The world's largest oil traders are pouring hundreds of millions of dollars into climate-friendly projects: including wind farms, cow manure plants, and blue hydrogen: as they seek to match the profits they make from trading oil.
The energy industry as a whole faces an existential threat from the shift to a lower carbon future and faces growing pressure from investors, governments, activists and financiers to find a sustainable business model.
For oil trading houses, the challenge is more acute, as their profit margins have already shrunk due to increased competition, regulatory scrutiny and growing industry transparency.
Trading firms such as Vitol and Trafigura have already put money into wind farms, hydrogen, solar, EV technology, biofuels and biomethane as potential replacements for oil, traditionally their big profit driver.
But like the big international oil companies they have yet to figure out what could become their new business model for an environmentally-friendly future.
Nobody has figured out how to make money yet, Jean-Francois Lambert of consultancy Lambert Commodities said. Trading firms are now testing the waters.
Traders make a living by exploiting niche high-margin opportunities to supply energy and commodities, doing business that other companies either fail to spot or find too risky. Those opportunities are scant in the renewables sector.
Renewable projects are reaching a scale which makes them attractive investment propositions, but there is a lot of capital chasing a limited number of projects, Vitol Chief Executive Russell Hardy said. Finding the right project at the right price is not easy.
Changes in the financial services industry are also giving the search for new business a sense of urgency.
French bank Natixis, for example, was the first to introduce internal financial penalties in September on deals that are not environmentally friendly.
The bank said deals classed as green would receive a reduction of up to 50per cent on the amount of capital the bank must retain to back them, known as risk weighted assets. A deal that is not environmentally-friendly, so-called brown, will face an increase in risk weighting by up to 24per cent.
With the European Central Bank pushing a green agenda, other major European banks are also considering similar schemes, two banking sources said.
”Minimum standards for regular loans are getting tougher and tougher too. There's pressure (on traders) from non-governmental organizations and banks,” one of the banking sources said.
Mining and trading firm Glencore has capped coal output and is reducing diesel generation at some of its remote mines by using hydroelectricity, wind and electronic vehicles.
Trafigura and Glencore are focusing on ingredients for EV batteries. Trafigura has invested in Finnish mining firm Terrafame to produce nickel and cobalt.
Geneva-based Gunvor Group plans to invest hundreds of millions to reduce carbon exhaust at its three European refineries and add a biofuel unit at one of its refineries that will use excess hydrogen.
Biofuels will be a focus after it bought two Spanish plants that turn waste oils, like cooking oil, into biofuel this year.