Oil, a source of wealth for Geneva

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freddau
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Oil, a source of wealth for Geneva




by freddau » 03/11/06, 16:13

A third of the crude oil trade takes place in Geneva. Several large oil companies have refocused their activities there. Banks have set up their commodity finance centers there. Thousands of people live on it.


MARC LECOANET looks at his computer: before his eyes scrolls the list of oil tankers that make their way across the Baltic Sea, the Black Sea or the Mediterranean. Some have loaded their cargo in the ports of Vitino or Arkhangelsk in northern Russia, crossing the ice zones to bring the crude oil to the South. Regularly, the tanker commanders indicate their positions, take stock of the travel conditions. In Geneva, in the offices of Riverlake, the shipping company headed by Marc Lecoanet, around thirty people follow these movements closely. For some of their clients, like Total, they act as an intermediary between the owner of the oil cargo and the owner. Like a myriad of companies present at different levels of the oil trade chain, Riverlake has settled in Geneva. First, there are many financial institutions that devote large parts of their activities to oil. On both banks of the Rhône, BNP Paribas buildings face those of Crédit Agricole. This is where the banks placed their commodity finance centers, with oil in the lead. BNP Paribas, the world leader in the field, employs XNUMX people there. Credit Suisse and the Union of Swiss Banks (UBS) are other key players in the market.

$ 15 billion traded annually


A stone's throw away, Total, one of the five majors (the biggest oil companies), has set up the headquarters for its commercial activities. After its merger with Elf, the group chose to bring the majority of its staff to Geneva. The Russian Lukoil, number two in distribution in France after Total, is also present in the city center, and it is from Geneva that its commercial operations are carried out via its subsidiary Litasco. Rosneft and the Dutch Vitol also have stores in the city. Also present are the largest trading companies, including Sempra Trading and Mercuria. Two of the largest inspection companies, the Société Générale de Surveillance (SGS) and Cotecna, have chosen Geneva to establish their headquarters. Finally, geology specialists, exploration companies, several shipping companies and a plethora of business lawyers complete the picture.

Of the 180 inhabitants of Geneva, between 000 and 3 work in the oil trade. Now, it is estimated that a third of crude oil exchanges pass through the city at the end of Lake Geneva; about $ 000 billion is traded there each year. If London remains at the head of trading (buy and sell), Geneva, which follows closely, has made a specialty of financing petroleum activities, that is to say, hedging the risks linked to this trade .

Three assets: discretion, taxation and international organizations


To explain this enthusiasm for the Geneva market, Conrad Gerber, president of the consulting company Petro-Logistics, quotes the reputation of financial institutions, the inimitable Swiss discretion, its banking secrecy and the good quality of infrastructures. In addition, the existence in Geneva of numerous international organizations and in particular those related to trade (World Trade Organization-WTO, United Nations Conference on Trade and Development-UNCT) attracts in the city a multitude of specialists and potential interlocutors. The small size of the city also facilitates informal meetings: sometimes you only have to cross a few meters to get in touch with a business partner.


Gati al-Jebouri is director of Litasco. In Geneva, he appreciates "the particularly advantageous fiscal arrangements that Switzerland practices on foreign companies and the possibility of negotiating with the authorities". According to estimates by a specialist, the corporate tax rate is around 10% in Geneva, while it reaches almost 25% in London. It is also the Swiss know-how and flexibility that the actors refer to to explain their choice: for Jacques-Olivier Thomann, global head of financing the trade in raw materials at BNP Paribas, the long tradition of French-speaking Switzerland in the trade in raw materials, which dates back to the beginning of the XNUMXth century, today gives specialists control of this environment. New financial instruments have followed developments in this market.


Finally, a few years ago, the United Nations 'Oil-for-Food' program for Iraq brought to life new intermediaries who chose Geneva as their residence.


On September 28, 17 companies active in Geneva in the trade of raw materials decided to join together in the Association of trading and chartering. Chaired by Jacques-Olivier Thomann, the new organization - to which Litasco, UBS, SGS, BNP Paribas Switzerland or Cargill
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freddau
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by freddau » 03/11/06, 16:14

From the deposit to the motorist, petroleum follows a complex course and feeds a long economic and financial chain, which passes several times through Switzerland.


