For major trading houses that ship millions of barrels of oil every day, the prospect of decreasing fuel demand and a turn to renewable power poses a brain-racking challenge with few definite solutions.
The world’s top oil trader Vitol trades seven percent of the world’s oil. They will still have a business, but it may well be a very different business. Vitol, and rivals Glencore and Gunvor, see many growth possibilities in the bread-and-butter business of oil trading since economies in Asia, Latin America and Africa grow, producing demand for oil. However, beyond that, ambivalence loom.
Major commodity traders and oil companies such as Shell and BP expect oil consumption to slow in the coming years as car engines become more efficient, sales of electric vehicles accelerate and wind and solar power become more dominant. Governments around the world are preparing to reduce their dependence on fossil fuel by the end of the century in order to combat global warming.
In all the scenarios you can have on energy, there is always going to be a need to have someone there to balance supply and demand. But other traders see few opportunities in power trading due to technical challenges of storage and transportation.
Similarly, while oil majors are also set to invest heavily in the petrochemical industry, betting on growing demand for plastics, traders see only limited opportunities there. Vitol earlier this year invested in a shared venture to develop energy storage plants in Britain to help manage supply fluctuations from renewable power such as wind and sun.
It also looked at offshore wind. But the ventures into renewables represents a fraction of Vitol’s business, with a turnover of $152 billion in 2016. Glencore, also a mining giant, is set to ride on the expected wave of electric vehicle growth thanks to increased demand for metals such as cobalt, copper and nickel used in batteries.
Gunvor, Vitol and more recently Glencore have all invested in refineries and petrol stations globally to secure markets for oil products, as demand is set to reach 100 million barrels per day by the end of the decade.The oil market is not broken in terms of opportunities for trading companies. There are 1 billion vehicles on the road today and the electric vehicle part of that is under 2 million vehicles globally.
Shell, BP and many of the world’s leading energy companies are increasingly diversifying into gas, the least polluting fossil fuel, as well as renewables and power trading in order to secure a foothold in the energy transition.
Trading houses are also growing their liquefied natural gas (LNG) trading operations to tap into the gas market that is set to expand rapidly to meet rising demand for power.
It isn’t the biggest or the largest who survive; it is the one who can adapt the best.