No. 4, 2011


Oil of Russia magazine talks to Sergey Chaplygin, General Director of LITASCO SA

In 2000, LUKOIL decided to establish a single structure to trade oil and petroleum products on international markets in the interests of the holding company. This structure became the company LITASCO (LUKOIL International Trading and Supply Company), which is today one of the world's major traders, operating in over 80 countries.

Q: It appears that the headquarters of many international oil trading companies are now based in Geneva. What is LITASCO's position among the other majors?

A: London and Geneva have for a long time been in competition as Europe's number one oil trading hub with roughly one-third or about 700 million tons per year of the world's free oil trade in terms of physical trade.

During the last two years, Geneva has observed more and more firms coming from London and other places and has debunked the city as number one in all commodities trading worldwide.

We also believe that about 75% of Russian exports of crude oil and petroleum products are managed through Geneva via LITASCO and other Geneva based oil trading companies.

It is difficult to establish a precise ranking amongst the other companies.

LITASCO Group headquartered in Geneva has been present on the markets for eleven years, and last year we reported a turnover of $52 billion with 420 employees globally.

If comparing with our "competition" for the year 2010, we ranked second in terms of volumes traded with 125 million tons of crude oil and petroleum products.

In terms of revenue, LITASCO is probably ranking third company with the smallest number of employees.

We can note with pride that LITASCO has made a major contribution to making this truly historic position possible for Geneva.

Q: How has the marketing and supply business of LITASCO developed in 2010? Are the 2011 company's preliminary results in line with your expectations?

A: Both 2010 and 2011 have so far been quite challenging years. Global political, economical and environmental events have, of course, affected business. The markets have been volatile and will continue to be so for the rest of the year.

No one can predict; we thoroughly observe world economy.

The International Energy Agency cut its estimate of world oil demand in 2011 due to growing signs of slowdown, and has already warned that any reduction in the growth outlook for 2012 could have a major impact on expected oil consumption.

For example, the estimated demand for 2011 has already gone down to 89.2 million barrels per day which is more than 100 thousand barrels per day down from its previous estimate. Of course, markets are constantly evolving. The company used to purchase petroleum products from Libya before international trade sanctions against the country entered into force. International trade sanctions compliance has therefore been an important issue for LITASCO SA.

We are now adapting to the new environment and discussing with new potential partners.

We believe we have a strong foundation and entrepreneurial culture which will allow us to continue to adapt and profit - regardless of the prevailing conditions.

We focus on business opportunities and positive development dynamics.

Q: What are the shares of LUKOIL's and third parties' crude oil and petroleum products which are traded by LITASCO today?

A: In 2010, the LITASCO Group organized the export of over 37 million tons of crude oil and 23 million tons of petroleum products from the LUKOIL system.

The international trading operations of the LITASCO Group enabled the company to market additional 12 million tons of crude oil and 53 million tons of petroleum products sourced from third parties making a total volume of crude and products traded of over 125 million tons.

In 2010, LITASCO Groups' traded volumes LUKOIL's system barrels represented 48%, while third party trading represented 53%.

Q: Which regions today are the main "profit centers" for LITASCO? Which other countries or regions might, in your opinion, become the most promising in terms of the company's future business?

A: We operate on all continents, trade in more than 80 countries and our global business is conducted through offices in Geneva, New York, Singapore, Rotterdam, Dubai, Hamburg, Stockholm, Astana. We also have a representative office in Beijing.

The key strategic areas today are North-West Europe, the Black Sea and Mediterranean regions. In North-West Europe, we have big export volumes transiting through the Russian ports of Primorsk and Vysotsk to Rotterdam.

The LUKOIL motto "Always moving forward" really fits our activities. Time zones, working days and even holidays are different in all countries and all continents. For this reason, LITASCO is virtually in constant operation.

