Vitol 2016 volumes and review
- Turnover $152 billion (2015: $168bn)
- Crude oil and product trading up 16% to 2,597 million barrels (2016: 351m mt, 2015: 303m mt)
- Trading over 7 million barrels per day
- 6,809 ship journeys (2015: 6,629)
- Divested from Blueknight and infrastructure in the Permian basin
- Completed acquisition of share in Oando’s downstream business
- Sold 50% of VTTI to Buckeye Partners
Statement from Ian Taylor, Chairman and CEO:
The Group’s performance in 2016 was solid, despite challenging market conditions. Volumes continued to grow, both in crude and products and we now trade in excess of 7 million barrels per day. Despite the increase in volumes, a lower average oil price over the course of 2016 caused turnover to fall to $152 billion. We maintain our long-held strategy of conservatively managing capital and risks and will continue to build the business on these grounds, whilst remaining mindful of both counterparty and credit risks.
Core trading business
2016 saw an end to the steep market contango that enhanced results in 2015, though ample supply in many petroleum markets generated a favourable market structure for much of the year. Demand growth of 1.4 million barrels a day exceeded our expectations slightly, but the continued efficiency gains within the exploration and extraction sector ensured the market was well supplied and the impact on price constrained.
Our crude and product volumes increased by 16% to 2,597 million barrels (2016: 351m mt, 2015: 303m mt), an average of over 7 million barrels per day. At 48% of the traded barrel portfolio, crude continues to represent the largest part of our business and during 2016 we traded over 3.4 million barrels of crude a day (2016: 169m mt, 2015: 146m mt). Crude volumes grew a healthy 16% year on year, but the largest growth in percentage terms came from gasoline, up 44% and gasoil, up 26%, driven by increasing demand in both established markets, notably the US and, to a lesser extent Australia, and a growing presence in key African markets.
The growth in supply of LPG, both associated and non-associated, from US shale, is engendering new opportunities. Our 2016 volumes increased by 131% and, longer term, we anticipate that the ample supply of LPG will facilitate the switch away from solid fuels for cooking in economies across Africa and Asia. In addition, we are working with power plants and light industry in Africa to help them move from burning fuel oil and diesel to LPG, a cleaner and more efficient source of fuel.
The coal market experienced a resurgence in 2016, with prices doubling for a limited period towards the end of the year as policy restrictions to Chinese supply impacted the market. An increase in our coal volumes back to 2014 levels reflected the growing pull from Asia as new coal fired power stations became operational, with an estimated 50 GW plus of coal generation capacity added during 2016.
2016 saw some changes to the asset portfolio. Strategically we remain focused on investing in and building energy assets which complement the core supply business, where appropriate investing alongside aligned partners. To this end we were delighted Buckeye Partners, which successfully owns and operates terminals across the US and Caribbean, invested in VTTI, the terminal company we founded a decade ago. We believe their expertise and market insight will add great value to VTTI’s proposition in the coming years.
In the US, we divested from our Permian Basin assets, which were acquired by Sunoco Logistics Partners, and Blueknight which was acquired by Ergon Inc. Our outlook for US infrastructure remains positive, but for both these assets we believe that they are better served by their new owners.
Our downstream portfolio continues to evolve. In July we completed the acquisition of an equity stake in Oando’s downstream business, now rebranded OVH Energy at a corporate level. Investing alongside Helios Investment Partners (Helios) and Oando Plc, this gives Vitol a retail presence in Nigeria, one of Africa’s major energy markets and we look forward to working with our partners to develop the business further.
The African downstream company at the heart of our portfolio is Vivo Energy, a Shell licensee across 16 markets and in which we are also invested with Helios. Since Vivo was created in 2011, the business has consolidated and grown from 1,300 service stations to over 1,700. We continue to be committed to its growth and in December announced the acquisition of the remaining 20% shareholding owned by Shell.
Viva Energy, formerly Shell’s downstream business in Australia, continues to perform well and aviation was added to the portfolio of Viva’s businesses during 2016. Viva also successfully created a Real Estate Investment Trust (REIT) for 425 of its properties which commenced trading in August 2016, raising in excess of AUD900 million.
Varo Energy, a downstream investment in North West Europe in which we are invested with the Carlyle Group and Argos, continued to grow its footprint and consolidate its businesses through 2016. Given the fragmented nature of downstream assets in Germany and Benelux, we expect Varo to continue its strategy of incremental acquisitions which complement its existing presence in the Bayernoil and Cressier refineries and associated marketing businesses.
Since year end, we have agreed to acquire OMV Petrol Ofisi, Turkey’s largest fuel and lubricants distribution company, from OMV, which would add an additional 1,700 service stations to our portfolio.
2016 also saw the launch of VALT, a market leader in the supply and distribution of asphalt and a joint venture between Vitol and Sargeant Marine, with annual volumes of circa 1.3 million metric tons and one of the largest dedicated asphalt fleets in the world.
On the upstream side, our focus is very much on the development of the Sankofa Gye Nyame fields offshore Ghana, and operated by Eni. This development, the largest FDI in Ghana since independence, will provide enough gas to fuel most of the thermal power sector in Ghana to 2036, as well as an estimated 500 million barrels of oil-in-place. 2016 saw the commitment of the final tranche of financing for the project. We are grateful to our commercial lenders and the World Bank, IFC and MIGA, as well as UK Export Finance, for their support. It is the first time public and private guarantees and funding have combined to facilitate a project of this size in Africa. First oil is expected in the summer of 2017 and first gas in H1 2018.
Our growing volumes and interests, particularly in the EMEA region, require increased management focus. To this end we appointed long-standing Executive Committee member Russell Hardy to the newly created role of CEO EMEA (Europe, Middle East and Africa). Gerard Delsad, our Group CIO, has taken over the leadership of the Geneva Management Committee and David Fransen has become Chairman of Vitol SA. Other regional and global responsibilities remain unchanged. We are fortunate to benefit from a highly experienced management team with many years’ experience of working together.
In addition to our HSE responsibilities as a distributor of physical energy we are mindful of our role in energy markets worldwide. To this end, we are pleased to be an active participant in the Swiss multi-stakeholder dialog on the UN Guiding Principles on Business and Human Rights (“Ruggie principles”). These are challenging times and it is important that all stakeholders work collaboratively to find a way forward.
It only remains for me to thank our customers, partners and other stakeholders for their continued support and my colleagues across the Vitol Group for their hard work and dedication.
Vitol is an energy and commodities company; its primary business is the trading and distribution of energy products globally – it trades over seven million barrels per day of crude oil and products and, at any time, has 250 ships transporting its cargoes.
Vitol’s clients include national oil companies, multinationals, leading industrial and chemical companies and the world’s largest airlines. Founded in Rotterdam in 1966, today Vitol serves clients from some 40 offices worldwide and is invested in energy assets globally including; circa 15.9mm3 of storage across six continents, 390kbpd of refining capacity and Shell-branded downstream businesses in 16 African countries, as well as Australia. Revenues in 2016 were $152 billion.