October 31, 2007 / 1:37 PM / in 11 years

EXCLUSIVE-Secretive Russian Gunvor becomes number 3 oil trader

LONDON/MOSCOW, Oct 31 (Reuters) - Top level Russian contacts are the key to the success of oil trader Gunvor, which has become the world’s No. 3 player in just 10 years, the founder of the secretive firm told Reuters as he plans a global expansion.

Founded 10 years ago, Geneva-based Gunvor handles about 30 percent of Russia’s seaborne oil exports, one of the firm’s founders Torbjorn Tornqvist said in an interview.

The company’s competitors say it has used its political contacts to give it favourable crude lifting deals with Russia’s state-owned energy companies including Rosneft (ROSN.MM) and Gazprom Neft (GAZP.MM) (SIBN.MM).

Tornqvist said he founded Gunvor as an equal joint venture with prominent Russian businessman Gennady Timchenko, who Russian media say is a close friend of President Vladimir Putin. But Tornqvist, who is Swedish and a longtime oil trader, denied the firm had used political connections to give it the edge over rivals.

“Mr Timchenko has excellent contacts because he is Russian and part of the industry. I also have good contacts. We don’t deny we have excellent contacts,” Tornqvist said in the interview by telephone from Geneva.

“But ...to involve Mr Putin and any of his staff in this dialogue is speculation,” he added.

Gunvor has seen its operations expand dramatically in line with a steep rise in Russian crude oil exports, which soared to over 5 million bpd from just under 2.4 million bpd in 1999.

This year, Gunvor expects trading volumes to rise to 83 million tonnes from 60 million in 2006, allowing it to become the world’s No. 3 crude trader behind Glencore and Vitol.

About 60 percent of volumes is crude and the rest products. Turnover should rise to about $43 billion this year from $30 billion in 2006.

RUSSIAN BUSINESS TOUGH

Tornqvist said he was confident Gunvor would maintain its leading positions in Russia although Russian exports have peaked and are expected to remain steady in the years to come.

“Russian producers are getting more sophisticated in their marketing. Physical contracts tend to be expensive today and some traders are stepping back,” he said.

Gunvor’s top three Russian clients are Rosneft, Gazprom Neft and private producer TNK-BP, oil major BP’s (BP.L) Russian venture, which regularly awards deals to Gunvor at tenders.

Rosneft and Gazprom Neft have signalled they could also start selling all their crude at open tenders.

Tornqvist said Gunvor hoped to keep healthy volumes in 2008, but would need to compete hard with other traders as it has guarantees only for a small amount of Rosneft’s crude, which was used as collateral in loans with Western banks.

Traders say Gunvor’s heavy presence on the Baltic Sea oil market can often be a negative factor for competition.

“Sometimes we are buying, sometimes we are selling to cover spot arrangements. But there is no chance we can influence the market - it is too transparent,” argues Tornqvist.

As Gunvor’s positions in Europe’s north are likely to remain steady, it will reduce its presence in the south. “It’s quite tough on the Russian crude oil in the Med.”

LOOKING ABROAD FOR GROWTH

Tornqvist said the company would have to look abroad for further growth.

Gunvor has $6.5 billion of credit lines to fund its operations and expansion, including outside Russia, and can increase them substantially at any moment. “We are confident our growth will continue but not in Russia.”

The company is planning to expand in West Africa, the Middle East and Asia, where it has opened or expanded offices.

In West Africa, Gunvor recently signed a contract to buy oil from the Nigerian National Petroleum Corporation and is looking to start exploration in the region.

“There are a number of areas where traders are present. Nigeria is an obvious one. Equatorial Guinea is trader friendly and a number of newer countries not known as producers are offering licence and acreages,” Tornqvist said.

Exploration blocks could be also bought in Russia, but Tornqvist declined to name them.

Another area of expansion within Russia is in oil export terminal management. Gunvor recently took over the management of the White Sea Vitino terminal and is negotiating contracts for a terminal in Russia’s north and another one on the Black Sea.

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