Speaking of new markets, we naturally understand that the company cannot grow without developing its business in new directions. Being part of the LUKOIL vertically-integrated company, we are primarily oriented towards regions that have business opportunities for the company, meaning regions with a resource base which is potentially able to create synergy with the LUKOIL upstream block. We are interested in expanding our presence in oil-producing regions, in particular in Africa, the USA and Latin America. Currently, we actively operate on new markets in West Africa. This year, we have started developing our business in Sub-equatorial Africa and South Africa. In addition, projects in Central America, Colombia, for example, are also being implemented.

Our attention is focused on all promising areas for oil sales. One of the main goals in the near future is to market oil from LUKOIL's West Qurna-2 field in Iraq, and we are currently building up our relations with major refineries in South-East Asia, China, India, etc, in order to be able to place WQ2 crude in the most efficient way in the future.

Q: What role is allotted to LUKOIL's European refineries in LITASCO's strategy?

A: LUKOIL's downstream acquisition in Western Europe fits perfectly in the company's strategy. Beside the impact of increase in both crude supply and product off-take opportunities for the LITASCO Group, it also enables our parent company to have a significant position in the very center of both the Mediterranean and the North-West European markets, which are key pricing regions. This approach aims at increasing oil refining capacities located in the immediate proximity to the other European markets where products with higher added value are sold.

LITASCO Group is responsible for the management of all commercial operations related to the LUKOIL acquired interest in the ISAB refinery in Sicily, Italy, as well as in the Zeeland Refinery located in the Netherlands.

These activities include, but are not limited to: purchasing crude oil, selling petroleum products originating from the refineries, shipping and risk management.

We are also responsible for supplying all the feedstocks to and off take of the products from LUKOIL's three refineries in the Black Sea region: Odessa refinery in Ukraine, Burgas refinery in Bulgaria and Petrotel refinery in Romania.

Our contribution to the LUKOIL Group is based on providing the system refineries with the most appropriate feedstock that matches the individual refinery configuration and processing needs based on ever-changing prevailing market conditions. We always combine the feedstock from LUKOIL's system barrels with the material sourced from third parties.

Q: LUKOIL Benelux, a LITASCO Group Company, has become a key player on the bunkering market of the Amsterdam-Rotterdam-Antwerp (ARA) region. Does the company intend to further consolidate its positions in this region?

A: Over the past years, our market share in the ARA bunkering market has grown to more than 10%, and we handle close to 5 million tons of fuel oil a year in this regional fuel oil market.

Since 2008, we have worked on expanding our STR terminal, (a 50/50 JV with a local Dutch company) in the port of Rotterdam. The completion of this "phase II" is expected in March 2012. Rotterdam is one of Europe's biggest ports and can be compared with Singapore, New York and Dubai.

The existing 65 thousand m3 capacity will be increased to 240 thousand m3, and will allow substantial savings through storage rationalization in this region. It will also mean a greater competitiveness on the market, as the draft will be increased by 2 meters to 14.50 meters, allowing us to handle bigger ships at the jetty.

This new logistical tool, coupled with our know-how in barging (we have 6 barges on time charter, ranging from 1700 to 6300 tons capacity), our commercial skills based in our new Rotterdam offices and our Geneva based trading capabilities will undoubtedly support our growth aspirations, and further establish our footprint in this very competitive market.

In the third quarter of 2011, LUKOIL Benelux B.V. has started bunker trade in Antwerp, Europe's second largest port after Rotterdam.

Q: The company is participating in expansion of a terminal in Barcelona. What prospects will this activity open up for LITASCO?

A: In line with the LITASCO strategy to develop its commercial activities globally and increase its presence in key oil markets, LITASCO established a joint venture with Barcelona based Oil Company Meroil S.A. in Spain for the extension of the existing Meroil terminal in the port of Barcelona.

This new capacity of 360 thousand m3 will further reinforce the LUKOIL Group's trading and supply infrastructure in the Mediterranean region.

