company that supports green hydrogen, the cleanest form there is. But other types of hydrogen, like blue and grey also come with a fair helping of opportunity.

For those without such a strong stomach for risk, there are some diversified picks. These are companies whose bread and butter come from other businesses, but they’re still building out a hydrogen business. While the highs won’t be quite as high for these picks while green energy picks up steam, the low risk of failure is minimal.

Let’s take a look at three hydrogen stocks together, focusing on two diversified picks and one all-in alternative.

Air Products & Chemicals (APD)
On the risk spectrum, Air Products & Chemicals (NYSE:APD) probably ranks lowest on this list of hydrogen stocks. That’s because hydrogen isn’t the only weapon in this chemical company’s arsenal. In fact, it’s only a drop in the bucket at present, because the group’s backed by an enormous international industrial gas business that supplies a wide range of industries and geographies.

However, it’s working to build out its green hydrogen arm with big capital commitments to its green and low-carbon hydrogen projects. APD’s contracts tend to be relatively sticky and stretch well into the future, meaning cashflow is reliable and healthy. That means the group can continue to fund its core business without compromising future growth in hydrogen.

APD is working to create a sprawling network for hydrogen plants, with more than 100 already under its umbrella. Given that most governments are keen to push the net zero agenda forward, the group also has a fair bit of support in getting its projects online. This will be a welcome tailwind as APD continues to build itself a top-tier foundation within the hydrogen energy space.

BP (BP)
Though it may not be top of mind when it comes to hydrogen stocks, BP is another diversified player within the space that’s worth a look. While the group is mainly known for and certainly reliant on drilling for oil, BP is working to develop its hydrogen energy arm in one of several bids to remain relevant in a low-carbon future. In fact, unlike many of its other oil and gas peers, BP has set a net zero goal for 2050. A large part of this plan involves hydrogen energy.

The group says it plans to own some 10% of the hydrogen market in its key markets. If it can make good on those plans, that would offer investors some impressive growth opportunities as the market balloons.

BP is still worlds away from realizing its hydrogen potential—its currently developing various different types of hydrogen production facilities. But these projects appear to be promising, with management saying its UK-based plants could make up 15% of the region’s 2030 hydrogen target.

Plug Power (PLUG)
It’s impossible to talk about hydrogen stocks without bringing Plug Power (NASDAQ:PLUG) into the mix. The group is a leader in fuel cell technology and operates over 180 hydrogen refueling stations across North America. It’s a leader in the process of creating an end-to-end green hydrogen business that will produce, store and deliver the fuel cell.

Without a doubt, PLUG is well on its way to success, with a great deal of expertise across the entire value chain. However, the group’s been building by way of acquisitions, leaving cash thin on the ground. Management says profits are just around the corner, but investors aren’t quite as sure, given the increasingly challenging environment.

While Plug’s journey has been a rocky one, it looks like it could be in for more turbulence ahead. But ultimately, the group looks to be in a strong position among hydrogen stocks looking to capitalize on the market. Positioned to be a major beneficiary of government support for clean energy, PLUG will be well placed to make the most growing popularity for hydrogen fuel.

Investor Place, Tyrik Torres, November 20, 2023

China has set a minimum size for new oil refineries and will ban small crude processors that claim to be chemicals or bitumen producers under a plan to limit total capacity at 1 billion metric tons, or 20 million barrels per day, by 2025.

Following are key details on China’s steps, outlined this week, to rein in a refining industry that recently surpassed the United States to become the world’s largest.

WHAT IS CHINA TRYING TO ACHIEVE?
The overall capacity cap, first unveiled in October 2021 as part of a plan to reach peak carbon emissions by 2030, is aimed at curbing excessive domestic refinery production and supply overhang to reduce greenhouse gas emissions.

China has long sought – and sometimes struggled – to remove excess capacity in highly polluting heavy industrial sectors such as steel and cement.

The think tank Sinocarbon says the refining and petrochemical sectors accounted for 8% of emissions in 2020.

The cap will also help curb China’s already high reliance on imported crude oil, which stood at 76% last year.

HOW HAS CHINA’S REFINERY SECTOR GROWN?
Refining capacity in China increased last year to 920 million metric tons per year, or 18.4 million bpd.

The industry’s recent growth has been driven since 2019 by the creation of three large independent refiners – Zhejiang Petrochemical, Hengli Petrochemical and Shenghong Petrochemical – adding a combined 1.52 million bpd capacity that is highly integrated with petrochemicals making.

