Chief Executive officer of commodity trader Trafigura Jeremy Weir — on buying a stake in the Indian company, talks about the global freezing of production and the prospects for Russian oil
In the framework of the summit of the BRICS Rosneft announced the signing of a contract of sale of 49% stake in Essar Oil Limited at Essar Energy Holdings Limited and the affiliated companies controlled by the family Ruya. On the same day a consortium of investors, which included an international commodities trader Trafigura and investment Fund UCP Ilya Sherbovich, has also entered into an agreement to acquire 49% of an Indian company. Essar has left a 2%. The total transaction value will reach $12.9 billion On order to purchase shares in Indian companies, the prospects of the negotiations on the freezing of oil production in the world and Russian brands of oil “news” said the chief Executive officer of commodity trader Trafigura Jeremy Weir.
— Trafigura, one of the largest commodity traders in the world. Despite the fact that your company owns stake in various infrastructure assets, it has never been involved in a project of this scale in refining. What is the basis of the decision on the participation of Trafigura in the project of Essar Oil?
— Participation in the investment in this project will ensure large commercial benefits for Trafigura — it will allow us to occupy a strategic position in a large project for the production of energy. Owned by Essar Oil plant “Vadinar” (Gujarat, India) — refining assets, world-class, ultra-modern supersalad located on the path of strategic supplies of oil in the center of demand in the far East and near the industrial centers of the Middle East.
“Vadinar” — one of the largest oil refinery of India, has already become one of the most important sources to meet the growing global demand for energy. With a storage capacities and port infrastructure world class, the asset opens up many ways to achieve synergies with our trading business — from the supply of crude oil purchases of oil products by optimizing global and regional flows of trade in commodities to improve operations for freight vessels and increase capacity of logistics. Company Essar Oil also owns a retail network for marketing of petroleum products in India with over 2700 filling stations.
The acquisition of a minority stake in Essar Oil will allow us to create a platform to maximize the benefits from the above mentioned synergies and increase the scale of our operations in the Indian market. It will allow us to maximize recent success in the area of capacity-building oil trade business in Mumbai.
— About five years ago, Trafigura already made an attempt of entering the Indian market, which was not so successful. During the reporting period, the international markets experienced a serious economic shock. But your desire to work in India consistently. Why?
— Trafigura conducts trading operations with Indian companies since 1993. In 2009, we created India’s operations division, which employs about 600 people. In India we already have a large business in trading with affilirovannymi metals, the growing oil business provided services to companies in our group, and also act as operator “Lycos” (Lykos) — electronic trading platforms, provide increased efficiency by bringing digital technology into the supply of refined metals to small and medium enterprises of India. Thus, we have in-depth knowledge of the market, which can use in the future through the agreement with Essar Oil.
According to the International energy Agency (IEA), soon India will overtake Japan in terms of consumption of oil and oil products. This may explain the decision Trafigura to participate in the project. However, refinery products “Vadinar” more focused on the domestic market of India, while Trafigura is positioning itself more as an international player. How do you propose to organize the marketing of oil products from the refinery?
— The demand for oil in India in 2016 amounted to about 400 thousand barrels per day, which is 10% higher than the same indicator of the previous year. This corresponds to what we observed in China in those years, when this country showed the most successful economic performance. We assume that the high growth rate of oil in India will continue.
— Currently, about half of the volume of crude oil processed at the plant “Vadinar” comes from Iran. Are you planning to expand the geography of supply of raw materials to the plant?
Company — Essar Oil Ltd will manage an independent body — the Board of Directors. It will make decisions of this kind.
— Iran is considered the main obstacle to the negotiations on the freezing of oil production. Do you think that oil producers will be able to reach agreement on this issue?
— Agreement possible, but there are two key questions. First — will I get unlimited quota on extraction of so many countries that it will not affect the excess supply? And second — whatever the agreements, whether to comply with them themselves member States (OPEC)? Outside of OPEC, we are seeing signs of that in the near future the United States will again begin to increase production of oil, as evidenced by the observed increase in the number of drilling rigs. If the situation will develop in a similar way, this will further complicate the situation.
— What oil prices do you forecast for 2016 and 2017–2018?
— Our company deals with the forecasting vector of commodity prices and does not share their predictions about the demand — we leave that to others. Usually traders commodities is not as interested in absolute — high or low — level of prices, how much geographical or technical differences in commodity prices, allowing you to benefit from transactions with goods and transport them around the world.
Low oil prices give a unique opportunity to acquire assets. Does Trafigura the possibility of acquiring shares in the authorized capital of third-party industrial or infrastructure assets? If Yes, then in what countries?
— We do not seek to increase the volume of production or turnover only in the name of increasing volume. However, if there is an opportunity to acquire assets in accordance with the strategy of its core businesses — trading, we consider such development opportunities.
— Russia — one of the main manufacturers and suppliers of crude oil to the world market. However, trading in Russian oil is traded on the basis of regional benchmarks (i.e., benchmarks). In your opinion, is it possible to create new “benchmark” (for example, based on ESPO oil)?
— Order any brand of oil or oil products began to be used as a “benchmark” that must be supplied in sufficient quantities and the delivery was reliable and stable. In our part of the world two main “benchmarks” are Brent and Dubai. Production volumes of both brands are reduced. They are not comparable to brands or Urals ESPO demonstrating dynamic growth. Therefore, there is no doubt that the Urals and ESPO are suitable to be used as “benchmarks”.