In a Haute-Savoie service station, a woman has just refueled for the week. She puts thirty euros on the counter. In October, it takes an average of 1 to 1,20 euros in France for a liter of fuel. The geopolitics, the climate, the scarcity of deposits and especially the speculation determining the very volatile price of gasoline. In this fluctuating universe, countless players have specialized in a particularly lucrative business. From the deposits to the motorist-consumer, the path to black gold is winding. Let’s unroll the thread.

Exploration and control

The Swedish company Lundin settled in Geneva forty years ago. It focuses on exploration and production and is therefore one of the first links in the chain. It is in the upstream, upstream of the petroleum activity. In contrast, the downstream integrates storage, refining and then distribution. It is in Venezuela, in Sudan, in Norway, in Nigeria or in Great Britain that Lundin sends his geologists to observe the rocks.

Once the deposits are discovered, then the crude extracted, it is necessary to organize its sale. This is where traders come in, from London or Geneva. Subsidiaries of large oil groups or independent companies, they buy cargoes and resell them at the best time and at the best price to supply the refineries.

Unknown destination

Transport is done either by land through oil pipelines, or by sea. At the time of loading, the companies of inspection and control of the goods enter the scene. The Société Générale de Surveillance (SGS), which has its headquarters in Geneva, is the most renowned of its kind.

Like other volatile-priced raw materials, the final destination of a shipment of crude is not always known at the start of the journey. The sale of the cargo is fixed as late as possible and contracts are often concluded while the tanker is already at sea. Thus, traders, especially those of shipping companies, such as Mediterranean Shipping or Riverlake, try to maximize their gains in selling cargoes under their responsibility at the last minute. Sometimes, to supply a refinery short of raw material, an oil tanker changes course en route, even owner. The crude finally reaches refineries where it will be transformed into petrol, kerosene or other fuel oil. After storage, the sale of finished products will again be negotiated by traders according to the needs of the markets.

In the price of crude oil, traders and their perception of the market play a central role: speculation, ie the anticipation of an increase in the value of crude oil, often leading to a real increase. Thus, over the past two months, oil has lost some 10% of its value, without any objective criteria (geopolitics or climate) having varied.

It was the liberalization of crude oil prices after the oil shock of 1973 that made many trading companies flourish. Even the big oil companies - notably the five majors (BP, Chevron Texaco, Total, Shell, Exxon Mobil) which have specialists at all levels of the chain, from extraction to final sale - regularly use traders outsiders who have developed specific skills or deal with countries that are beyond their reach.

$ 100 million cargo

From the deposit to the pump, it is necessary to finance oil, which a company can hardly do alone. The banks then enter the track. "A cargo can cost nearly $ 100 million, including freight and insurance," says Jacques-Olivier Thomann of BNP Paribas. "Consequently, we must most of the time secure our financing with petroleum itself and enter what we call transactional, reverse liquidity financing", explains the specialist, the reimbursement of the facilities then being effected by the resale of the goods funded.

Place de Genève has made transactional financing its specialty and provides 80% of it worldwide. It is from here that Crédit Agricole also entered the market, placing its center for the financing of raw materials in the city. Managing director of the commercial bank, Pierre Glauser points out that privatizations in Russia and the arrival of emerging countries have developed new financing needs.

BNP Paribas and Crédit Agricole therefore embarked on new types of medium-term loans. “Initially, the emerging countries wanted financial assistance for their exports in the short term. From now on, we are present at the various stages of production, we sometimes even finance the construction of petroleum terminals or petroleum reserves before their extraction, ”says Jacques-Olivier Thomann.

The current high price of oil has not fundamentally changed the work of these players, but has favored the big banks, which are able to react very quickly. On the traders' side, we regret that the soaring prices "allow the banks to dictate their conditions, reduce our flexibility and tend to make small structures disappear", as a trader notes.
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by Christophe » 03/11/06, 17:21

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