From Wind Power to Cow Manure: Oil Traders Seek New Profit Recipe

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February 19, 2020

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by Julia Payne (Reuters) The world’s largest oil traders are pouring hundreds of millions of dollars into climate-friendly projects – including wind farms, cow manure plants and blue hydrogen – as they seek to match the profits they make from trading oil. 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.

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Trading firms such as Vitol and Trafigura have already put money into wind farms, hydrogen, solar, EV technology, biofuels and biomethane as potential replacements for oil, traditionally their big profit driver.

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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% on the amount of capital the bank must retain to back them, known as risk weighted assets. A deal that is not environmentally-friendly, so-called “brown”, will face an increase in risk weighting by up to 24%.

With the European Central Bank pushing a green agenda, other major European banks are also considering similar schemes, two banking sources said.

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“There will be a shift from molecules to electrons, worldwide EVs (electronic vehicles) will add an incremental 250GW 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.

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Waste also is a potential new profit avenue.

Vitol has invested in several start-ups, including firms that turn coal and plastic waste into fuel. In Idaho, it has invested in a cow manure “bio digester” that produces 700,000 cubic feet of bio methane per day.

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Geneva-based Gunvor Group plans to invest hundreds of millions to reduce carbon exhaust at its three European refineries and add a biofuel unit at one of its refineries that will use excess hydrogen.

Biofuels will be a focus after it bought two Spanish plants that turn waste oils, like cooking oil, into biofuel this year. READ MORE

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