Tri-Ocean Energy’s growth strategy is based on the assumption that global demand for oil will increase over the long term and that it will be in a position to take advantage of this. A key element of the firm’s business model is controlling all aspects of the oil value chain from exploration and production, trading and shipping through to refining.
This strategy came under pressure during the global financial crisis as oil prices tumbled below $40 a barrel and demand for tankers slumped. Despite this, the company was able to weather the crisis, posting a net profit of $56m in 2009, from sales of $128m.
The firm’s shipping division was badly hit in 2009 as a result of the worldwide drop in oil consumption combined with an oversupply of new tankers in the market. Although global demand for oil has rebounded, Tri-Ocean Energy has decided to sell off three of the firm’s five vessels.
While scaling back its shipping business, Tri-Ocean Energy has continued to invest in its exploration and production business and has made a major move into green technologies. Its endeavours in these fields have been successful in large part due to the experienced partners that the management team has chosen to work with.
Emerging Market: Carbon Trading
The Clean Development Mechanism (CDM) allows a country with an emission-reduction or emission-limitation commitment under the Kyoto Protocol to implement emission-reduction projects in developing countries.
Such projects can earn certified emission reduction (CER) credits, each equivalent to one tonne of carbon dioxide, which can count towards meeting Kyoto targets.
CERs can be bought and sold and therefore can be used to support the economic fundamentals of a new renewable energy project.
As a developing country, Tri-Ocean Energy’s native Egypt can execute sustainable projects and sell its CERs to developed countries in need of green certificates. Tri-Ocean Energy launched its carbon trading and renewable energy business in 2008 to capitalise on the opportunities in the Middle East’s emerging emissions trading market.
Tri-Ocean intends to expand its carbon trading business and is pursuing similar opportunities
The company successfully completed its first two emission reduction projects at Kafr al-Dawar and Fayum in Egypt in 2009. Both deals were executed under a partnership agreement with Natgas, Egypt’s largest supplier of natural gas, which is also a part of Egypt Kuwait Holding Company.
Natgas constructs, operates and maintains power plant projects and pipelines. In addition, Natgas aims to become a regional supplier and developer of natural gas. Due to the synergies between the two companies, Tri-Ocean Energy intends to maintain a long-term relationship with Natgas for its carbon trading business.
In Kafr al-Dawar, Tri-Ocean Energy facilitated the fuel switch of two large government-owned textile factories from heavy fuel oil to natural gas. This reduced carbon emissions from the factories by 45,000 tonnes a year. This change in fuel is equivalent to the removal of more than 7,800 cars from Egypt’s roads.
In Fayum, Tri-Ocean Energy partnered with Natgas to switch the fuel of a government-owned sugar processing plant from heavy fuel oil to natural gas, lowering its carbon emissions by 40,000 tonnes.
Both deals have brought capital into Egypt and improved the environmental credentials of the country. Tri-Ocean Energy intends to expand its carbon trading business and is actively pursuing similar opportunities in other countries.
However, both deals hinged on switching fuel to natural gas. Such projects are eligible as fuel oil is environmentally harmful and is partly to blame for pollution issues in Cairo and the rest of the country.
As a comparatively easy switch to make, the change is beneficial for Natgas as it will now supply the factories.
It also benefits the government, which is able to enhance its green credentials, and the owner of the factory (in this case also the government), which can make its factory more efficient.
However, Egypt suffers from gas supply constraints, which are impacting its power generation capacity to the extent that the country suffers crippling blackouts every summer. The industrial sector is similarly affected.
Adding further demand for natural gas will only deepen the issue, so future projects might have to be a bit more ambitious, involving renewable technologies and biofuels.