Together with dominant state refiner Sinopec and its rival PetroChina, as well as an army of about 60 smaller independent processors known as “teapots”, the refining sector has ballooned into the world’s largest, surpassing the United States last year.

That growth has resulted in a low refinery utilization rate of 73% in 2022, based on official output data, compared with more than 91% in the U.S., which means China has surplus capacity to allow for large volumes of refined fuel exports.

WHAT IS THE LIKELY IMPACT OF THE MEASURES?
The measures could force more closures of small, inefficient plants, which have already taken place in teapot hub Shandong province, where some 400,000-bpd worth of capacity was mothballed in 2020 and 2021 to make way for the new Yulong Petrochemical plant of a similar size.

Others players are expected to look abroad for growth. Polyester fiber maker Tongku Group and Rongsheng Petrochemical are both exploring building new refineries in Southeast Asia.

Many teapots, meanwhile, have over the years quietly expanded processing capacity, invested in oil storage or moved up the product value chain to make energy transition chemicals.

WILL CHINA ACHIEVE ITS GOALS?
Apart from increasing scrutiny in approving new plants, the government can wield the powerful tool of crude oil import quotas, to which all independent refiners are subjected.

In recent years, the cap has stood at an annual 243 million tons, or 4.86 million bpd and actual grants have run below that.

Thanks to rigid quota management and crackdowns on illegal quota trading, China has already managed to limit refinery operations to some extent.

Meanwhile, the government also maintains tight control over refined fuel exports, allowing only state refiners and one independent major refiner, Zhejiang Petrochemical Corp, the right to export.

WHICH ARE CHINA’S BIGGEST REFINERS?
China has about 34 refineries of 200,000 bpd or more, with combined processing capacity of 480 million tons, or 9.6 million bpd, according to Sinopec.

Most of these plants are run by Sinopec , PetroChina and China National Offshore Oil Company. Together, the three state giants operate nearly 12 million bpd of processing capacity.

HOW MUCH NEW CAPACITY IS IN THE PIPELINE?
Four new refineries with combined capacity of 1.2 million bpd are planned, including the 400,000 bpd Yulong Petrochemical complex in Shandong, the 300,000-bpd Huajin Aramco Petrochemical Company in Liaoning province in the northeast, and the 320,000-bpd Sinopec Gulei refinery, as well as the 300,000-bpd expansion at Sinopec Zhenhai.

Reuters, Chen Aizhu, November 20, 2023

An oil refinery is one of six major national projects completed by Oman’s Investment Authority, with a value of over 4 billion Omani rials ($10.3 billion).

These initiatives form part of the National Development portfolio, aimed at bolstering economic diversification, stimulating regional development, attracting investments, and generating employment opportunities, particularly for small and medium-sized enterprises.

The Duqm Refinery and Petrochemical Industries project is the most significant venture, and is poised to transform the port town into a major industrial and economic hub in the region.

The initiative comprises a refinery with a capacity of 230,000 barrels per day, producing various petroleum products.

It also includes storage and export facilities at Duqm Port and an 81 km pipeline from Ras Markaz to the refinery, according to a report by the state-owned Oman News Agency.

In Al-Wusta Governorate, the Ras Markaz Crude Oil Storage Terminal underpins government efforts in economic diversification.

This facility holds a storage capacity of up to 200 million barrels, significantly enhancing Oman’s crude oil storage capabilities and export potential.

The Duqm Integrated Power and Water Project in Duqm, with a capacity of 326 megawatts of electricity and 36,000 cubic meters of water per day, aims to support industrial development in the Special Economic Zone at Duqm by catering to the energy and water needs of heavy industrial companies.

Another strategic initiative, the Rabt project in Duqm, comprises 660 km of transmission lines and five main stations.

This project is set to improve the efficiency and integration of the National Electricity Transmission network, focusing on renewable energy sources.

The Khuweimah Shrimp Farm project in Jalan Bani Bu Ali, South Ash Sharqiyah governorate, aims to achieve food security and leverage local raw materials.

The farm, spanning 200 hectares, includes shrimp cultivation and processing facilities with an annual production capacity of 4,000 tons.

Lastly, with its 304 rooms and suites, the JW Marriott Hotel Muscat represents Oman’s focus on tourism development.

This project aligns with the country’s efforts to diversify its economy, boosting the tourism sector’s contribution to the gross domestic product and creating direct job opportunities for the local workforce.

