Trafigura chief warns of power outages in Europe this winter

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Europe is at risk of power cuts if there is an extended cold spell this winter, according to the managing director of Trafigura, one of the world’s largest commodity traders.

Speaking at the FT Commodities Asia Summit, Jeremy Weir said there was still not enough natural gas in the region despite the promise of increased flows from Russia.

“Frankly, we don’t have enough gas at the moment. We do not store for the winter period, ”he said. “So there is therefore a real concern. . . if we have a cold winter, we could have blackouts in Europe.

Last month, President Vladimir Putin ordered Russian gas giant Gazprom to start filling storage facilities it controls in Germany and Austria, raising hopes for increased exports to Europe.

However, there have been only limited increases in supply from Russia over the past week and on Monday Gazprom reserved lower pipeline capacity for December. Russia has denied restricting exports to Europe, but has been accused by lawmakers of trying to pressure Germany to speed up clearance of the controversial Nord Stream 2 pipeline.

European wholesale prices eased slightly last month, but remain more than four times higher than a year ago and have risen in recent days. Some industries have already cut production due to record prices, including Trafigura’s Nyrstar zinc business, but there are concerns that the market will remain tight until spring. Europe is heavily dependent on gas after the gradual reduction in coal-fired electricity production.

Governments would be expected to cut gas supplies to non-essential industries before allowing the power grid to be affected, but Weir’s comments illustrate the depth of concern in the energy sector.

Weir said the extraordinary surge in natural gas prices had been “difficult” for the industry. Some commodity traders have been forced to reduce their positions in liquefied natural gas due to margin calls – demands for additional cash to cover derivative hedging contracts.

“At one point, I think the initial margin [payment] was something like 25 percent of the price. As a result, the market almost became dysfunctional, ”Weir said.

However, Weir said privately-held Trafigura, which is run from offices in Geneva but headquartered in Singapore, was set for another “very strong” year.

“You will see in our results when they are released that we have really increased our capital base and the company is in a much stronger position than a couple of years ago.”

In June, Trafigura reported record half-yearly profits as it rode the wave of recovering demand and prices for oil and metals.

On oil, Weir said the market remained “very, very tight” and a lack of investment in new projects meant “a three-digit number” was “well and truly on the cards.” . Brent crude was trading at $ 81 a barrel on Monday, from $ 50 at the start of the year as demand increased following the easing of foreclosure restrictions.

“We don’t see the replacement of reserves. Oil went from a 15-year reserve life to a 10-year life in a short period of time, ”he said.

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Trafigura is one of the largest energy traders in the world, handling around 6.4 million barrels per day of crude oil and products according to its latest results.

At the end of the year, he paid 7.3 billion euros for a 10% stake in a gargantuan oil project in the Arctic developed by the Russian state-backed oil company Rosneft.

Weir said decarbonization, or a shift to cleaner forms of energy, couldn’t happen with a simple “flip of the switch” and therefore crude oil would be needed for some time to come.

“I am convinced that we still have to invest in these industries to provide energy for the future,” he said.

Weir said Trafigura, which thrives in renewable energy and carbon trading, will continue to market coal as long as there is still a need to “move it.”

“One of the biggest problems we have. . . is that emerging countries still need it as fuel, ”he said.

At the UN COP26 summit last week, India and China weakened their efforts to end coal-fired electricity. Instead of relentlessly pledging to “phase out” coal, countries at the conference agreed to “phase out” fossil fuels.


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