Swiss commodities giant Vitol Inc. traded 8 million b/d of crude oil and products in 2019, an 8% year/year (y/y) increase, CEO Russell Hardy said Friday, noting that last year “now seems a very long time ago” amid the havoc wrought by 2020 on the global economy.
Hardy said most products traded by Vitol benefited from relatively tight margins in 2019, “enabling us to optimize our performance across the portfolio.”
Traded volumes of crude, gasoil and gasoline rose by 10%, 20% and 13%, respectively, while fuel oil volumes fell 11% ahead of the International Maritime Organization’s restrictions on sulfur content in shipping fuel that took effect Jan. 1, 2020.
Hardy said Vitol expects liquefied natural gas (LNG) to account for a growing share of revenue, noting that delivered volumes rose 35% to 10.5 million metric tons (mmt) in 2019.
The trading house plans to enter into a number of long-term LNG partnerships, Hardy said, “which we believe will provide the foundations for the next phase of this business line’s growth.
”As well as serving growing demand for LNG in Asia, this will complement our established gas and power trading businesses in Europe and the U.S., enabling us to provide seamless solutions to customers across those continents.”
Vitol is seeking investment opportunities that complement the core trading business, namely in renewable energy. Vitol expects to be invested in more than 1 GW of wind and solar capacity across Asia, Europe and the United States over the next 36 months, Hardy said.
Although Vitol limits its exposure to the upstream oil and gas segment, Hardy said the firm’s Sankofa Gye-Nyame natural gas development offshore Ghana with partners Eni SpA and Ghana National Petroleum Corp. has proved successful and allowed Ghana to completely replace oil-fired power generation with cleaner-burning natural gas.
Although Vitol’s outlook is changing by the minute as the coronavirus pandemic evolves, one certainty is that the global economic slowdown will result in large surpluses of both crude oil and products, Hardy said. He warned that “uncertainty will be the watchword for many months” as the market struggles to rebalance.
He noted, however, that, Vitol has “the flexibility in our supply and trading business to accommodate the evolving market conditions.”
As the world wrestles with the economic and social challenges of the pandemic, “the oil markets, and our business, are necessarily affected,” Hardy said. “We will navigate these unprecedented times as safely and sensibly as we can, with a determined focus on mitigating the risks to our people and our business.”
Analysts continue to weigh in about the impacts of the oil and natural gas supply glut on the upstream and LNG segments.
Wood Mackenzie’s Fraser McKay, upstream vice president, said Canadian oilsands producers are among the most vulnerable to widespread shut-ins amid the current oil oversupply cited by Vitol because of the high short-run marginal costs (SRMC) required to maintain production.
The weighted average SRMC for U.S. production is $9/bbl, compared to $10/bbl in Russia and $4/bbl for Saudi Arabia, McKay said. “This compares to global tight oil’s $12/bbl, deepwater’s $13/bbl and heavy oil’s $28/bbl.
Oilsands production, meanwhile, requires an “unenviable” $45/bbl Brent crude price to cover the costs of production before capital expenditure, McKay said.
On the LNG side, the coronavirus has compounded the challenges facing an already flooded global market.
IHS Markit analysts said Friday LNG deliveries to Europe are set to reach an all-time high of nearly 11 mmt in March, a 14% increase from the previous record set in December.
“The ongoing supply push into Europe comes just at the moment gas demand is collapsing at double digit rates,” analysts said, adding that the record influx of LNG will likely swell gas storage in the European Union, where storage is already well above historic averages, “and put further downward pressure on prices that are already at historic lows.”
IHS Markit’s Michael Stoppard, chief global gas strategist, said the record deliveries to Europe are a domino effect of Asian buyers reselling volumes purchased from the United States and portfolio sellers offloading excess cargoes in response to the demand collapse caused by the coronavirus.
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