The oil and trading industry has been continuing to thrive in a volatile and ever-changing energy landscape, but renewables-driven change is certainly coming, if only gradually. What does this mean for in-house legal professionals and their remit?
“We see the energy transition as an opportunity,” says Russell Hardy, CEO of commodity trading house Vitol, about the outlook for the energy and commodities industry in a recent interview with Zurich news outlet NZZ.
Vitol is the largest private oil trading business in the world and saw record sales and profits in 2022, despite the growing energy transition to more renewable sources and a decline in oil production. While the business also deals in natural gas, electricity and sustainable energy, the majority of their profit comes from the oil markets and Hardy is bullish on the outlook for oil.
“There must be continued investment in oil production,” he says, citing continued high demand, with average prices of $85/barrel, well over the $70 required for investment returns.
Investment in renewables is also a growing priority though, in order to meet the demands of Europe’s ballooning electricity consumption, which is predicted to double by 2050. Vitol’s own investment of $2 billion into various sustainable energy sources represents how the tides are turning, with decarbonisation changing the business model not just for traders but the energy industry as a whole.
One of the most obvious impacts is on natural gas, for which prices and demand remain low in Europe, in stark contrast to the winter of 2022’s supply fears. This is a ‘permanent shift’, according to Hardy, as renewables expand, businesses increase efficiency and certain energy-intensive industries decline.
The in-house perspective
This complex outlook and the shift to a broader portfolio of energy targets over this transitional period will ask more and more of the industry’s in-house legal provision. Teams need expertise not only in the policies, sanctions and regulation of traditional oil and gas energy markets, but also in the new and constantly evolving regulatory landscape of emerging sustainable energy sources.
Renewables are subject not only to very different incentives and regulation from oil and gas, but also to a constant flow of new technologies that require familiarity to navigate licensing and IP issues, plus broader environmental strategies and goals that must be taken into account in decision-making to ensure compliance.
In-house legal teams need to not only understand this ever-expanding vista, but also to play a crucial part in managing communications and dealing with concerns during this market and culture shift, both internally with stakeholders and externally with communities and regulatory agencies.
If you’re looking to expand the industry expertise in your team, we’d be happy to help and offer advice. Get in touch with our in-house associate director Nick Wilkins to take advantage of his experience in the sector and discuss your needs.