The world’s largest commodity trading houses are preparing for a divided future: with one foot in oil and the other in renewables, they are positioning themselves to capitalize on the energy transition.

There is no contradiction in investing both in conventional and clean energies, and high oil prices might even boost investments in renewables, according to Russell Hardy, chief executive officer at Vitol.

“It is our aim that in five years, 50 per cent of Vitol’s investments will go in renewables, gas and power. It puts us high up in the table of fossil fuel players, in terms of the extent we are investing in new energy sources,” said Hardy, at the FT Commodities Global Summit on Tuesday. “There is going to be a gap between 2025-2035 in terms of oil production compared to demand, therefore we feel we can invest some capital in that space too.”

The recovery of the global economy is giving oil demand a boost, with Brent crude, the international benchmark, reaching a two-year high of US$73 a barrel in London. Most trading houses believe that prices will keep increasing in the short term as more countries emerge from the crisis caused by the pandemic.

More opportunities

Oil consumption will reach pre-COVID levels next year, said Alex Sanna, head of oil and gas marketing at Glencore Plc. But demand for fossil fuels will peak and then decline as the world’s largest economies pursue their goals of reducing carbon emissions, according to Vitol’s Hardy. That is opening the way for more opportunities in the renewables industry.

“We will keep oil trading activities as we see strong demand for oil in the next 10 years,” said Torbjorn Tornqvist, CEO at Gunvor. “We are also increasing our power trading, investing in technologies to decarbonize, and looking at existing solar and wind assets.”

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Trading houses also see good opportunities in the carbon trading market, as carbon prices in Europe reach record highs, and governments around the world consider mechanisms to price pollution emissions.

“Carbon pricing will have an impact in many commodities, we are looking at carbon intensity in everything we do,” said Glencore’s Sanna. “There is a great business potential there. Carbon markets will have an exponential growth.”

Vitol is bulking up its power trading desk with new hires and markets, as it looks to capture opportunities from the energy transition.

“Power demand will be double of what it is today in the future and that is going to put stress on grids,” said Hardy. “Understanding that and understanding how the power markets work is key.”