International media has slowly started to report on the ongoing new ventures of oil and gas giants, such as Aramco and ADNOC, with international trading houses and IOCs making a move to seize a bigger portion of the global commodity market. The present studies still incline to look at the attempts by Aramco, ADNOC, QP and Sonatrach, as mere minor disturbance and not a cause to worry. The market power of giants namely; Trafigura, Glencore, Mercuria, Vitol, Gunvor or Dreyfus, are still uncomparable, but partially substituted by IOCs such as Exxon, Total, Shell, Gazprom or ENI.
Now NOC is even in the top-20 league of these giants in hydrocarbon commodity trading . For years together, traders and IOCs have been leading the sector, taking risks and high profits while the NOCs have been out of the game. This trend is gradually changing, looking at the reported new trading deals between Aramco, ADNOC and others. Drilling down the value chain has been common practice for NOCs in the previous few years, an example of this are the global downstream investments of NOCs. Locking in their own consumer markets has become spearhead in NOC plans.
OPEC’s leaders Saudi Arabia and UAE however have leveled up their effort to seize more dollars per barrel via a full integration of the value chain.
As IOCs have proven already decades ago the combination of upstream, mid- and downstream is a winning business model. Combining the most risky but also profitable part of the business, commodity trading, has now become a priority for NOCs.
Their current trading arms is not yet very large, however this could all be about to change. By setting up full-fledged trading departments, Aramco and ADNOC are openly taking on the conventional commodity traders. The Vitol’s and Trafigura’s of this world should now become very aware of the looming tsunami that is building up quick. The changes currently occurring in Dhahran, Abu Dhabi or even several North African countries, such as Algeria, will be much stronger than most trading giants currently expect. Simon & Garfunkel’s “Times are Changing” is very applicable, as these NOC power houses are not going to be satisfied by taking a tiny piece of the market. Their goal most probably is to shakedown the sector, removing most of the dead weight, that has been surviving due to a lack of competition, while at the same time restructuring hydrocarbon trading into a national or global (OPEC+) trading adventure.
Evaluating the developments at ADNOC, Sonatrach and Aramco, there is still a lot of room for improvement, but all of them have a big advantage over the likes of Vitol and Trafigura. NOCs own their oil and gas.
NOC trading departments will have full access to production volumes, or petrochemical products of their own company, having a direct advantage to third parties in price, knowledge and insight, Without having to deal with standard operational practices such as tenders or other bureaucratic issues.
By entering the commodity trading space, NOCs also will increase their own power over oil prices and supply issues. ADNOC or Aramco, being giants, will be able to clutch on a higher value from their own production than currently is the case.
After years and years of global crude oil supply dominance, OPEC members have noticed hope. It is necessary and rational to take on commodity trades at the same time, in order to become an integrated international national oil company (IINOC). To leave part of the business to third party commodity power houses has cost OPEC greatly, or have taken out the producers the market powers.
From a geopolitical point, the NOC commodity trading move is also transparent. To be able to supply and control trade flows gives more power to the NOCs but also of its national government in light of regional or global alliances. It also gives Aramco and its fellow nationals the opportunity to step in to the market itself when it needs to source crude grades from third parties that is unavailable in its own market. Simultaneously, both leading NOCs already have shown their passion for global gas markets too, addressing LNG trade and products on a global scale. Other companies, such as still fledgling Iraq’s SOMO trading or possible new Egyptian or Libyan ventures will also be entering the market.