Group Chief Executive Officer (CEO), Vitol Holding B.V. (Vitol Group)
Vitol's Hardy on Global Energy
Russell Hardy, Group CEO, Vitol discusses the future of the global energy market with Bloomberg's Haslinda Amin at the 2022 Qatar Economic Forum.
About Russell Hardy
Russell Hardy, Group CEO of Vitol, stated in June 2022 that the global energy sector was in "a bit of a crisis," citing tightening supply and demand and sanctions driving prices higher. He noted that the problems predated the Ukraine war, with tight gas and oil markets and constrained European power capacity. Hardy described a difficult balance for Western governments between imposing restrictions on Russia and maintaining price normality, adding that runaway prices could make recessions more likely. He said it was tough to see markets easing until demand abates, pointing out that demand for gasoline and jet fuel had not yet returned to 2019 levels. In a 2019 interview, Hardy discussed Vitol's partnership with ADNOC in storage terminal operator VTTI, saying it would help grow the business and exploit emerging market opportunities. He expressed a positive outlook for oil demand through 2030 but acknowledged that oil products markets would eventually see finite growth. Hardy highlighted the international LNG market as a growth area, predicting it could double over the next decade, and noted Vitol's modest renewable projects and efforts to diversify into alternative energies.
Transcript (18 segments)
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Haslinda Amin0:00
Please welcome to the stage Russell Hardy, group CEO of Vitol, for a conversation with Bloomberg's Haslinda Amin. You're stuck with me, I'm sorry. Let's talk energy. The battle for energy is driving global politics, and it's been especially the case since the Ukraine war, the sanctions against Russian oil and gas sending us on a gas price war, an energy crisis, forcing governments to rethink their strategy. Let's get inside, and of course Russell is the man at the center of it all. Russell, your thoughts on the state of play in the global energy sector? Are we in a state of crisis? What are your thoughts?
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Russell Hardy1:07
Morning everybody. Well, there is a bit of a crisis, yes. It's certainly fair to say we came into the year struggling a little bit with supply demand. Prices had a fairly positive outlook at the beginning of the year, and obviously the geopolitics have made things more complicated than they were at the beginning of the year. So supply and demand has been steadily tightening, and the sanctions have been helping drive prices higher. But prior to all of this starting, of course, we had a pretty tight gas market, a pretty tight oil market, and power capacity across Europe was fairly constrained as well. So the problems were there before the latest geopolitical interruptions.
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Haslinda Amin1:50
How tight is the oil market? I mean, oil is hovering close to 120 right now, 115, 116 thereabouts. How tight is the oil market and how much higher could it go?
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Russell Hardy2:06
So, you know, we as it's been discussed a couple of times today, we're faced with under investment and decline in production capacity for crude oil, and at the same time we've got a relatively tight refining situation. A number of refineries shut down during the COVID period when the economics for running a refinery, investing in refineries, was difficult business. So we're now faced with pretty high product prices. So the consumer is affected not by the crude oil price but by the product price. So the price of diesel, the price of jet fuel, the price of gasoline is what affects people's pockets. And those are all facing fairly tight fundamentals, fairly low stocks. And the solution is more refineries running more crude to produce more products. The world can solve the problem, but things are a little bit tight at the moment. And one of the reasons is that a lot of capacity has been underutilized in China because they've had their recent problems with COVID and the slowdown in the economy there. So I think if China started exporting a little bit more products, then we wouldn't feel quite the tightness that we feel today. If and when China recovers, it also will need more oil.
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Haslinda Amin3:31
What would that mean for demand and supply? What would it mean for oil prices?
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Russell Hardy3:35
Well, there is more crude oil coming. The OPEC agreement means that during July, August, and September there are three more increments to hit the market. That's going to help the supply of crude. And at the same time, in the US, we've got steadily increasing supply of shale oil. So there is crude coming, and certainly that will aid any increase in refinery capacity to make more products.
