|Gunvor: Repeat of Q2 Volatility Hard to See|
Despite having its business model tested during the first half of 2020 commodities trader Gunvor’s robust Risk management refers to the process of identifying, assessing, and prioritizing potential risks in order to minimize their negative impact on an organization or individual. In the energy commodities trading... Read more and strong market analysis helped it produce its best second quarter ever, according to CEO Torbjorn Tornqvist. Here, Tornqvist explains how Gunvor is well positioned to take advantage in a growing market for LNG, as well as discussing how its European refining operations have been adapted in response to Covid-19 and the firm’s view of the Renewables: Renewables, also known as renewable energy sources, refer to sources of energy that are replenished naturally and are considered to be environmentally friendly and sustainable. Unlike fossil fuels, which... Read more sector, where it sees plenty of opportunity.
EI: The second quarter of this year produced a “super-contango” the likes of which we have never seen before (EIF Jun.3’20). In this new era of global uncertainty caused by Covid-19, can you see this degree of turbulence returning to the oil markets?
Törnqvist: The sell-off was created by a combination of several extraordinary factors. Starting with a misjudged Opec meeting in March, which resulted in free-for-all production at a time when we saw demand collapse like never in history. As a consequence, there was a massive oversupply to the tune of 20 million-30 million barrels for a short period of time. It is very hard to see this combination of circumstances hitting the market again in the foreseeable future.
EI: It is often said that “Volatility refers to the degree of uncertainty or variation in the price or value of a particular financial instrument or market. In the context of energy commodities trading, volatility describes... Read more is a trader’s best friend.” Does this adage still hold true, or does market turbulence also bring risks with it?
Törnqvist: Gunvor’s business model was really tested during the first half. Our risk management is robust and our market analysis is well developed. We managed to take advantage of the contango in the second quarter, as well as correctly read the volatility for oil. It is important to point out that for Gunvor, commodities not related to the oil collapse and contango also contributed to profits during this period. Obviously, it would be hard to have strong earnings without some volatility.
EI: You have indicated that this will be a very good year for the company financially. On the back of the Q2 meltdown, are you expecting net profits to exceed last year’s?
Törnqvist: We do not publish details during the year, but we can say the second quarter was the best quarter we have ever recorded due to the set of circumstances already described. Gunvor’s volumes of oil and liquid gas are steady at approximately 2.8 million barrels per day, which is more than sufficient for us to have a high return on equity. Market conditions since July have been more challenging than during the first half, and we have adjusted our trading accordingly. Earnings are back to “normal” expectations.
EI: Gunvor is the largest trader of LNG, volumetrically, of all the trading firms. What is the secret to this exponential growth, and what will you have to do to sustain it in this current era of low gas prices?
Törnqvist: Our LNG trading is truly global, based on long- and medium-term contracts, both on the supply and delivery sides. We are managing a sizable fleet of ships, and the sheer size of the book creates substantial Optionality refers to the inherent right, but not the obligation, to engage in a particular transaction at a future point in time. It allows individuals or entities to take advantage... Read more in the spot market. We believe the LNG market will grow for years to come. In our view, it is an important piece of any future energy mix, vis-à-vis the Energy Transition refers to the global shift from traditional fossil-fuel based energy systems to more sustainable and renewable sources of energy. It involves the gradual transformation of the energy sector,... Read more.
EI: Can you afford to keep the three European refineries you own running, or will you have to consider selling or closing them?
Törnqvist: Early on during the Covid crisis, we concluded there would be a surplus of refining capacity globally for a long time to come, even after the pandemic subsides, and especially so in Europe. We took the decision to mothball our Antwerp refinery. We will, however, continue terminal activities at the site, as well as assess future development opportunities for the land and existing units. In Rotterdam, we shut down the refinery’s two crude units, and operations will now focus on the desulfurization of high-sulfur products, the production of gasoline and the processing of Biofuels are a type of renewable energy derived from biological sources, such as plants and animal waste. These fuels are used as an alternative to fossil fuels, with the aim... Read more. The Ingolstadt facility is a top-quartile European refinery with strong location advantage.
