INSIGHT: Vopak bets on green transition, larger investments to fall later in the decade – CEO

LONDON (ICIS)–Vopak is expecting to pour around half of its growth in capital budget to 2030 into the energy transition, including renewable feedstocks and carbon dioxide (CO2) infrastructure, but the heavier spending is likely to be concentrated in the later years of the decade, according to its CEO Dick Richelle.

The Netherlands-based terminals and storage major expects to invest around €1bn into adapting its business over the next eight years but, with the shape of sectors like hydrogen still developing, more work needs to be done before more significant capital expenditure (capex) can be deployed.

“I do expect on the new energies side that we’ll gradually build up between now and the end of the decade, it will be a little bit back-end loaded. We need to make sure that we are ready for it today and, especially on new energies, it’s important to be reaching out to our customers because a lot of the pre-development is happening today, the consortia are forming,” Richelle said.

“A lot of the effort is being expended today but the bigger investments on the new energies will occur toward the latter end of this decade.”

The impact of the energy crisis this year on European productivity and conversations with clients has led Vopak to assess its key strength as core infrastructure at ports and terminals across Europe, Asia, North America and the Middle East.

“We serve our customers in many markets, with energy and manufacturing as the key two segments where we play, and it’s clear that’s what happening today, particularly in manufacturing, our customers are suffering quite a bit, and when that happens you try to work as close as possible as a supplier and service provider,” Richelle said.

“I wouldn’t say that things have fundamentally changed, that would be overstating it, but I think that the realisation for everyone involved is the importance of critical infrastructure at strategic locations,” he added.

The firm is looking to leverage that position to invest in developing infrastructure such as CO2 pipelines to build on anticipated stronger demand for services in that space as an extension of its traditional strengths.

“We are moving more strongly into the new energies and sustainable feedstocks, which is the aspect of this shift that is closest to what we already do, which also relates to plastics recycling,” he said.

“Another area would be CO2 infrastructure, not necessarily CCS [carbon capture and storage], in terms of our independent shared infrastructure, so when the industry says we need a pipe to run from our facility to an area we can temporarily store it, maybe ship it to a location before it gets injected offshore in a big depleted gas well, there is a lot of infrastructure that is needed, a lot of investments that need to be done,” he added.

The roadmap for a more mature sustainable energy and feedstock sector is still being written, with trajectories continually shifting in the space of challenges such as the fallout from the Russia-Ukraine war, as well as evolving global policy frameworks.

The EU has long presented itself as a leader in sustainability, but lawmakers have been wrongfooted by the US’ Inflation Reduction Act (IRA), taking a more stimulus and subsidy-focused approach compared to the EU’s Green Deal, wrapped in strong “America-first” incentives.

Meanwhile, Europe’s emissions-reduction plans have been stymied to an extent by the extent of fossil energy price increases this year, prompting the return of more polluting power sources.

Coupled with this, the economics for new forms like green hydrogen are potentially substantially more compelling in regions such as the Middle East, if governments invest in the necessary renewables infrastructure.

Despite the shifting topography of the decarbonisation landscape, the questions are more focused around when, and where, rather than if, and Vopak is well positioned to build on existing longstanding competencies for products like blue and green ammonia, Richelle said.

“Ammonia is already a product to be stored in various locations across the network, we’ve been doing that for 20 years, we do it in Asia, in Europe, in the US, so that’s a very important area. Once you have the experience of running it, the infrastructure is colour blind,” he said.

The company is also increasing its role as a seed funder for technology start-ups in the space such as Hydrogenious, a Germany-based developer of hydrogen storage and transport solutions in liquid organic hydrogen carriers (LOHCs).

SUPPLY CHAIN SHIFTSThe shift toward anticipated future green energy and feedstock demand comes alongside the current shifts in the supply chain space, which has been a state of flux since the onset of the pandemic.

The demise of ultra-nimble, lightweight supply lines in the wake of the disruption of the lockdown era has been followed by shifting, reactive demand patterns where players at different points commit to significant purchases to hedge against potential future disruption or price spikes.

This has been followed by periods of lower demand where inventories are worked down, and substantial investments in new storage capacity, which may then be served by small parcels of product as firms shift footing to hand to mouth purchases in the face of weak or uncertain future demand.

“Supply lines are going to be longer; product is being shipped in from longer distances, and industrial activity in certain regions such as Europe is under pressure,” Richelle said.

“That doesn’t automatically mean that that people would necessarily look for reduced throughput through the ports, they may be looking for a lot of imports, and we are seeing more import cargoes coming in, more so than in the past,” he added.

CORE OPS, PORTFOLIO MANAGEMENT
Alongside the energy transition, Vopak is continuing to invest in its core operations, with around €1bn earmarked for investment through to 2030.

“If you look at the traditional base business that we have investing in, in terms of industrial complexes, LNG [liquefied natural gas], LPG [liquefied petroleum gas], that is a pipeline that is well filled that is likely to be expensed in a normal distribution between now and the end of the decade,” Richelle said.

The company has also been going through an ongoing period of portfolio management, with sales announced this year of Amsterdam-Rotterdam-Antwerp (ARA) port hub services subsidiary Vopak Agencies and divesting four terminals in Canada.

“When we look at the portfolio, we look first at our strategy toward deploying that capital into new energies and industrial and gas, and those are the key focus areas because we feel strategically that’s an attractive direction and at the same time we’re looking very critically at the current portfolio and continue to do so in terms of how strategic the fit is,” Richelle said.

While Vopak’s third-quarter net profit dipped 4% to €77.7m, year on year, fundamentals have remained strong despite the darkening economic outlook, with the firm opting to increase its 2022 earnings forecast.

Nevertheless, there is scope for the current weak conditions currently in the European chemicals sector to spread through the first half of 2023 to other regions, making future demand projections difficult to gauge.

“The customers we are serving are going through difficult times on the back of economic headwinds and incredibly rising energy prices. For petchems in Europe, there is quite some impact, but we’ll see that impact in the US over time and potentially also in Asia,” Richelle concluded.

Insight by Tom Brown