LONDON, Oct 4 (Reuters Breakingviews) - Mohammed bin Zayed al-Nahyan may be about to deploy his fossil fuel windfall. The Abu Dhabi National Oil Company (ADNOC), one of the United Arab Emirates president’s crown jewels, is pondering a swoop for Geneva-based Gunvor, the privately held commodities trader. “MbZ” is right to express interest.

Buying trading businesses carries the risk that its main assets – its people – walk out the door. Until 2014 Gunvor was also majority-owned by Gennady Timchenko, sanctioned by the United States for his links to Russian President Vladimir Putin. While Swede Torbjorn Tornqvist bought his stake and runs the company, the history might make some Western buyers hesitate.

Yet the UAE is less constrained than Western groups. It has a neutral stance on Ukraine. Prior to the war, Gunvor only sourced about 10% of commodities from Russia, and says it has now ended trading with relevant Russian counterparties.

Moreover, Tornqvist has something MbZ wants. With 2.7 million daily traded barrels, Gunvor has under a quarter of Shell (SHEL.L) and BP’s volumes, and is smaller than Trafigura or Vitol. Yet it’s one of the biggest traders of liquefied natural gas (LNG), a market Abu Dhabi covets as Europe strives to replace Russian energy. With the UAE set to more than double annual LNG export capacity to over 15 million tonnes, it could use a roster of customers to accompany symbolic yet limited supply deals with the likes of Germany.

Valuing Gunvor involves guesswork. Oil majors jumble their trading arms with other business lines, masking how lucrative they are. But Bernstein reckons Shell could make $15 billion of EBITDA in 2022, and $12 billion in less exceptional years. Even on the lowball 2.4 times 2022 EBITDA at which the wider group trades, Shell’s trading arm would be worth nearly $30 billion.

Gunvor doesn’t disclose EBITDA, but trades roughly a fifth of Shell’s volumes. Assuming it was worth a fifth of that unit's hypothetical value, then it could fetch at least $6 billion. And that may be an underestimate. ADNOC’s Saudi rival Aramco (2222.SE) has been touting its own trading operation for $30 billion, even though its daily traded volumes are less than 5 million barrels.

Even $6 billion is a large outlay. Yet the UAE alone is likely to make $125 billion in 2022 through oil and gas sales, almost triple its takings in 2020. Given the strategic logic, MbZ may view this as money well spent.

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CONTEXT NEWS

The Abu Dhabi National Oil Company (ADNOC) is in early stage talks to acquire or take a stake in energy trader Gunvor Group, a source with direct knowledge of the matter told Reuters in a piece published on Sept. 21.

Gunvor and ADNOC declined to comment. In March, Gunvor co-founder and Chief Executive Torbjorn Tornqvist said he was looking for partners to help expand the business and inject capital.

Tornqvist is the majority owner of the firm that posted a record profit in 2021 as well as in the first half of this year.

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