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While oil-producing countries have been hammered by plunging oil prices, it is a great opportunity for countries to get rid of subsidies on oil, says Vitol Group president and CEO Ian Taylor.
The head of the multinational Dutch-owned trading company told the African Refiners Association conference, in Cape Town, that he encouraged removing subsidies as it would create a more efficient market.
“It provides big opportunities for growth in importing countries to take off. We hope, in time, all these subsidies and regulations will go…and we encourage it.”
Taylor said he expected regulation to be a big challenge.
Turning to the oil price, Taylor said he took a long-term view.
“Having oil trading at $54/bl is nothing particularly special. What happened in the 2000’s when we had enormous demand was perhaps a rarity rather than an exception.
“Overall, this is not an exceptional price. This is a normal price. Compared to the 1970s and 80s and even 90s this is actually quite a high price.”
Taylor said demand and supply would most likely balance in the second half of this year. Oil-producing countries in Africa were, meanwhile, feeling the heat.
“Nigeria, Liberia, Angola, Algeria, Libya and Congo are seeing incredible revenue falls. For various governments it has dramatic implications. In Nigeria, we’ve seen the devaluation of the naira and stress in the upstream sector. Globally, stress in [the] upstream [sector] is just beginning, not ending.”
Taylor believed there was tremendous growth in refineries, despite current conditions, but stressed that refineries had to be efficient.
“In Europe, refineries are inefficient, and maybe they [will] have to close.
“Some people think we’re mad to buy refineries, but I believe if you have extremely diligent risk management, you can make them work efficiently,” said Taylor, who added that Vitol had bought five refineries in the past year.
“We try to manage margins, hedge margins, manage stock, hedge stock, switch feedstocks, shut refineries or slow them down if margins are extremely poor. By being flexible, you can make them work.”
But he conceded that refineries could be in for a tough time this year.
“The second half of the year is going to be very difficult for margins. We are looking for opportunities to hedge the second half of the year.”
Vitol, which is one of the world’s largest independent energy traders, trading in excess of 5.5-million barrels of crude oil and products every day, foresees growth in diesel and gas.
“We also see huge [potential] for liquefied petroleum gas to grow. It’s the cheapest feedstock around the world.”
Region-wise, Taylor expected West Africa to lead demand growth, with big increases in gasoline demand coming out of this region, together with a need for more pipelines, storage and service stations.
Vitol had also set its sights on future growth in South Africa. “We’re hoping and believing we will build a nice storage facility here in Cape Town, with a bit of luck, government help and industry support.”