Michiel Gilsing – Global Director Sales & Marketing, Vopak
Michiel Gilsing provides a fascinating insight into the unique strategy of Vopak, the world’s leading independent tank storage company, the company’s efforts to reduce risk in its operations, and the future of the Spanish market.
You first joined Vopak 13 years ago and are now the Global Director for Sales and Marketing. Please introduce your role and explain your key priorities for the forthcoming period.
“Fortunately for us, the majority of our business is related to structural product flows and not driven by the price of oil or certain chemicals.”
My title effectively covers everything to do with customer service, revenue lines, infrastructure management and business development. Therefore, I spend a lot of time thinking strategically about commodities, which markets to enter and necessary investments.
Last year we compiled a strategic review; on the same year that Vopak celebrated 400 years of history. Therefore, all of the opportunities highlighted in that review are still very relevant today. The three key themes identified were manufacturing, energy and agriculture. Obviously, there are lots of opportunities in gas whether in LNG, LPG, or gas as feedstock for chemical products, because the growth in these sectors is strong and major oil and gas players are currently investing in these areas.
For instance, Shell is probably focusing more on growth in gas than in oil at present. We also see opportunities on the industrial terminal aspect of the business. We have developed a nice network in this specialisation; about 20 of our terminals are directly linked to petrochemical complexes with each terminal serving the storage of feedstock for several plants. There is certainly room for growth and expansion within this industrial terminal model. The third area that we are currently assessing is improving the oil side of our business in main hubs and emerging markets and strategic locations for chemical distribution. Whether we discuss gas, oil or petrochemical, the global demand is still growing, just not for every single market. Therefore, market-specific analysis is required. For instance, Europe does not currently have high growth rates in comparison to other regions on our radar which has led to various changes in regards to our focus. This was important because we wanted to free up capital for investment in faster growing areas.
What has been the impact of recent low energy prices?
In a low energy price environment, it is more difficult for our customers to make a decent profit. Therefore, most organisations in this business become more cost and efficiency focused which obviously impacts us as their supplier. First and foremost, companies look to deliver the product to the customer in a more cost-effective way. Fortunately for us, the majority of our business is related to structural product flows and not driven by the price of oil or certain chemicals. It closely related to geographical imbalances in supply and the demand so we are less vulnerable to changes in price. Especially when talking about chemicals, the price is almost irrelevant, if GDP grows. Clearly, if the growth in GDP is low, business will not be great but demand can still be increasing.
Vopak has 400 years of heritage and last year reached EUR 1.3 billion (USD 1.55 billion) in revenue. With 67 terminals, could you give us an idea of the strategic significance of Spain to the company?
We started with only two terminals; one in Tarragona and the other in Barcelona in a joint venture called Terquimsa with our partner CLH. It is excellent to work with a company like CLH given their impeccable reputation in Spain. The way they operate and the network they have is very impressive. For them, it is somewhat experimental to operate in the field of petro-chemicals. Terquimsa has an excellent supply position but they are slightly exposed to the national GDP fluctuations of Spain. However, Terquimsa can use the Tarragona terminal as a springboard to other markets outside of Spain and can take advantage of the deep-water opportunities available in the Mediterranean.
The first pillar of our Terquimsa business is the oil supply into Spain. The second is as a hub location for chemicals and the third is for chemicals and gases linked to the cracker complexes in Tarragona. All the facilities of Terquimsa are of the highest quality. We can offer good services that are very relevant to the customer. For instance, if you want to conduct business in Spain or in the entirety of the Mediterranean, we have assets and very knowledgeable people to accommodate that. With their experience, we can handle and store any product in these terminals. With reclaimed land available and extended jetties, Tarragona has done a lot of work to become one of the main ports in the region. I have a lot of respect for the authorities that represent Tarragona as they always are present at various summits and have worked very hard to develop the port area.
In 2011, we added the Vopak Algeciras Terminal to our group which has become a successful addition. The shipping and activity that occurs in the bay of Algeciras is the fourth biggest in the world in terms of bunker volumes. It also has significant trading capabilities to supply the Mediterranean countries. Products from North-West Europe tend to find their way to the Mediterranean region and Algeciras have the capacity to facilitate this transportation. As a result, this oil terminal has two main functions: facilitating bunkering and trading. In addition, Algeciras is perfect for breaking bulk when US diesel arrives and can be utilised in North Africa but these are incidental business dealings rather than structured plans although that could change obviously. Other than Terquimsa, CLH is one of our competitors in Algeciras.
We have to be the best in regards to service for any terminal in Spain because just the competition in any location is rather fierce. In our view, the best service requires optimal infrastructure and experienced personnel to really provide the customers with what they want. So far, we are very happy with our progress because it is such a competitive industry with lots of terminals.
The majority stake of Vopak in Spain is at Algeciras, which is also the company’s most recent investment in the country. The initial ambition of this terminal was quite clear: given its strategic location at the entry/exit of the Mediterranean, it can serve significant end markets such as Europe, Africa and the Americas. How is this terminal fulfilling this “hub” role? And how has it been performing thus far?
