Vitol, the world’s biggest independent oil trader, is eyeing opportunities to expand its business in Africa as it nears a milestone in the development of a $7bn offshore oil and gas project in Ghana.
Kho Hui Meng, Vitol’s head in Asia, said the lack of refining capacity relative to demand in Africa created an opportunity for the trader, which ships more than 6m barrels of oil a day, equivalent to the combined daily consumption of the UK, Germany, France and Switzerland.
Vitol and Eni, the Italian energy group, are developing the Sankofa offshore oil and natural gas project, which will provide a long-term source of gas for Ghana’s domestic market, as well as oil for sale on international markets.
The companies are dispatching a 330-metre-long floating production platform from Singapore to west Africa at the end of this month. The first oil production from the Ghana fields is expected next summer.
The project, backed by $517m in debt and guarantees from World Bank members, marks a further deepening of Vitol’s engagement in Africa.
“This project goes a step further than just producing oil crude [for international markets] but also gas to support the domestic energy market in Ghana, which has been severely constrained,” said Lance Crist, global head, infrastructure and natural resources at the International Finance Corporation, a member of the World Bank.
Independent oil traders typically avoid involvement in big oil exploration projects, focusing on moving oil and fuel from where it is produced to where it is most needed. But a few have made tentative steps as it can provide an alternative source of revenue and secure source supply.
Vitol’s decision to explore for oil off the coast of Ghana was backed by its chief executive Ian Taylor, one of the most powerful figures in the oil industry.
Africa is an important market for trading companies because of limited infrastructure and a lack of refining capacity. While some African countries are large producers of crude, such as Nigeria, Libya and Angola, nearly all of them have to import large quantities of refined fuels.
“We like Africa,” Mr Kho said. “If you look at the African continent there’s a lack of investment in refining capacity. The Chinese, the Indians are all building a lot of refineries and the oil products have to move somewhere — Africa is the logical place.”
Vitol has been one of the big winners of the oil price crash, as the glut in supply led to arbitrage and storage opportunities. The company enjoyed one of its most profitable years on record in 2015, with a 15 per cent increase in net income to $1.6bn.
However, profits in the first half of 2016 declined 42 per cent to $546m because of fewer lucrative trading opportunities.
Mr Kho welcomed the Opec agreement last December to cut supply, which pushed oil prices back above $50 a barrel, saying that the market was “ready for change”. However, he expected that the higher price would lead to more US shale oil production.
“The oil price I think will stay in the range, the low $50s to low $60s . . . with the Opec cut, US tight oil is going to balance the market,” he said.
Additional reporting by Neil Hume in London