The world’s largest oil traders are pouring hundreds of millions of dollars into climate-friendly projects – including wind farms, cow dung processing plants, blue hydrogen, and etc, seeking to match their profits from the oil trade.

The energy industry as a whole is facing the existential threat of a transition to a low carbon economy. The pressure from investors, governments, activists, and financiers to find a sustainable business model is also increasing.

The challenge for oil traders is greater as their profits have already shrunk due to increased competition, regulatory scrutiny, and increasing industry transparency.

Commercial companies such as Vitol and Trafigura have already invested in wind, hydrogen, solar, EV technology, biofuels and biomethane as potential substitutes for oil – the traditional source of profits for them. Like major international oil companies, however, they have yet to figure out which of all these new investments can turn into their new business model for an environmentally-friendly future.

“No one has yet figured out how to make money”, says Jean-Francois Lambert of the consulting firm Lambert Commodities. “Trading companies are only testing the market so far”, added he.

Traders are making a living using niche, high-margin opportunities to deliver energy and goods. They do business that other companies either do not find or find too risky. However, these opportunities are scarce in the renewable energy sector.

“Renewable projects are reaching a scale that makes them attractive investment proposals, but there is a lot of capital pursuing a limited number of projects,” said Vitol CEO, Russell Hardy. “Finding the right project at the right price is not easy”, added he.

Changes in the financial services sector also give a sense of urgency when looking for a new business. The French bank Natixis, for example, was the first to introduce internal financial penalties in September for non-environmental transactions. The bank said the deals, classified as green, would receive a reduction of up to 50% on the amount of capital that the bank must retain in order to support them. Non-green transactions, also brown, will receive up to 24% growth in risk weight.

Since the European Central Bank has been pushing for a green program, other major European banks are also considering similar schemes. Minimum lending standards are also becoming stricter due to pressure in the sector.

Electricity trading is one way of capturing change, as different sources will create new dislocations. “There will be a shift from molecules to electrons, and globally, electric vehicles will increase demand by 250 GW per hour by 2030”, predicts Russell Hardy.