Vopak looks to gas
Vopak will continue with its oil business but it sees growth in LNG and chemicals
Dutch tank storage firm Vopak further expanded its LNG portfolio in September with the purchase of a 49pc stake in the Cartagena regasification terminal in Colombia. While its traditional oil business is not going away, it is increasingly looking at other markets such as LNG, as well as chemicals, to drive growth.
The firm’s CEO Eelco Hoekstra spoke to Petroleum Economist to outline the subtle shift in strategy.
How has your business been evolving?
Hoekstra: Over the last five years or so, we have divested more than 20 terminals and redeployed that cash into new business lines, basically to change the geography and type in which we invest—predominately more in gas and industrial and chemical terminals. We are being specific in where we want to invest in oil—in a few geographies such as the major hubs and import markets where we say that makes sense. That has shifted the portfolio. The Gate LNG terminal in Rotterdam was relatively early in the game but we are benefitting from that now.
Your traditional oil storage business has been exposed to some volatile price fluctuations lately. How do you hedge your business against the troughs?
Hoekstra: The nice thing is that our network is spread over different geographies and products. It is seldom that we see weakness in all product groups and all geographies. For example, we had fuel oil weakness last year, before that we had crude oil weakness, then we had palm oil weakness—there is always something happening. People always zoom in on the last few percentage points but, if you look at the whole portfolio, it is nicely balanced. With the recent shift in our network we have more and more contracts on long term commitments associated with investments in industrial terminals and gas terminals. As such, the relative exposure of Vopak to short-term price fluctuations has gone down.
Is that switch a factor in your projections that the share of revenue from your oil business will drop to around 35pc this year?
Hoekstra: We concluded that, because of our portfolio and the demand side outlook, it makes more sense today to invest in LNG, for instance, than in crude oil. It does not mean that your crude oil tanks are obsolete or not required, it just means you must ask yourself, where do you place new capital that needs to be relevant for the next 20 years?
Do you think oil is losing relevance?
Hoekstra: No, oil will be relevant for a very long time. Unless we see a major technology breakthrough in energy, the world will remain dependent on oil. We will need waxes to lubricate, we will need jet fuel to fly planes, we will need naphtha to produce chemicals. Experts estimate that oil demand will drop slowly but it will never disappear. The construct of how the oil markets are organised might change—becoming more focused and more concentrated—but I do not see [oil] disappearing. We take the view that oil will be there, but we need to be strategic as to where our assets are required.
What are your plans for growing your LNG business?
Hoekstra: We are looking at three opportunities. The German LNG terminal in Hamburg. We have signed an operations and maintenance contract in Hong Kong with [Japanese shipping company] MOL for LNG imports to two power plants. And, we are in a partnership on the Yangtse river in Zhangjiagang to develop an LNG import facility there.
“It makes more sense today to invest in LNG than in crude oil” Hoekstra, Vopak
After investing in Colombia, we are still pursuing two more FIDs before the end of 2020. Our LNG business is growing slowly but surely. With a fourth in Colombia, it has become a network of terminals, not just individual investments. The investments we have done so far have all been in countries where we already have a presence. That supports us because we have capabilities to execute locally. We have both maritime and land expertise, which is also not a given. Certain actors have maritime expertise, others have land expertise, but we bring both together.
Are you concerned that a German LNG terminal may compete with Gate?
Hoekstra: It comes down to serving local interests. It is good that there is an LNG opportunity in Germany for two reasons. Firstly, it gives Germany further gas availability. Secondly, you can resell the LNG without regasification to develop bunkering or industrial opportunities. There is enough demand—the commercial interest has been strong and the open season was successful. [Three capacity agreements have been signed—with Switzerland’s Axpo, Germany’s RWE and an undisclosed global LNG player.]
I am happy with the partnership [with Dutch pipeline operator Gasunie and independent storage firm Oiltanking], I am happy with the commercial progress, I am happy with the location, I am happy with the support of the German government. But I do understand [it takes time] because local interests must be served as well, that is logical.
Are you considering electricity storage, given there is growing need for storing renewable power?
Hoekstra: We have looked at what Vopak can contribute to developing more sustainable energy carriers and four areas have emerged—the hydrogen economy, carbon capture and storage, the use of flow batteries and developing new feedstocks in chemical manufacturing. What we have done is looked to find partners to work together on these opportunities. For instance, we are a partner in H-vision, a project here in Rotterdam on whether a blue hydrogen plant can be developed. We have also purchased a 10pc equity stake in a company called Hydrogenious, a German company that has developed a technology to detach and attach hydrogen to a liquid, organic hydrogen carrier.
It is a little too early to say more, but we are in different discussions on how we can progress flow batteries and other technologies. We typically either use our existing knowledge to support and foster these large projects or invest in companies that are developing technologies that we would like to bring to industrial scale.
20 Terminals divested in the last five years
Looking at current market trends, how has IMO 2020 affected your business?
Hoekstra: We have taken a very pragmatic approach. Our oil analysts looked at the individual bulk markets in which we are active and asked what scenarios we foresaw in delivering bunker fuels to those markets and whether our infrastructure is equipped to facilitate those changes. We made the decision to invest roughly €40mn in our network, predominantly in Rotterdam and in Singapore. We have made the infrastructure more flexible, because we wanted either to segregate more or blend more.
In Q2 we took a considerable amount of tankage out of service. I am happy to say that our Rotterdam tankage has been back in service as of 14 September. We are happy with how it has performed. Singapore still needs to come back—it is another few months away, but it is going to plan.
How markets will behave is still to be seen. But the disruption will be smaller than what people had anticipated two years ago. Markets are ready, the product is there—refiners have responded, traders have responded, we have responded, the shipping industry has responded. It is going to be fine.
How concerned are you about safety on the back of the recent attacks in Saudi Arabia?
Hoekstra: It worries me on a higher level in that I am concerned that, after a period in which these types of attacks did not take place for several decades, they have suddenly re-emerged. That is deeply concerning. There are obviously ways of quickly deploying capital and skills to maintain or bring assets back into production. I am sure that the oil industry will recover in that sense, but it is just the sheer fact that there was an attack that is concerning.