Vitol 2022 volumes and review

Highlights:

• Turnover of $505bn in 2022 (2021 $279bn)
• 7.4 m b/d of crude oil and products delivered in 2022 (2021 7.6 m b/d)
• 30%+ increase across transitional energy volumes traded
• $2bn committed to identified sustainable projects

 

Statement from Russell Hardy, CEO:

The events of 2022 shook the world and energy markets. The invasion of Ukraine and its political ramifications resulted in severe dislocations in energy markets, thereby ensuring that energy, its availability and affordability, remained at the forefront of sociopolitical debate. As one of the largest distributors of energy, our role is to respond to supply signals and facilitate the efficient delivery of energy. In this context of higher prices and a fast-growing gas and power business, our turnover increased to $505bn. Mindful of our role in meeting the needs of our customers, we continue to focus on our strategy of investing in energy solutions for today and tomorrow.

To date, we have committed over $2bn of capital to specific sustainable business initiatives and have a pipeline of projects under review. During 2022 we agreed to acquire Polish renewable developer Vortex, which has a development pipeline of over 3 GW. This adds to our existing renewable generation capacity of 1.2 GW. We expect to invest a further $1bn through Vortex as we build out its pipeline. Alongside sustainable asset investment, we are deploying our expertise, infrastructure and market presence to encourage the adoption of sustainable technologies and circular economy solutions, from plastics recycling to e-mobility businesses. In Colombia we operate 495 electric buses and are building e-fleet solutions to deploy in other markets.

At the same time as investing in future energy solutions, policymakers have stressed the importance of energy security. This means different things in different markets. During 2022, the vulnerability of Europe’s power supply became evident as maintenance in France’s nuclear sector threatened power availability. The system of European interconnectivity held up, but prices reached unprecedented levels. This has to be addressed through investment; in renewables and the infrastructure required to support them but also, in the near term, investment in gas generation as a complement to the roll out of interruptible renewable power.

VPI, our UK-based power company, which owns and operates five power plants, and which continues to work on an ambitious plan to decarbonise industry in North Lincolnshire through CCUS, expanded its footprint into Ireland. Through a joint venture with leading Irish flexible generation development company, Lumcloon Energy Ltd, VPI will co-develop a new 275 MW Open Cycle Gas Turbine (OCGT) power plant in County Westmeath. The supply of LNG is critical to ensuring near term energy security in many regions. High prices during 2022 pushed a number of Asian buyers and economies out of the market and resulted in increased coal burn. We expect this tightness in LNG to continue until 2026, when significant new production capacity will come online, equivalent to 50% of supply in 2022. This new supply, which will originate in the US, Qatar and Africa, will primarily be consumed by developing Asian economies, enabling them to underpin economic growth and move away from coal.

Vitol’s traded LNG volumes increased slightly to 17.6 m toe. The portfolio responded to increased demand from Europe and in Q4 European destinations accounted for 67% of Vitol’s LNG volumes. Oil flows were significantly impacted by events in Ukraine and the subsequent sanctions, both voluntary and mandatory. As European buyers withdrew from the consumption of Russian origin oil, 2.4 m b/d of Russian crude exports found new buyers, predominantly in Asia, while Europe required new sources of crude. Overall, markets held up well, redirecting flows as necessary and assisted by strategic petroleum reserve releases. Bottlenecks were limited and there were no major shortages of crude, although refined product markets were tight. Vitol’s crude oil volumes fell slightly to 199.5 m MT (2021: 200.5 m MT) as we exited contracts and ceased trading Russian crude in June 2022. Across the rest of the barrel, volumes remained broadly constant and the trading business continues to perform well. We expect jet volumes to recover this year in the wake of China’s reopening, though structural issues in the airline and travel sector will moderate demand growth in 2023.

Longer term, Africa will continue to be a growth market as per capita oil consumption, currently 9% that of Europe, increases in line with economic development. In 2022, we acquired the public shareholding of Vivo Energy, the African downstream business we founded in 2012 and which operates the Shell and Engen brands in 23 African markets. Last month, Vivo consolidated its market-leading presence by agreeing to acquire South Africa-based Engen from Petronas. The combined group will have 3,900 service stations across 27 African countries, resulting in one of the largest energy distribution platforms in Africa.

We expect oil demand to grow until circa 2030. Road vehicles will lead the transition to electricity and cleaner fuels, such as biogas and hydrogen fuel cells, but it is essential that other sectors, such as shipping, address decarbonisation. We were pleased to lead trials in Singapore of bio-blended VLSFO and believe developments such as these will be essential to reducing emissions in this sector.

Vitol, through its portfolio company VTX, has just closed its second, US onshore upstream acquisition; this one in the Southern Delaware Basin in Texas. Together with Vencer, an existing Midland Basin producer, Vitol will be invested in US production of circa 80,000 boe/d.

During 2022 we completed a new-build, efficient refinery in Malaysia, intended to serve local bunkering and other growing product markets in the region. As with all our traditional activities we are looking to minimise their environmental impact. During 2022 our VPR refinery in Rotterdam was the first in the world to deploy innovative new systems to halve NOx emissions and increase the effectiveness of its furnace, making it one of the most efficient refineries in Europe. We will continue to challenge our asset managers to optimise their environmental impact and to plan for a future in the context of the transition.

Vitol has long believed that carbon markets have a role to play in achieving Net Zero. Notwithstanding some of the issues faced by the sector, we continue to focus on generating a portfolio of high-quality credits with projects that are aligned with the UN Sustainable Development goals.

Looking forward to the rest of 2023, we expect oil demand to grow by 2 m b/d, driven primarily by the aviation sector globally and recovering demand in China. That said, energy markets remain vulnerable to both economic and geopolitical risks. The extreme volatility of energy markets during 2022 highlighted the importance of prudent physical and financial risk management; accordingly, we will continue to manage our business and financial position carefully and conservatively.