In 2011, the port of Barcelona has brought a new 275-meter jetty into service, which will enable to receive the largest vessels which operate in the Western Mediterranean. This upgrade will allow the port to become a principal hub for petroleum products for the Mediterranean as well as North Africa and West Africa regions.

All LITASCO Group clean products as well as biofuels will be handled at the terminal, received by vessels of up to 150 thousand tons, and will be re-exported or sold to in Spain in-land market, using road transport or via Spain's CLH pipeline system.

The terminal to be completed and operational in 2012 will be equipped with the most advanced safety, pumping and control systems and will be certified for quality as well as, health, safety and environmental management.

Q: Your company began emission trading last year. How can you assess this experience for LITASCO? What are the company's plans in this new activity?

A: This has been   a very positive experience for us. We have already achieved a profit by the end of last year.

Market players predict that carbon dioxide might evolve into a driver of energy price. LITASCO decided to add CO2 to its product portfolio and started emissions trading activity with the aim of becoming the group's optimization centre. The carbon emissions trading desk was thus created in December 2009 and active operations are ongoing since May 2010.

The initial aim was to optimize carbon emissions position of the ISAB and Zeeland refineries. During October 2010, the first optimization transaction with Zeeland (TRN at the time) brought $650 thousand profit for 313 thousand tons traded. Among LITASCO's CO2 trading objectives, emissions trading will act as central "gear" for the carbon flows in the Group and give "one window to the market". On the other hand, it will minimize LUKOIL's upstream projects and refineries CO2 compliance costs, manage LUKOIL ERU portfolio risks, market LUKOIL ERUs and maximize value of ERU sales.

We have considerable emissions trading opportunities; this is an important business line, and we will develop it further.

Q: Does LITASCO participate in social and educational programs?

A: LITASCO aims to play an active role in the communities in which we work. This commitment is reflected in our sponsorship of local cultural institutions events. Since 2000, the company has been partner with Geneva Chamber Orchestra, a first rank orchestra which has carved a unique position in the musical landscape surrounding the Lake Leman, through its development of a highly personal sound identity based on the historical interpretation of the works in its original baroque repertoire. LITASCO is represented as a member of the Foundation Council of Geneva Chamber Orchestra, and we support its further growth and development.

Together with Geneva Chamber Orchestra, we have been able to participate in several fantastic musical events such as the now well established Christmas Concerts, were we also invite elderly persons from local retirement homes to benefit from a musical coloured and joyful contribution to the seasonal celebrations.

The company is also a member of and supports the Fondation pour Geneve which is established in 1976 and promotes, coordinates and supports initiatives that contribute to Geneva's traditions of hospitality and openness to the world. It proactively supports all initiatives that maintain and enhance the reputation of Geneva for humanism as well as its leading position among the large international cities.

We have also participated in smaller local projects such as sponsorship of local based youth sports teams and associations, and every year in November we have an "open day" in the company inviting the children of employees, explaining them about our industry in an educative and playful way.

Since our founding in 2000, we have always focused on becoming active members of very important local industry associations and business networks. LITASCO top management has been one of the founding members of the Geneva Trading & Shipping Association (GTSA), which has been created in 2006 by companies and banks active in commodity trading and represents now more than 60 members. The Association works in the interest of its members in cooperation with the authorities and puts its competences at the disposal of communal, cantonal and federal institutions.

With GTSA, LITASCO is highly involved in the newly created oil industry educational programs provided by Geneva University, with the Master of Arts in international trading, commodity finance and shipping and the diploma of advanced studies in Commodity Trading.

We also have partnerships and support other oil industry educational programs from international renowned business institutes such as HES-HEG Geneva Business School, providing with the commodity trading major program.

LITASCO top management and specialists intervenes on a regular basis as speakers or lecturers in those programs which also are direct providers of human resources in a very local competitive environment.    - Vladimir Akramovsky


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Oil of Russia, No. 4, 2011
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