Energy trader Gunvor cancels refinery sale as profit jumps

by REUTERS/ pic by BLOOMBERG

LONDON • A rebound in profit this year has allowed Gunvor Group to cancel plans to sell its Ingolstadt refinery in Germany and stall the sale of a stake in a Russian products terminal, CEO Torbjorn Tornqvist (picture) told Reuters.

The company has posted gross profit of US$800 million (RM3.35 billion) for the first three quarters of 2019 thanks to favourable market conditions and the overhaul of the firm that began last year.

“We actually covered all our losses from last year. We spent a lot of time overhauling the business…We had a generational shift, lots of changes in corporate governance and risk policy.

It’s the most fundamental change in the company since I started it,” Tornqvist said.

“So we are seeing the fruits of that. I don’t deny that market conditions are better this year, but the consistency in our performance is good. We did well in all our key offices in Geneva, London, the US and Singapore, the best profits in years. The US (office) is really ramping up. This year, it’s performing up to our expectations and beyond.”

Its liquefied natural gas (LNG) business continues to grow with shipments already surpassing the 2018 level of 176. Gunvor is the largest LNG trader and its traded oil and LNG volumes were 3.3 million barrels per day (bpd) last year.

After suffering a loss of US$330 million in 2018, Geneva-based Gunvor came under pressure from banks and put two key assets up for sale — its 110,000bpd German refinery at Ingolstadt and a 26% stake in a refined products terminal at Russia’s Baltic port of Ust Luga.

But with the recovery, the firm is keen to keep the assets it sees as cash cows.

“At Ingolstadt, we were open to having a partner in this one. We had a process and received binding offers… but we felt that this refinery is performing so well, so we decided to put off the sale,” Tornqvist said, adding it was now looking to invest in more midstream oil assets including biofuels.

“Ust Luga generates significant cash so we have slowed down the process.” Gunvor also expects a resolution this year with Swiss prosecutors over their investigation into the company’s dealings in Congo between 2009 and 2011. It had already put aside funds in the event of a significant financial penalty last year.

“It was very painful…I promised my employees, stakeholders and my family that we will never find ourselves in this position again. We built up an independent compliance team. Sometimes, we will have to walk away from a deal, I feel at ease with that,” he said.

Freight rates have skyrocketed over the last few weeks after the attack on Saudi Arabia’s oil facilities and US sanctions on subsidiaries of China’s shipping behemoth Cosco.

Tornqvist sees even more pressure on the freight market as more tankers are fitted with scrubbers — units that remove sulphur from fuel exhaust — to meet new international standards on shipping fuel and the queue is causing delays.

Under International Maritime Organisation’s (IMO) rules that come into effect in January, ships will have to use fuel with a maximum 0.5% sulphur content, down from 3.5% now, unless they are equipped with scrubbers.

“Installing scrubbers is not as easy as previously thought. It takes much longer at shipyards and if one ship is delayed, instead of a 30-day wait, it becomes 45 or 50 days. I cancelled one retrofit because it was a two-month wait out of water, meaning a loss of US $2 million, it kills the value,” he said.

Since 2017, Gunvor has built up a fleet of tankers taking advantage of the cheap price of vessels at the time. The firm now has joint ventures in 17 tankers with stakes of 33%-50%.

Gunvor also has a long-existing chartering arm Clearlake Shipping that has more than 50 tankers on time charters. — Reuters