OIL TRADERS SEEK NEW PROFIT RECIPE

The energy industry as a whole faces an existential threat from the shift to a lower carbon future and faces growing pressure from investors, governments, activists and financiers to find a sustainable business model

their new business model for an environmentally-friendly future.

“Nobody has figured out how to make money yet,” Jean-francois Lambert of consultancy Lambert Commodities said. “Trading firms are now testing the waters.”

Traders make a living by exploiting niche high-margin opportunities to supply energy and commodities, doing business that other companies either fail to spot or find too risky.

Those opportunities are scant in the renewables sector.

“Renewable projects are reaching a scale which makes them attractive investment propositions, but there is a lot of capital chasing a limited number of projects,” Vitol Chief Executive Russell Hardy said. “Finding the right project at the right price is not easy.”

Changes in the financial services industry are also giving the search for new business a sense of urgency.

French bank Natixis, for example, was the first to introduce internal financial penalties in September on deals that are not environmentally friendly.

The bank said deals classed as “green” would receive a reduction of up to 50 per cent on the amount of capital the bank must retain to back them, known as risk weighted assets. A deal that is not environmentallyfriendly, so-called “brown”, will face an increase in risk weighting by up to 24 per cent.

With the European Central Bank pushing a green agenda, other major European banks are also considering similar schemes, two banking sources said. “Minimum standards for regular loans are getting tougher and tougher too. There’s pressure (on traders) from non-governmental organisations and banks,” one of the banking sources said. “Also it’s an HR question — what millennial wants a big bonus from a dirty industry?” CAPTURING ELECTRONS Power trading is one way to capture the renewables shift as varying sources will create new dislocations.

“There will be a shift from molecules to electrons, worldwide EVS (electronic vehicles) will add an incremental 250 GW per hour of demand by 2030,” Vitol’s Hardy said.

Vitol and Geneva-based Mercuria already have active power teams but others are just starting. Trafigura opened its first power and renewables trading desk in November and in January, Gunvor Group restarted power trading with a dedicated desk in London.

“The power industry has similarities with the way the oil industry operates including regional dislocations which traders are known for helping to fill,” Trafigura chief executive Jeremy Weir said in Davos.

He also said shipping accounted for 89 per cent of Trafigura’s carbon emissions and that the wider industry would need to set a benchmark for tracking this carbon footprint.

At the end of last year, Trafigura invested in a green hydrogen firm and made its first ever investment in a solar project in Mali this month.

WASTE AND HYDROGEN Vitol has set up an internal working group to examine new renewable energy technologies and ways in which the business can participate in a lower-carbon economy.

The firm has allocated $300 million for renewables investment with more than $200 million already allocated, the company said in October.

Separately, Vitol has set up solar farm capacity in the United States and has a major wind project in Ukraine through a joint venture VLC Renewables.

The wind farm will produce 500