I consider the trading activities we currently support to be hub-related business. Therefore, 60 percent of our business is associated with the trading hub because it does not reach the end market by storage and it is not connected to any pipeline or power plant. The purpose is to collect for our customers different fuel oils, blend it and make sure that our customers can supply the East of the Mediterranean. From our point of view, the hub has been very successful.
Of the remaining 40 percent of our business, the majority of that figure is the distribution to the market. 100 percent hub locations are almost unachievable because businesses always have sound domestic foundations to protect themselves against overseas competition (particularly in the Mediterranean region).
Compared to the Netherlands, Norway or Singapore, Spain is not renowned for its offshore capabilities but the weather conditions here allow businesses to operate all year round. After the crisis, you’ll notice people have started investing in Spain because the labour costs are very favourable and the level of education employees have is very impressive. There are many other factors why we have chosen to operate in Spain but our relationship with the relevant partners is also very strong.
The three terminals are handled on a joint venture basis. Why is this model specifically suited to Spain? What can Vopak get from its relations with CLH and Vilma Oil?
Well, in the case of CLH they are not a competitor on a global scale but locally they do provide competition and at other locations they are a partner as well. We are of the opinion that joint ventures are the best way for us to penetrate new markets. When looking at new opportunities we always seek to add our network and expertise to local market knowledge. In our view, local knowledge is essential to success. In terms of operating capabilities, CLH is equal to our current capacity but the combination is the key to success. If we operated without the local knowledge CLH provide, we would be taking a far greater risk. Specifically, Vilma Oil was already part of a project that we ended up joining so the start of that joint venture also provided us with the right local knowledge.
In the 2016 Annual Report, we saw that general demand for chemicals in Europe was growing. How do you see Spanish demand evolving in the future? How will you cater for that demand?
There are still good opportunities in petro-chemicals especially after results show Spain’s economic performance improving considerably. That is why I think gradually you will see that additional capacity will be added to the Port of Tarragona. In Barcelona, we see limited expansion opportunities as the market still has to resolve over-capacity issues. Once the existing capacity is fully utilised, they can begin to think about potential expansions. In regards to new products, LNG bunkering could be a profitable avenue to explore. In general, that market is in its early stages of development and requires considerable investment prior to initiation. Before getting some more LNG bunkering projects going, we will wait until other parties are ready to share the risk.
What is Vopak’s idea of efficiency and innovation and being at the forefront of the industry?
We have our own innovation centre here in the Netherlands with approximately 60 proof-of-concepts running and we are always trying to innovate operational aspects like tank cleaning or tank inspections. We try to take advantage of all the technology available to us and we still want to be more innovative in the future. We are testing to use drones for tank inspections, that would save both time and money; a saving that could also be passed on to the customer. Terminals are still very labour intensive in newly build terminals more is automated. Whenever I have worked with CLH, I have noticed how focussed they are on driving costs down. I believe this is a good thing also from a safety perspective, the less people you have on a site, the lower the risk of accidents.
Vopak prides itself on a strong focus on safety and sustainability. In March 2016, the Algeciras terminal was awarded for its good practices. However, just recently, Vopak has made local news, with a potential oil spill that could harm the El Estrecho Natural park. How is Vopak reacting to the oil spill and continuing to generate both a safe and positive image?
We are always committed to safety and we believe one accident is one too many. Obviously, in an ideal world there are no incidents but certain things do happen. The most important factor is to establish the root of the problem and who should be held responsible for the issue. The oil spill in Spain was not related to our operation, it was caused by a technical failure of a bunker-barge that was visiting our terminal. Accidently ballast water polluted with oil came into the water. Although right away an oil boom was used, some oil came into the bay which was cleaned immediately. The barge involved is not ours and is under investigation so it is very difficult for me to comment on it. Both the port authorities of Algeciras and Vopak actively informed the community during the spill.
How significant will the Spanish market be to Vopak in the future?
I think Spain will remain very important. For us, Spain is one of the key countries in Europe and is very relevant in terms of the spread of our business interests. I am very optimistic that Spain is moving in the right direction. We will be focussing on improving our business here and looking for ways to expand. I imagine there will be additional expansions in our Tarragona facilities. Barcelona is very competitive therefore we need to get the maximum from our current infrastructure before investing more resources there. Generally speaking, the future is difficult to predict because the market of the industry moves so quickly. At present, we are not looking at adding another location in Spain but next year the market conditions could change. In general, Vopak has a long-term view and is focussing on structural product flows. We also do not know how fast the market will react to specific developments and how demand will change over time. We have got clearance to start a joint venture to study a new LNG terminal in Northern Germany.
Do you have a final message for our international audience?
Vopak has a global network of terminals located at strategic locations we ensure efficient, safe and clean storage and handling of bulk liquid products and gases for our customers. By doing so, we enable the delivery of products that are vital to our economy and daily lives, ranging from oil, chemicals, gases and LNG to biofuels and vegoils. Spain is still very important for us and is a market we are looking to commit further resources to. We have developed a strong base in the country and have been able to transmit our philosophy of partnering to aid growth within the industry. As a terminal operator, people can expect a high level of safety. We really focus on delivering the right service for our customers. In doing that, we hope we will become the most successful player in the market.