Oman releases 3 electronic platforms to boost investment climate

Oman’s Ministry of Commerce, Industry, and Investment Promotion has inaugurated three digital platforms in Muscat to boost its investment potential.

The Oman for Business, Hazm, and Maroof Oman platforms represent a significant leap toward comprehensive digital transformation in a bid to bolster the country’s business landscape.

Oman for Business streamlines the process for foreign investors to start businesses, while Hazm ensures consumer safety and streamlines customs processes.

Maroof Oman enhances the legal and regulatory framework for e-commerce, fostering a more efficient, secure online business environment.

These initiatives mark a strategic move toward modernizing Oman’s economy and simplifying commercial activities.

Arab News, November 18, 2023

The EU will need to have a “big buffer” of gas in storage at the end of the current winter to help prepare for the following winter, a senior European Commission official said Nov. 14.

Paula Pinho, energy security director at the EC’s energy directorate, said Brussels was maintaining a “very high level of monitoring and preparedness.”

“I think we are prepared but we really cannot just sit back and relax,” Pinho said in comments posted to the EC website.

“We know that storage facilities are now full, but we cannot afford to just use up all the gas during the winter,” she said.

“As at the end of last winter, we still need to have a big buffer to allow us to go through into the next heating season,” she said, adding that the EC was already preparing for winter 2024-2025. “We cannot lower our guard.”

EU gas storage sites were filled to 99.5% of capacity as of Nov. 12, according to Gas Infrastructure Europe data, having hit 99.6% fullness last week.

The past summer’s stock build was made considerably easier by the warm winter of 2022/23, which left the EU’s storage sites still 55.6% full as of the end of March.

The last winter even saw a period of net injections in January 2023 — typically a peak withdrawal month — as temperatures rose well above seasonal norms.

The still healthy stock level in March 2023 was in stark contrast to the end of the 2021/22 winter when stocks were drawn down to just 25.6% of capacity.

Pinho also said the EC remained vigilant in terms of key energy infrastructure in light of damage to the Balticconnector between Finland and Estonia last month.

“Our infrastructure is critical and because of that, it remains at risk and we cannot exclude the possibility of bad things happening to critical energy infrastructure,” she said.

“If our infrastructure is exposed, we can all of a sudden lose the means to supply the stored gas.”

Demand reductions
Pinho also said the EU had reduced gas demand by 18% compared with the average of the past five years. “We believe that a big part of that is the result of structural measures — and these will stay in place,” she said.

“This means we will be able to continue to simply consume less, which is also our objective, if it doesn’t mean destroying industrial output, and we have good signals in that sense.”

EU member states in July last year agreed to voluntarily cut their gas consumption between August 2022 and March 2023 by 15% compared to the five-year average, and beat the target with demand reduced by 17.7%.

The agreement was extended in March this year and is now set to continue until the end of March 2024.

The biggest cuts in consumption last year were in the autumn on the back of high gas prices and warm temperatures.

Platts, part of S&P Global Commodity Insights, assessed the benchmark Dutch TTF month-ahead price at an all-time high of Eur319.98/MWh in late August 2022.

Prices are now lower thanks to healthy storage levels and demand curtailments but remain historically high, with Platts assessing the TTF month-ahead price on Nov. 13 at Eur47.76/MWh.

The EU rules on demand reduction also provide the possibility for the EU to trigger a “Union alert” on security of supply, in which case the gas demand reduction would become mandatory.

Pinho said “everyone” had contributed to the demand cuts. “When we look at the reduction in gas demand, the contribution from households and industry is 50/50 — so it’s really something that pulled everyone together,” she said.

S&P Global, Stuart Elliott, November 16, 2023

Chinese wind power firm Sany Renewable Energy intends to invest CNY6.5 billion (USD896 million) to build a green ammonia digital demonstration project in China’s northeastern Jilin province.

The project will use wind and solar power to produce renewable hydrogen, which will be used to synthesize green ammonia, the Beijing-based firm said in a statement yesterday. The green ammonia produced will also be used to store hydrogen.

Sany Renewable has already announced three such type of projects this year. In January, it began construction of a green ammonia project in Bayannaoer in Inner Mongolia Autonomous Region, with a total investment of CNY4.3 billion. In April, the company signed a deal with the city of Delingha in Qinghai province to invest and build another of such projects.

The latest project, which will be located in Changling county in the city of Songyuan, will include photovoltaic and wind power plants, transmission lines, hydrogen and ammonia factories, as well as storage and transportation facilities, Sany Renewable noted, adding that the construction schedule is expected to be 18 months.