EI: Traders such as Trafigura, Vitol and Mercuria have announced ventures to move into renewables. Is this an area you are looking into closely?
Törnqvist: We are looking very closely at renewables and see plenty of opportunities. There is no silver bullet to the Climate change refers to long-term alterations in average weather conditions that occur on a global scale, challenging the Earth's climate system. It is primarily caused by the increase in greenhouse... Read more issue. Many solutions are needed. As far as Gunvor is concerned, we have committed to reduce the carbon footprint of the commodities we’re trading and our industrial processes. We have stopped trading coal and acquired two Biofuel plants refer to facilities or installations where organic materials, such as crops, agricultural residues, or waste, are converted into biofuels. These plants typically employ various processes, such as fermentation,... Read more in Spain. Today, about 50% of our trading is Energy Transition commodities, including biofuels, Natural gas is a fossil fuel composed mainly of methane, a hydrocarbon compound. It is formed deep beneath the Earth's surface as a result of the decomposition of organic matter... Read more and LNG. The commodity mix we are trading has a lower carbon footprint than it used to have. … And, as a part of the Rotterdam [refinery] processes, we create Description: Hydrogen is the most abundant element in the universe, represented by the symbol H on the periodic table. It is a colorless, odorless, and highly flammable gas. In energy... Read more, which we are studying as well.
As for investments, we have targeted 10% of net equity to be spent on non-(fossil fuel) energy solutions over the next couple years. We are currently assessing various options. For example, we believe that carbon capture solutions are required to meet zero-emissions goals, given the reality that hydrocarbons will still be a necessary part of the future energy mix. Batteries are also an area of interest because of their need to help manage the intermittent nature of renewables, such as Solar energy is a renewable and sustainable form of energy derived from the radiant light and heat of the sun. It is harnessed through the use of advanced technologies, such... Read more and wind … Power is not a commodity, per se. Renewables, like solar and wind, produce energy, and the “logistics” would include batteries, smart grids, and power lines. Power trading and related investments will be more important for Gunvor as we go forward. There is also a lot of excitement for hydrogen right now, and if there is success with it, it stands a good chance to be commoditized.
We shouldn’t forget that at the end of the day all our trading activities need to be done on a commercial basis. Renewables, so far, do not have the same return as oil trading, but there is potential.
EI: As banks come under greater pressure to move away from oil, do you see loans becoming harder to come by, or does Gunvor have banking relationships that will endure over the next few years?
Törnqvist: We are in constant dialogue with our banking partners, and our aim is to form a common view with them, whereby Gunvor upholds its role in the energy transition. Gunvor was the first energy trader to launch sustainability-linked financing, in which the interest rate is tied to our ability to achieve numerous criteria, such as CO2 emissions reduction in our operations. This is audited by a third-party and, so far, we’ve been successful. Banks will continue to support companies in the energy sector that integrate sustainability and the energy transition in their business model.
EI: The traders, and banks, put a much greater emphasis on compliance these days. Has this hindered your ability to develop new business, or has it been beneficial?
Törnqvist: During the last decade, we’ve spent millions of dollars building a top-tier, independent compliance department. And we’re working continuously to improve our procedures to mitigate risks in our sector, whether they relate to sanctions, corruption, market conduct, or other areas. We have a zero-tolerance policy. Every employee, including myself, must undergo mandatory annual training. We have also adopted greater transparency standards, including supporting EITI [Extractive Industries Transparency Initiative] on payments to government disclosures. After experiences from the past, we pride ourselves on upholding very rigorous compliance standards, and we do turn away from deals as a result. If we lose business, so be it.
EI: And finally, you have been in the trading business for over 30 years. Would you say it gives you the same level of excitement now as it did back in the 80s?
