24 % A Public Eye Investigation | September 2016 31
Figure 4.1 – Changes in market of petrol stations owners in Africa (2004–2012) 10 % 5% 0% –5 % –10 % –15 %
Anglo-Saxon Majors
Total
Regional Oil Companies
Other Companies
–25 %
Independent Traders
–20 %
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The second purpose of owning storage facilities is to use them as part of a global network of hubs. Pierre Eladari, Chairman of Puma Energy, said the storage capacity acquired from BP will be used predominantly to supply regional markets but it Africa 61 % Europe 20 % could also support Trafigura’s international flow of oil products.11 This is a key advantage with respect to options, particularly time and size. For example, in the recent “contango”, a market situation where the futures price of a commodity is higher Gibraltar 12 % than the expected spot price, access to storage enables traders to refrain from selling and wait until prices go up again. That’s America 6 % how Trafigura’s gross profits soared by 28 percent to reach Asia 1 % US$2.6 billion in 2015.12 The third reason to buy storage is to maximise another option: quality. Oil depots offer the opportunity to blend petroleum products according to the fuel quality required by the country (see chapters 9 and 10). With that respect, an advisor close to the BP-Puma transaction assumed Puma Energy was, among other reasons, buying petrol stations in order “to sell surplus of dirty products in Africa.” He was not the only one. A market analyst from Petroleum Intelligence Weekly also mentioned the “compromise” in fuel quality that could occur with the arrival of the traders.13 Weak regulation on fuel quality standards (particularly for sulphur) is a crucial factor in any analysis of the economic potential of petrol stations in Africa. As we show below, many high sulphur, low-quality intermediate products are available that can be blended into “African Quality” diesel and gasoline. Playing with qualities is a lucrative strategy and nothing else than a form of regulatory arbitrage. 5 The advisor thought of another reason why Trafigura might 4 4 have engaged in the BP-Puma transaction. In addition to increasing its market share through petrol stations and increased 2 2 access to important storage facilities, Puma could take over BP’s
National specification 5,000 ppm
S O U R C E : PFC Energy
Number of cargoes reported
stations and storage facilities, they were the main beneficiaries of the majors’ withdrawal. Trafigura bought assets from BP through its downstream arm, Puma Energy, which is also building new petrol stations. Vivo Energy, a consortium composed of Swiss trader, Vitol, and an African-focused private equity group, Helios Investments Partners bought from Shell. In the same period, other Swiss-based traders such as Addax and Oryx Group have also been expanding their retail networks in several African countries. So why did the Swiss trading companies decide to step away from their original business model by acquiring hundreds of petrol stations across Africa? Over the past two decades, trading companies have been expanding along the supply chain, purchasing physical assets, such as oilfields, storage tanks and refineries. With the acquisition of petrol stations, some now control the entire supply chain. Facing a changing operating landscape, they needed to reassess their strategy. Stéphane Graber, secretary-general of the STSA,7 says that “as markets became increasingly transparent, their margins shrunk.” Ian Taylor, Vitol’s CEO, explained that shrinking margins in traditional trading have caused this trend: “I do expect to see a continuation of trading companies buying selective assets to try to increase their optimisation possibilities.”8 New investments in storage facilities for fuel imports (will and do) occur first in coastal countries that fulfil certain criteria, explains Mark Elliot, chairman of CITAC, an Africa-focused downstream consultancy. These criteria include high fuel demand and a shortage of refining capacity; the feasibility of private imports; entry points to landlocked countries; and, finally, the presence of unregulated markets. Industry consultants further stated that, confronted with “fierce competition”, traders need “to pick up new assets that provide the most optionality.” Optionality refers to the range of possible options on time, location, quality, lot size and logistics of sourcing or delivering9 that traders mix and match to maximize profits. These traders try to answer basic questions such as: where should I buy (location)? When shall I sell (time)? How much (size)? And what kind of product is demanded on which market (quality)? That is optionality. Storage facilities open up a range of possibilities, giving the traders more options and helping them to maximise their profits. When the oil majors sold their networks of petrol stations, they were also selling their storage facilities. The latter enable a trader to fulfil three wishes. First, access to storage allows a trader to “freeze-positions” in a given country, as a Geneva-based trader explains. “By owning local storage and petrol stations, when you deliver, you don’t have to worry anymore about demurrage cost while waiting in the port to discharge, finding immediately a buyer for your product, availability of depots. You just deliver home and outplay competitors,” one Addax & Oryx Group employee says, under condition of anonymity. As if to confirm the statement, Trafigura’s downstream arm, Puma Energy, explains further, claiming, in its 2014 Bond prospectus, that the company targets an “approximately” 30 percent market share in every country where it operates.10 This goal can only be achieved through storage.