Article content

(Bloomberg) — European governments should be realistic about the costs to consumers and industry from pursuing strict net-zero emissions goals, according to the head of the world’s biggest independent oil trader. 

Article content

Article content

Vitol Group Chief Executive Officer Russell Hardy pointed to the UK’s ambitious clean power grid plan, which targets at least 95% of low carbon generation by 2030. Even 95% may be too ambitious, he said in an interview, arguing that there are trade offs to be made once all the “cost effective and manageable” changes have been implemented. 

Article content

“You can have an argument about whether it’s the last 5%, the last 10% or the last 15%, Hardy said. “Let’s not obsess about 100% carbon-free because sometimes the cost to the consumer will be too extreme.” 

The European Union, like the UK, is grappling with how to balance emissions-reduction goals with efforts to contain high energy prices that have helped drive a years-long industrial decline. The EU’s target of achieving climate neutrality by 2050 stands in stark contrast with the US, where President Donald Trump is dismantling climate-change policies and encouraging companies to produce and sell more fossil fuels. 

Read: EU Clean Deal Seeks to Bolster Industry in Race With US, China

Trump’s election, with his slogan “Drill, baby, drill,” has supercharged a backlash against the global environmental, social and governance movement among investors, management teams and policymakers. BP Plc, which five years ago was the first oil major to embrace net zero, on Wednesday became the latest company to pivot back to focusing on fossil fuels after investor pressure. 

Article content

Article content

“That’s part of the changing narrative now, the politics in the US are less supportive to the climate change movement,” Hardy said. “The question is, to what extent does that impact European politics, whereby they go toward that kind of effort-reward graph and come up with solutions that are more economically supportive for industry in Europe?”

Europe has made significant strides in rolling out renewable power, while a major contributor to rising prices has also been the loss of large amounts of Russian gas, which accounted for 45% of total imports before the full-scale invasion of Ukraine. 

Vitol is one of the world’s biggest energy merchants, trading enough oil every day to supply Germany, Spain and France combined. The company saw profits boom during the years following Russia’s full-scale invasion of Ukraine, earning more than $28 billion over two years. It also has investments in gas power plants in the UK. 

In the last several years Vitol and its rivals have expanded their power trading businesses, in part to take advantage of opportunities created by the energy transition. While the extreme moves seen at the start of the war in Ukraine have retreated, the massive rollout of solar and wind power in Europe can put stress on grids when supply surges or drops, leading to sharp swings in electricity prices.

Article content

It’s also investing in battery storage to capture profits from those imbalances in power markets linked to the rapid expansion of renewables, Hardy said. The fluctuations in supply mean that power prices turn negative more often when grids are flooded with energy. European power markets have also seen sharp price spikes this winter during periods of “dunkelflaute” — a term for cloudy and windless days when renewable supply plunges. 

The number of hours priced below zero jumped 60% last year in Germany, Europe’s biggest power market. 

The idea of negative prices sounds appealing at a time when European governments are struggling to contain energy bills, but the benefit still doesn’t tend to flow through to consumers. Low prices do complicate the economics for developers of renewables projects, who can find themselves having to pay buyers to take their power.

Europe needs “gazillions” more large-scale batteries to address the issue of negative prices and the problem will probably get worse for a couple of years, Hardy said. “Or, you’ve got to move demand to periods when more power is produced.” 

Article content

Read: German Industry Risks New Setback From Power Pricing Overhaul

Vitol has invested in battery storage sites in Ireland through VPI Holding Ltd., which is also part of a joint venture building battery storage in Germany. Such facilities typically hold power for a few hours.

“We’ll be trying to buy at minus and sell at positive every day,” Hardy said referring to storage markets. Sub-zero levels could well become even more common in Europe. “There’s still around another 50 gigawatts of renewable power that’s going to come on this year.”

VPI, which is managed independently of Vitol, has also been finding ways to profit on days when renewable power plunges in the UK. Bloomberg has reported that one of the company’s UK gas plants has on multiple occasions this winter announced a planned shutdown on days when the power market comes under strain — usually when the wind and temperatures both drop significantly — and then offered to switch back on at a higher price. 

Read: UK Gas Plants Made Millions in a Few Hours During Price Spike

A colder winter in Europe has also put pressure on the region’s gas inventories, and traders are trying to gauge what prices will be required to draw in enough liquefied natural gas to replenish the stockpiles after the Russian supply being piped via Ukraine stopped flowing at the end of 2024. 

Article content

European gas prices soared to a two-year high earlier this month on concerns about restocking this summer, but have since retreated sharply. The initial move lower came after some European nations sought to relax the EU’s inventory-refilling requirements, but the market has now become increasingly focused on what Trump’s moves to end the war in Ukraine might mean for Russian gas flows to Europe. 

“Obviously there’s more uncertainty has been brought into how Russian gas will flow over the next few years,” Hardy said. “It appears that it’s got perhaps a little bit more likely. But how that manifests itself is very complicated.” 

—With assistance from Eamon Akil Farhat.

Article content