Törnqvist: Throughout the years, I have seen oil trading change many times over. I was in the business, working at BP, at the time of the Iranian Revolution. This resulted in massive upheaval in the energy sector and gave rise to independent oil traders. Actually, you can draw some parallels to the thinking in the oil industry then and what we’re seeing today with the energy transition — the same uncertainties, the same doubts about the future of oil. I feel very privileged to have started from this point in the early days. It provides important perspective on how we formulate a strategy where we align our use of energy, including hydrocarbons, to create a sustainable future, with a focus on climate change. Hydrocarbons will continue to be a necessary part of the future energy mix, but they need to be produced and used in a way that fully manages their emissions.
Gunvor Group (“Gunvor”), a leading global physical energy commodities trader, is partnering with VARO Energy (“VARO”), which will build large-scale Sustainable Aviation Fuel (SAF) manufacturing at the extensive Gunvor Energy Rotterdam (GER) site. The facility will have a total production capacity of 350 kpta; approximately 70% will be SAF, with the remainder a mixture of […]
Gunvor USA (“Gunvor”), a subsidiary of Gunvor Group, a leading global energy commodities trading company, has signed a crude oilCrude oil refers to unrefined petroleum that is found with the Earth’s crust. Read more supply agreement with CVR Supply & Trading, LLC (“CVR”), a subsidiary of CVR Energy, Inc. (NYSE: CVI). Under the terms of […]
Celsius Tankers (“Celsius”) expand their partnership with Gunvor Group Ltd (“Gunvor”) in the liquefied natural gasNatural gas is a fossil fuel composed mainly of methane, a hydrocarbon compound. It is formed deep beneath the Earth's surface as a result of the decomposition of organic matter... Read more (LNG) sector with the chartering of four highly […]
Chesapeake Energy Corporation (NASDAQ: CHK) and Gunvor Group Ltd today announced that Gunvor Singapore Pte Ltd (“Gunvor”) has entered into a Heads of Agreement (“HOA”) with Chesapeake Energy Marketing L.L.C. (“Chesapeake”) a subsidiary of Chesapeake Energy Corporation. Under the HOA, Chesapeake will supply up to 2 million tonnes of LNG per annum to Gunvor with […]
HOUSTON (2 March 2023) – As part of its strategy to accelerate the energy transitionEnergy Transition refers to the global shift from traditional fossil-fuel based energy systems to more sustainable and renewable sources of energy. It involves the gradual transformation of the energy sector,... Read more, Gunvor USA LLC (Gunvor), part of the Gunvor Group, […]
As a part of Gunvor Group’s commitment to support the Energy TransitionEnergy Transition refers to the global shift from traditional fossil-fuel based energy systems to more sustainable and renewable sources of energy. It involves the gradual transformation of the energy sector,... Read more, we have been making significant investments to expand our trading and transform […]
Dutch tank storage company Vopak is acquiring the shares of Gunvor Petroleum Antwerp from commodity trader Gunvor Group Ltd (“Gunvor”), giving it access to the Gunvor concession in the Antwerp port area. Vopak is committed to sustainably redeveloping the site. For example, together with the Port of Antwerp-Bruges, the company will focus on joint development/implementation […]
Gunvor Group, a leading independent trader of liquefied natural gasNatural gas is a fossil fuel composed mainly of methane, a hydrocarbon compound. It is formed deep beneath the Earth's surface as a result of the decomposition of organic matter... Read more (LNG) worldwide, has renewed its syndicated borrowing base facility (the “Facility”) to support the […]
Natural gasNatural gas is a fossil fuel composed mainly of methane, a hydrocarbon compound. It is formed deep beneath the Earth's surface as a result of the decomposition of organic matter... Read more facility sees doubling of support from financing partners Gunvor Group (“Gunvor” or “the Company”) has successfully closed a EUR 570 million working […]
VAKT today announces that the first-ever physical oil trade confirmations are being conducted using the VAKT technology. Gunvor Group and TotalEnergies Trading SA (TOTSA) lead this industry first, with more counterparties to follow. This digitised transaction is a milestone for the oil trading industry. Due to the complexity of physical oil trades, the contracting process has traditionally been manual and intricate. […]