Commodity trader makes rare call for more green regulations

Offshore rig Image: GE

The top oil executive at one of the world’s biggest commodity traders is calling for stricter regulations to force the shipping industry to cut carbon emissions and make the switch to greener fuels.

The call by Trafigura Group is a rare offer to be subjected to more market regulations. Traders of physical commodities, be it hydrocarbons, metals or crops, have long resisted direct oversight despite demands from activists and NGOs.

But pressure has been growing, forcing some of the world’s biggest oil producers to set carbon-emission targets that were unthinkable even half a decade ago. Society and companies’ own investors are demanding change, and the often publicity shy and opaque trading houses are jumping aboard.

“We very much welcome regulation to help and favor the decarbonization of the industry,” Jose Maria Larocca, a Trafigura board member and co-head of oil trading, said in an interview.

Larocca said Trafigura, which handled more than 6 million barrels of crude and petroleum products a day last year and undertook some 4,000 vessel journeys, is embracing the need for new regulations to spur the shipping sector to change.

Last month it proposed a levy of $250 to $300 per ton of CO2 for ships. It plans to join commodity giants Royal Dutch Shell plc, Total SE, Cargill Inc., Louis Dreyfus Co. and Gunvor Group in an initiative to disclose their individual carbon emissions from every ship journey they make.

‘Bringing change’

Things have been changing at the closely held commodity traders in recent years. Trafigura has undergone an about face to be among the most vocal industry proponents for more transparency. It began publishing annual financial results in 2013 and has joined the Extractive Industries Transparency Initiative to disclose some of its oil payments to governments in an effort to root out corruption. Other trading houses have taken similar measures.

Trafigura’s push for more shipping sector regulations on carbon isn’t driven by financing needs or demands from the banks that provide it with crucial short-term loans for operations, Larocca said. But lenders would likely be pleased with the move, he said.

“We are doing this because we believe in this,” he said. “People expect that we don’t want regulation. That’s wrong. We do want regulation for this to happen faster.”

IMO oversight

The International Maritime Organization needs to oversee regulations that would force the shipping industry’s green shift, Larocca said.

The IMO is targeting a 50 per cent reduction of greenhouse gas emissions from ships by 2050 from 2008 levels. Shipping is responsible for about 90 per cent of global trade but also contributes almost 3% of man-made carbon emissions. It’s Trafigura’s largest source of emissions, he said.

The industry’s green revolution is coming, but the transition is set to take decades. Alternative fuels on the cards include ammonia, hydrogen, natural gas, biofuels and methanol, but these are still a long way off from widespread adoption. Still, if the industry is to meet emission reduction targets, it’ll need to start burning new, clean fuel by 2030.

Larocca oversees the buying, selling, blending and transport of millions of barrels of oil for Trafigura each day. It gives him close insight into the market.

There are few signs of a recovery in global oil demand following the devastating impact of the coronavirus earlier this year, he said. The exception is China, where consumption has largely normalized.

“I don’t think we’re going to see a short-term recovery in terms of oil demand,” he said. “It might take a few months or even a year.”

© 2020 Bloomberg L.P.

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