Sany Renewable will use self-raised funds to finance the project, which will help its business structure, broaden its business layout, continue to strengthen its core competitive advantages, and ensure the realization of its strategic goals, the company pointed out.

In the first three quarters of the year, Sany Renewable’s revenue rose 18 percent to CNY7.5 billion, while its net profit fell 1.2 percent to CNY1 billion from a year earlier.

Shares of Sany Renewable [SHA: 688349] were trading up 0.5 percent at CNY29.91 (USD4.12) as of 10.55 a.m. in Shanghai today.

Yicai, Xu Wei, November 15, 2023

Oil prices eased on Tuesday after rallying more than 4% in the previous session, with traders cautious as they keeps tabs on potential supply disruptions amid military clashes between Israel and the Palestinian Islamist group Hamas.

Brent crude fell 30 cents, or 0.3%, to $87.85 a barrel by 0330 GMT, while U.S. West Texas Intermediate crude eased 31 cents, or 0.4%, to $86.07 a barrel.

Both benchmarks surged more than $3.50 on Monday as the clashes raised fears that the conflict could spread beyond Gaza into the oil-rich region. Hamas launched the largest military assault on Israel in decades on Saturday, while fighting continued into the night on Monday as Israel retaliated with a wave of air strikes on Gaza.

“There is still plenty of uncertainty across markets following the attacks in Israel over the weekend,” said ING analysts on Tuesday, adding that oil markets are now pricing in a risk premium.

“If reports of Iran’s involvement turn out to be true, this would provide another boost to prices, as we would expect to see the U.S. enforcing oil sanctions against Iran more strictly. That would further tighten an already tight market,” the ING analysts added.

While Israel produces very little crude oil, markets worried that if the conflict escalates it could hurt Middle East supply and worsen an expected deficit for the rest of the year.

Israel’s port of Ashkelon and its oil terminal have been shut in the wake of the conflict, sources said on Monday.

Iran is complicit even though the United States has no intelligence or evidence that points to Iran’s direct participation in the attacks, a White House spokesperson said on Monday.

“If the U.S. finds evidence directly implicating Iran, then the immediate reduction in Iran’s oil exports becomes a reality,” said Vivek Dhar, an energy analyst at CBA.

“We continue to believe that Brent oil will ultimately stabilise between $90-$100/bbl in Q4 2023,” said Dhar, adding that the Palestine-Israel conflict raises the risk of Brent futures tracking at $100/bbl and above.

In a more positive sign for supply, Venezuela and the U.S. have progressed in talks that could provide sanctions relief to Caracas by allowing at least one additional foreign oil firm to take Venezuelan crude oil under some conditions.

Reuters, October 10, 2023

In the 1950s the oil market was in the gift of the “Seven Sisters”. These giant Western firms controlled 85% of global crude reserves, as well as the entire production process, from the well to the pump. They fixed prices and divvied up markets between themselves. Trading oil outside of the clan was virtually impossible.

By the 1970s that dominance was cracked wide open. Arab oil embargoes, nationalisation of oil production in the Persian Gulf and the arrival of buccaneering trading houses such as Glencore, Vitol and Trafigura saw the Sisters lose their sway. By 1979, the independent traders were responsible for trading two-fifths of the world’s oil.

The world is in turmoil again—and not only because the conflict between Israel and Hamas is at risk of escalating dangerously. Russia’s war in Ukraine, geopolitical tensions between the West and China, and fitful global efforts to arrest climate change are all injecting volatility into oil markets (see chart 1). Gross profits of commodity traders, which thrive in uncertain times, increased 60% in 2022, to $115bn, according to Oliver Wyman, a consultancy. Yet this time it is not the upstarts that have been muscling in. It is the descendants of the Seven Sisters and their fellow oil giants, which see trading as an ever-bigger part of their future.

The companies do not like to talk about this part of their business. Their traders’ profits are hidden away in other parts of the organisation. Chief executives bat away prying questions. Opening the books, they say, risks giving away too much information to competitors. But conversations with analysts and industry insiders paint a picture of large and sophisticated operations—and ones that are growing, both in size and in sophistication.

In February ExxonMobil, America’s mightiest supermajor, which abandoned large-scale trading two decades ago, announced it was giving it another go. The Gulf countries’ state-run oil giants are game, too: Saudi Aramco, Abu Dhabi National Oil Company and QatarEnergy are expanding their trading desks in a bid to keep up with the supermajors. But it is Europe’s oil giants whose trading ambitions are the most vaulting.

