Vitol 2020 volumes and review

• Turnover of $140 billion in 2020 (2019 $225bn)
• 7.1 million barrels a day of crude and products traded in 2020 (2019 8mb/d)
• $1+ billion new capital already committed to identified renewable projects

Statement from Russell Hardy, CEO, Vitol:

It is impossible for us to look back on 2020 without remembering the loss of our chairman, friend and colleague Ian Taylor. At the same time, we are mindful that many others have sadly lost family, friends and colleagues over the past year.

It is just over 12 months since Covid-19 was declared a pandemic. The virus shaped our business and our lives in 2020. The extraordinary market conditions in the initial stages of lockdown and sudden drop in demand resulted in huge logistical challenges and market opportunities. With stocks building by over one billion barrels in the early part of the year, the industry had to manage unprecedented circumstances, restructuring supply chains to handle the crude oil and products that neither producers nor consumers could contain. Whilst much demand has returned and the outlook is positive, the recovery has been slower than many anticipated and near-term uncertainties remain.

Our focus remains on growing our business whilst maintaining a conservative approach to financial and operational risks. We continue to invest in energy segments that are likely to grow as the world transitions to cleaner energy solutions and, to date, have committed over $1 billion of capital to renewable projects worldwide. Alongside this growing portfolio, we are expanding our capabilities in LNG, gas, power and carbon trading. Later this quarter we will publish our first ESG report, in which we provide detail about our refocused business strategy and decarbonisation projects.

Our senior team has also evolved with both Kho Hui Meng and Mike Loya retiring from Vitol during 2020. Whilst their experience will be greatly missed, it is a credit to the strength and depth of talent across the company that the business has continued to perform well in both the Americas and Asia.

Crude oil and products

Total global oil demand fell by 8.8 million barrels per day in 2020 and our traded volumes fell commensurately to 7.1 mb/d (2019 8 mb/d) or 339.2 million MT (2019 382.8) for the whole year. As mentioned, the sudden loss of demand in March / April resulted in extraordinary market conditions. Our inventories grew markedly as we absorbed customer cargoes when demand collapsed and the market moved into a steep contango. Looking at the year as a whole, demand across the barrel was mixed and reflected the performance of the wider economy: light ends used in manufacturing outperformed, our naphtha volumes increased 18% year-on-year, but transportation fuel volumes fell. Unsurprisingly, our traded jet fuel volumes were the most affected, dropping 39% year-on-year to 11.3 million MT.

Crude continues to represent our largest volumes. Notwithstanding a fall in volumes of 14% compared with 2019, we traded 174.6 million MT. The collapse in demand impacted all producers, but US shale, with its proportionately higher marginal cost and high decline rates, was notably affected. For the first time, a major oil price benchmark turned negative, whilst this was largely caused by an exceptional interaction of the physical and financial markets, it negatively affected US producer sentiment. Longer term, the increased discipline we are seeing from US producers will be better for the sector. We have expanded capability in this area to consider mature investment opportunities.

Gasoline and gasoil traded volumes were down by 6.1% and 1.4% respectively. The impact of lockdowns for both fuels was tempered by the increasing use of personal vehicles versus public transport and a growth in home deliveries.

Looking forward, whilst we expect a recovery in most sectors in the second half of this year, aviation demand is likely to remain below 2019 levels for some time. We see business opportunities in particular sectors, such as bunkering in growth markets, including Asia and the Middle East, and are expanding our offering to capture these.

Transitional energy

Longer term we anticipate a shift in energy demand away from liquid hydrocarbons towards power.  We anticipate that, in the medium term, demand for hydrocarbons such as LNG, natural gas and LPG will grow as economies move away from coal and other solid fuels. At present, and until large scale battery capacity has grown significantly, there will be a need for gas fired generation to help manage the intermittency associated with renewable solar and wind generation; hence our recent acquisition, through VPI Holding, of four CCGTs in the UK from Drax. VPI is leading the company’s first large-scale industrial decarbonisation project, Humber Zero, which aims to remove 8 million MT of CO2 annually by the mid-2020s.

In this context we have been growing our capacity across all these areas with investments in both assets and people. A long-standing participant in the LNG market, which we entered in 2006, last year we traded 10 million MT. We continue to lead innovation and recently launched a ‘Green LNG’ offering, enabling our customers to offset emissions associated with their cargoes, from wellhead to DES delivery, through the surrender and cancellation of Verified Emissions Reductions (VERs) and International Renewable Energy Certificates (IRECs).

Such offerings enable us to leverage our expertise in carbon markets. We have been building a portfolio of carbon-mitigating solutions for fifteen years, as well as being an active participant in both voluntary and compliance carbon markets in Europe and the Americas. We anticipate an increased integration of this business with the mainstream energy businesses as customers look to offset emissions as part of their day-to-day business.

We are an established participant in biofuels markets in the Americas and we are also investing in other circular economy solutions, such as Wastefront which recycles tyres to make liquid hydrocarbons.

Renewables and new energy solutions

Our investment in renewables is growing and to date we have committed over $1 billion of new capital to identified projects in this sector. We are predominantly focused on wind, solar and renewable natural gas projects (purified biogas produced in biodigesters which convert organic waste to pipeline gas). Our largest presence is in the US, though our portfolio is growing in Europe and Asia.

More broadly we are looking at our investment portfolio and working with management teams to identify opportunities for reducing emissions, alongside strategic opportunities to grow the business through the energy transition. We are identifying sectors, such as the electrification of transport, where we believe we can deploy our capital and expertise to grow compelling offerings which, where possible, complement our existing trading businesses.

The energy transition requires our business to change. We continue to believe that demand for oil will not peak for another decade, but nonetheless we must position our business for a lower emissions world. This change cannot be made overnight, so we will steadily build our transitional and new energy offering and portfolio, serving our clients as their needs evolve.

We are also working hard to mitigate compliance risks across the business. Late last year we reached agreement with US and Brazilian authorities in respect of certain conduct in Brazil and other jurisdictions. Whilst we are pleased the matter has been resolved, we fully appreciate the seriousness of the situation.

Finally, we thank all our customers and banks for their continued support, and I thank all my colleagues for their hard work and professionalism over the last year in what have been, for many, very challenging circumstances.