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Haslinda Amin4:03
Russell, as we talk about sanctions on Russia, Russian oil and gas continue to flow. Russian oil is headed towards the east, India, China. Do you think India and China can continue to absorb Russian oil?
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Russell Hardy4:18
Yeah, we're in the middle of a switch. European countries and companies are not banned completely from taking Russian oil, and so still approximately half of the European production is heading towards European markets, and about another half is heading to Asia. Now obviously that will change as the sanctions increase at the end of the year, and so it will be a logistical challenge to ship all of that oil to Asia. But people are putting those mechanisms in place in order to be able to ship the oil, and they have found willing buyers in India and China who have growing markets and a need for that crude oil.
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Haslinda Amin5:09
Sanctions are not working, are they, Russell? Because if you take a look at the estimates out there, Russia is expected to make about 280 billion dollars in terms of revenue from oil and gas for the year. That pretty much counters the 300 billion of Russian assets that have been frozen. I mean, these sanctions are not working.
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Russell Hardy5:30
Well, it's a difficult balance. It's a difficult balance between imposing restrictions in the West and trying to maintain some normality of price, because clearly what nobody wants is runaway prices from here. It's already difficult enough for consumers at these levels. So I think Western governments are thinking about how to keep things in balance so that we don't have further price escalations. So what's the outlook for Russia as an energy superpower? I think as we go into '23, we're going to see the crude oil and the products make their way predominantly to Asia. There is the demand for the products. Things will shift, things will change direction. Europe is going to have to import diesel from other areas, from countries in the Middle East, because Russia has been an important supplier of diesel to Europe for a long time.
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Haslinda Amin6:32
We're talking about energy security, and we have the likes of the US and Europe doubling down on their investments in renewables and clean energy. At the same time, they're also pretty open to using fossil fuels. And if you take a look at the UK, it's just approved new fossil fuel projects. How are you looking at that? And in terms of energy security for the future, how will this play out?
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Russell Hardy6:56
So, you know, I think importantly, energy security has come to the fore. Affordability is still a government priority, and in addition, sustainability. So how do you solve all three of these problems? I think governments are just recalibrating a little bit in terms of what we're going to need over the next five to ten years, because a certain amount of investment is needed, a certain amount of rebalancing of supply and demand of hydrocarbons is needed, and the sustainability agenda is going to continue. The latest crisis does support sustainables, and that sustainable investment will continue to increase, but it's something that will take time in order for it to take a share of hydrocarbon demand in Europe.
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Haslinda Amin7:49
Talk to us about the future of the energy mix. How might that look like? If you speak to insiders, some say that the future lies in nuclear, some say in green energy. What are your thoughts on that?
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Russell Hardy8:02
I think in Europe, hydrogen, yes. I think in Europe, you know, there are some small number of nuclear developments, but I think the future is obviously a lot more effort in solar, a lot more effort in wind power, a lot more effort in the biofuel space to replace hydrocarbons. Energy storage is needed in a significant way because, as we all know, renewables don't power the lights 24/7. So technology is needed, and development of further energy storage solutions is needed in order for that sustainable balance to be kept as the years go by. So I think all of those, and green hydrogen as well, will attract a lot of investment within Europe over the next five to ten years, and slowly that will change the power mix from a hydrocarbon to a sustainable one.
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Haslinda Amin9:01
Just many seconds left. Your thoughts on when you expect the energy crisis to ease? What would it take?
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Russell Hardy9:09
It's tough to see markets really giving up much ground until we see some abatement in demand. You know, we're still really not back to 2019 demand levels for gasoline and for jet fuel. So there's still two to three million barrels a day of demand to come back next year. So all in all, that's fairly supportive of prices and just means that we've got to keep a little bit of focus on the supply side. So reasonably supportive for prices going forward, and the one thing that obviously everybody's concerned about is runaway prices would make recessions more likely.
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Haslinda Amin9:53
Russell Hardy, thank you so much for your time today.
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Russell Hardy9:54
Thank you, thank you.