Commodity Traders Want More Markets to Trade, Shocker

Vitol, Trafigura, Glencore, etc. are the biggest proponents of new carbon markets

Physical commodity movers have done a lot of work to clean up their less than stellar reputations. The Godfather of commodity trading, Marc Rich, would sell a barrel of oil to the highest bidder - finding himself caught in controversy selling Iranian oil to Israel, dodging sanctions, taxes, and pretty much everything you else one would expect.

Trafigura found itself in hot water dumping chemical slops in Côte d’Ivoire in the early 2000s. The Company with billions in revenue could save a few hundred thousand dollars disposing of the slops to shady outfits in Africa instead of Europe. As you could imagine, the chemicals ended up causing harm to the local communities.

Claude owns a waste disposal company and wants us to be creative. Graham has worries that it will all turn black. Me and Leon want it cos each cargo should make 7m!! -Email between Trafigura staff in December 2005

A quick search on Vitol shows a litany of offenses. They paid $135M in 2020 to the US Department of Justice to settle allegations of bribing officials in Brazil, Ecuador, and Mexico. It turns out they would make payments and in return get an early look at pricing levels to win oil contracts.

They have denied bribing Serbian war criminals, pled guilty to grand larceny for paying surcharges to Iraq’s national oil company, accused of bypassing sanctions against Iran, creating tax loopholes for UK employees, manipulating commodity markets, and so on.

And look, we get it, doing business in the commodity markets involves working with many nations and balancing geo-political battles is tricky business!

Commodity movers also love opaque markets. So when we saw the recent announcement of Vitol’s partnership with ZeroNorth to market their ‘carbon reduction solutions’, we got to thinking.

ZeroNorth and Vitol sign long-term strategic partnership to develop more robust reporting of emissions and enhance vessel operations

The partnership will allow Vitol full access to the ZeroNorth platform and ZeroNorth can market Vitol products and bunkering services.

ZeroNorth to tap into Vitol’s experience to the benefit of all customers using the platform, both as a prominent vessel charterer and owner, as well as an experienced provider of high quality carbon reduction solutions, establishing a new deep collaboration as the industry manages the energy transition

A win win, Vitol can sell you bunkers and the carbon program as well!

And when we saw Trafigura take the helm of the Sea Cargo Charter, we also got to thinking.

“The mindset regarding climate alignment has changed faster than we could have imagined in the past few years, and I look forward to continuing the work on global standardised and transparent emission reporting which will assist everyone in pushing shipping’s green transition forward,” said Nielsen, the global head of fuel decarbonisation at Trafigura

Sea Cargo Charter is a handful of companies previously known as oil majors, energy / commodity trading companies, ship owners and a few others to ensure charters are ‘climate aligned’.

Climate alignment is defined as the degree to which voyage carbon intensity of a vessel category is in line with a decarbonization trajectory (produced by the Secretariat of the Sea Cargo Charter based on agreed and clearly stated assumptions) that meets the IMO’s goal of reducing total annual GHG emissions by at least 50% by 2050 based on 2008 levels

In short, these major corporations in partnership with the United Nations/ IMO will create various metrics and targets to “align shipping with society’s goals”. Not listed on the group of signatories to these committees is a spokesperson for “society”. The humans of the world do not appear to get much of a vote.

So for arguments sake, who would be surprised based on historical evidence, if a government body created legislation around an item, created frame work for bringing in a new market, and then commodity companies created large trading desks for that market, and the following year are the largest proponents of said market.

Perhaps a committee should be created so that every cargo shipped by an oil trader is reviewed to ensure that the product is required at its destination or came from the closest port? One of the best ways to reduce emissions, as we have discussed before, is to reduce the amount of non-required ocean transport.

I wonder if Vitol has ever shipped a cargo from one area to another purely to capture an economic arbitrage between those markets? What is the ‘climate aligned’ score of that?

China is a large importer of oil to fuel their society, they are also the largest builder of coal plants, a topic that gets little coverage. While Germany shut down their 0 emission nuclear plants, China builds coal plants as fast as possible. Talk about alignment!

How far are we from rationing energy to each human on earth?

It would go like this: Well unfortunately Unipec, this 5th VLCC cargo from Corpus Christi to China cannot ship because of its climate efficiency score, kindly have a few cities reduce power consumption and cancel driving Sunday.

It sounds dystopian, but is already in action in the UK Parliament plans.

Accelerating the transition from fossil fuels and securing energy supplies

The UK stated that reduction plans to include working from home, reducing speed limits, car free Sundays, fewer private vehicles, and so on.

The UK is also debating whether to reduce food production to bring on fields of solar panels.

It is unclear whether Ministers will maintain the current position whereby grade 3b agricultural land is available for ground-mounted solar installations. We recognise that the Government must balance the needs of energy security with biodiversity protection and food production.

In Summary

Commodity traders, who are also mining companies, want to create new carbon trading markets which they have invested in heavily and created trading teams for. They also want to mine and ship additional metals, on supply chains which they control, to help the energy transition to battery power.

As they say, you may have been born at night, but not last night.

We are effectively creating the world’s biggest commodity market from scratch

Talk about opportunity!