• Noble Group reveals plans to boost oil trading

  • Platts
    21 October 2015
    • To focus on crude, distillates trading
    • Oil trading volumes up 30% on year
    • Looking for storage options in China, Singapore, Malaysia
    For commodities trader Noble Group, striking it big in oil -- a product that was hardly on its radar until a few years ago -- is certainly an area where top management is focusing its energy. The company, founded by Richard Elman 29 years ago, went onto become Asia's largest diversified commodities trader, but is now adjusting its game plan to suit changing market dynamics. "We are seeing increasing growth in our oil business, a business that was barely on Noble's radar, to one that is commensurate with being one of the main businesses within Noble," Jeff Frase, Noble's global head for oil liquids, told Platts in a telephone interview from the US. "This year, we are seeing our oil trading volumes growing by more than 30% over last year, and profitability has grown even at a faster rate. Therefore, diversification is key," said Frase, who joined Noble two years ago from JP Morgan to spearhead the company's oil expansion plans. Frase said the company, within the oil complex, had ambitious plans to pursue both product and geographic diversification over the next few years and some of the initiatives have shown promising results. Noble is one of the leading gasoline blenders on the US Gulf Coast. "Crude oil and distillates will be our focus areas over the next few years," Frase said. "And we will be looking at beefing up our volumes in Asia, the Middle East and Africa." Frase said the company has hired talent from companies like BP and Vitol to boost its oil trading business. "We will continue to gain market share," he added. STRATEGIC HIRING Noble's strategy to expand its oil business was visible when it recently announced the hiring of Wael Amer from Trafigura. Noble, in a presentation to investors recently, said it traded 68.4 million mt of oil liquids and energy coal in the first half of 2015, up 26% year on year. It did not give the split between the two commodities. Frase told the same presentation that given the low oil price environment, Noble has partnered with producers who have been adversely affected to provide pre-financing, risk management and logistics services. Recently, Noble completed a deal with state-owned PetroEcuador, providing a $1 billion loan, which was then repackaged and sold to institutional investors. As part of the deal, Noble will be supplying 30%-50% of the naphtha and diesel imported by PetroEcuador for five years. The company has also entered into a supply agreement with the 900,000 b/d Heide refinery on the North Sea near Hamburg for crude and feedstock. ASIAN EXPANSION PLANS On its plans for expansion in Asia, Noble is aiming to secure oil storage in China's bonded zone and distillates storage around Singapore and Malaysia. "We have done quite a bit of hiring and solid business anchoring types of deals. You will see more activity in the Middle East, Asia and Africa. We expect Iran to be a game changer," Frase added. Noble CEO Yusuf Alireza told Platts in a separate telephone interview from Hong Kong that the realignment of the product portfolio was key to staying on a strong growth path. "In terms of how I see things progressing over the next one to three years, I think the energy business will continue to a driver of growth for us," said Alireza, who joined Noble in 2012 from Goldman Sachs. "China's economy is transitioning from being the manufacturing and export hub of the world to being the consumption hub of the world. So commodities that are more related to consumption, like oil, gas and agriculture, will be more important for China. It's going to be less about industrial commodities such as iron ore and freight. That's the transition we are seeing."

    PRICE RECOVERY IN H2 2016

    Commenting on the market outlook, Frase said that while there were signs of emerging demand for oil, a strong recovery in oil prices probably will not happen until the later part of 2016. "We are hoping that there will be good oil demand growth next year and we should see the ability for the market to strengthen in the second half of next year," he added. Robust gasoline consumption in China and India is expected to support prices in the oil products complex, he added. Alireza added that some of the factors that have kept commodity prices depressed over the past couple of years were still prevalent -- such as slow global growth and oversupply. "The sentiment around the sector is a lot worse," he said. "I don't expect those fundamentals to change dramatically anytime soon." DIVERSIFICATION IS KEY Alireza said that while the company planned to remain "asset light" in the foreseeable future, it will retain its flexibility to switch between commodities depending on market conditions and opportunities. "A diversified business model provides us the flexibility to scale up and scale down businesses depending on opportunities. About five to seven years back, coal, iron ore, and freight accounted for 60% of our business. Today, oil, power and gas together account for about 60% of our volumes," he added. In addition to diversifying products, the company has also been pursuing geographic diversification to spread the exposure and reduce dependence on one region or area. Alireza said that while the company's overall trading volumes across all commodities in North America had grown from just 12% about five to six years ago to around 32% now, China's share in the overall equation was down to 30% from about 42% in the same period. "It's largely an America and Asia-Pacific footprint right now but we will continue to diversify," he said. "We will continue to look for opportunities in Europe and Latin America," Alireza added.