Vitol SA Managing Director David Fransen, who runs Vitol’s energy trading operations from Geneva, and Vitol Group’s Global Head of Corporate Affairs Mark Ware said 2010 was shaping up as a tough year for physical commodities trading.
“It has been pretty hard work over the first few months (of 2010),” Ware said, describing a lack of arbitrage opportunities, a crowded market and jittery buying patterns due to concerns about the euro, Greece and other issues.
Vitol, which shipped 315 million tonnes of crude and energy products in 2009, bringing in $143 billion in revenue, has seen year-on-year volumes flat in Europe and with limited growth in the United States, but up 8 to 10 percent in China and other big developing markets.
“We are facing a very different year in 2010,” Fransen said in an interview in a small conference room in Vitol’s two-level Geneva headquarters, in a nondescript building in the Swiss city’s university and banking district.
Earlier this month, Vitol announced it was selling a 50 percent stake in its Vitol Tank Terminals International (VTTI) unit to Malaysia’s MISC Bhd, an international shipping line, for $735 million.
Ware said that partnership deal offered an opportunity for Vitol to access fresh capital and accelerate its growth plans in energy storage, helping VTTI stretch its capacity to 8 million cubic metres by 2012, from 6 million today.
“The ambition is to be right up there as a top 5 player in the terminal space,” Ware said. “Having a strong publicly-traded partner such as MISC gives us a lot of capacity to grow.”
Vitol said in a statement issued on Thursday that VTTI had acquired additional land at its terminal in Rotterdam, in the Netherlands, to give it access to rail and truck loading facilities, barge jetties and warehouse capacity.
STORAGE CLOUT
Vitol was founded in 1966 and has 260 shareholders, all of whom are employees. Fransen said he saw no need to bring in outside investors or to launch an initial public offering, as has been rumoured for metals trader Glencore.
“Our plan is to remain a private company,” he said.
The managing director said it made sense for Vitol to increase its clout in terminals, given storage is so fundamental to Vitol’s work in finding, extracting, trading, refining and transporting energy from one part of the world to another.
“It fits into our core business. We will always be a major user of terminal storage,” he said.
And with oil majors so heavily focused on exploration and production, Ware said looking downstream made strategic sense for Vitol as it continues to diversify its business beyond the core of oil trading.
“There have been quite a lot of assets on the block. That gives opportunities to companies with access to capital,” he said, suggesting this trend would continue. “In general, you can expect reasonable activity in the investment and M&A space.”
Vitol expects oil prices to stay broadly in the $70 to $80 range, and for global demand to be 1.5 million barrels a day higher in 2010 than in 2009.
While Vitol’s core oil trading business has continued to grow, the company has also expanded its activity in other energy markets including natural gas, power, coal and carbon trading to match changing patterns of consumption and demand.
On a global basis, coal has been the fastest-growing primary energy source for the last six years, and would remain of key interest to Vitol, Ware said. But he said carbon trading was also set to grow alongside a push for more clean energy.
“We are bullish on the scale of carbon markets,” Ware said, describing the impasse in global climate negotiations as “a small stutter” in the development of carbon trading. “The trend is clear that it will grow,” he said.
The company’s primary client base is evolving in response to a changing energy landscape.
Vitol is now seeking natural gas deals with municipalities instead of focusing only on large state utilities like Germany’s E.ON, and is fostering new deals with airlines to supply jet fuel and risk management services, Ware said.