BP, Shell and TotalEnergies have been silently expanding their trading desks since the early 2000s, says Jorge Léon of Rystad Energy, a consultancy. In the first half of 2023 trading generated a combined $20bn of gross profit for the three companies, estimates Bernstein, a research firm. That was two-thirds more than in the same period in 2019 (see chart 2), and one-fifth of their total gross earnings, up from one-seventh four years ago. Oliver Wyman estimates that the headcount of traders at the world’s largest private-sector oil firms swelled by 46% between 2016 and 2022. Most of that is attributable to Europe’s big three. Each of these traders also generates one and a half times more profit than seven years ago.

Today BP employs 3,000 traders worldwide. Shell’s traders are also thought to number thousands and TotalEnergies’ perhaps 800. That is almost certainly more than the (equally coy) independent traders such as Trafigura and Vitol, whose head counts are, respectively, estimated at around 1,200 and 450 (judging by the disclosed number of employees who are shareholders in the firms). It is probably no coincidence that BP’s head of trading, Carol Howle, is a frontrunner for the British company’s top job, recently vacated by Bernard Looney.

The supermajors’ trading desks are likely to stay busy for a while, because the world’s energy markets look unlikely to calm down. As Saad Rahim of Trafigura puts it, “We are moving away from a world of commodity cycles to a world of commodity spikes.” And such a world is the trader’s dream.

One reason for the heightened volatility is intensifying geopolitical strife. The conflict between Israel and the Palestinians is just the latest example. Another is the war in Ukraine. When last year Russia stopped pumping its gas west after the EU imposed sanctions on it in the wake of its aggression, demand for liquefied natural gas (LNG) rocketed. The European supermajors’ trading arms were among those rushing to fill the gap, making a fortune in the process. They raked in a combined $15bn from trading LNG last year, accounting for around two-fifths of their trading profits, according to Bernstein.

This could be just the beginning. A recent report from McKinsey, a consultancy, models a scenario in which regional trade blocs for hydrocarbons emerge. Russian fuel would flow east to China, India and Turkey rather than west to Europe. At the same time, China is trying to prise the Gulf’s powerful producers away from America and its allies. All that is creating vast arbitrage opportunities for traders.

Another reason to expect persistent volatility is climate change. A combination of increasing temperatures, rising sea levels and extreme weather will disrupt supply of fossil fuels with greater regularity. In 2021 a cold snap in Texas knocked out close to 40% of oil production in America for about two weeks. Around 30% of oil and gas reserves around the world are at a “high risk” of similar climate disruption, according to Verisk Maplecroft, a risk consultancy.

Then there is the energy transition, which is meant to avert even worse climate extremes. In the long run, a greener energy system will in all likelihood be less volatile than today’s fossil-fuel-based one. It will be more distributed and thus less concentrated in the hands of a few producers in unstable parts of the world. But the path from now to a climate-friendlier future is riven with uncertainty.

Some governments and activist shareholders are pressing oil companies, especially in Europe, to reduce their fossil-fuel wagers. Rystad Energy reckons that partly as a result, global investment in oil and gas production will reach $540bn this year, down by 35% from its peak in 2014. Demand for oil, meanwhile, continues to rise. “That creates stress in the system,” says Roland Rechtsteiner of McKinsey.

Future traders
This presents opportunities for traders, and not just in oil. Mr Rechtsteiner notes that heavy investment in renewables without a simultaneous increase in transmission capacity also causes bottlenecks. In Britain, Italy and Spain more than 150-gigawatts’-worth of wind and solar power, equivalent to 83% of the three countries’ total existing renewables capacity, cannot come online because their grids cannot handle it, says BloombergNEF, a research firm. Traders cannot build grids, but they can help ease gridlock by helping channel resources to their most profitable use.

Europe’s three oil supermajors are already dealing in electric power and carbon credits, as well as a lot more gas, which as the least grubby of fossil fuels is considered essential to the energy transition. Last year they had twice as many traders transacting such things than they did in 2016. Ernst Frankl of Oliver Wyman estimates that gross profits they generated rose from $6bn to $30bn over that period. Other green commodities may come next. David Knipe, a former head of trading at BP now at Bain, a consultancy, expects some of the majors to start trading lithium, a metal used in battery-making. If the hydrogen economy takes off, as many oil giants hope, that will offer another thing not just to produce, but also to buy and sell.

AoL, October 23, 2023