Oil is the largest commodity in the world, with the global crude oil market in 2022 estimated at $2.7 trillion. This trade is facilitated by both public and private entities and is dominated by traders of all types. Leading oil producers including the United States, Saudi Arabia, the United Arab Emirates, Russia and Iraq deliver oil to consumers like the European Union (EU), with a large part of Europe’s oil going through the ARA Amsterdam-Rotterdam-Antwerp) trade hub.
The ARA region is a highly interconnected network of ports and has been an energy gateway into Europe and a key player in the international oil markets for decades. ARA provides traders with time effectiveness and cost savings thanks to being home to a wide-range of well-developed infrastructure, refineries, petrochemical industry, storage and blending services and transport facilities.
The Port of Rotterdam is the primary crude oil trade hub, the Port of Antwerp hosts a sprawling chemical industry, while the Port of Amsterdam’s specialty is in logistics and blending with the port being the global hub for blending different grades of gasoline. The oil that is delivered to the Netherlands is either used domestically; refined or used in manufacturing and then exported or re-exported directly to global destinations or to the hinterland.
The manifold benefits offered by the ARA hub–flexibility, availability and diversity of products and logistics–make it an attractive investment hub for other related industries such as biofuels. The pre-existing facilities and interconnections by ARA offer significant logistical advantages for biofuels, with multiple European governments encouraging the use of biofuels or other renewable fuels for transport. Spain, Germany, France, Italy and the Netherlands are the top European producers of biofuels. Currently, crop-based biofuels represent only 4.5 percent of the EU’s transport energy mix but more than 60 percent of all renewables consumed in transport. Bioenergy currently accounts for 60% of the EU’s renewable energy production.
Overall, the Port of Rotterdam is estimated to have directly added value of 27.9 and 27.2 billion euros in 2019 and 2020, respectively, with crude and oil products worth 100-150 billion euros traded via Dutch Ports annually. Meanwhile, investments, employment and innovation in different sectors have led to the rise of the so-called ‘Rotterdam effect.’
Indeed, Rotterdam handles the largest amount of liquid bulk throughput in Europe. with small tankers able to bring Russian fuel to the Netherlands due to the shallow depth of the channel on the Baltic route from Russia to the Netherlands. But things have not always been this convenient. For a long time, large ships could only travel to Hamburg at high-tide, thereby limiting the flexibility of the port. Rotterdam, however, offers superior flexibility because it can be used as an assembly point whereby fuel is collected from multiple smaller ships then loaded on massive tankers and re-exported elsewhere.
It’s interesting to note that the ARA region is not officially recognized despite being one of the most closely integrated and well-known oil trade hubs. It’s also surprising that such a huge hub did not arise from government efforts or even purposeful spatial planning but rather grew from a spontaneous fragmented effort by mainly private entities. International corporations later opened offices, research facilities and other offices in the Netherlands and also invested in housing, schools and leisure activities.
Source: The Hague Center For Strategic Studies
ARA Becomes A Less Important Global Oil Hub
Unfortunately for the iconic oil hub, European sanctions on Russian oil are
changing oil trade routes and are likely to make the ARA hub less significant over the long-term. Before Russia’s invasion of Ukraine, Europe was Russia’s largest energy export market, with the Port of Rotterdam located in a prime position to handle, use and re-distribute large amounts of fuel.
But starting December 5, 2022, Russian crude oil is no longer acceptable in Europe while Russian oil products were banned from February 5, 2023. Crude flows to ARA have been to the largest possible extent redirected following the bans. Suddenly, the Port of Rotterdam is no longer the main recipient of Russian oil. Imports of Russian oil into Europe decreased in the second quarter of 2022 and have been replaced by increased deliveries from the U.S., Norway and Brazil. Additionally, direct trade routes from Russia to China and India as well as the enhancement of production capabilities of Middle Eastern companies will make it even harder for ARA to remain a key oil trade hub in the long-term. Further, in the short-term, gasoline trade via the Port of Amsterdam is likely to decrease significantly due to the new gasoline standards introduced in the Netherlands. Dutch companies are now required to observe stricter standards when producing and exporting gasoline.
The European diesel market is also facing challenges. Whereas Rotterdam’s complex refineries have been able to transition from processing heavy sour Russian crude to sweeter crude, replacing Russian Urals with sweeter crudes causes issues with the supply of diesel. Meanwhile, high natural gas prices in Europe especially during the early part of 2022 forced many producers to switch to diesel, further exacerbating the supply squeeze. The EU has been trying to source its diesel from India and also limited volumes from the U.S., putting pressure on their respective domestic markets. This has forced governments across Europe to increase the share of diesel in strategic reserves in expectation of the high prices in 2023.
But it’s not just Netherlands and ARA’s oil trade that are feeling the heat from Russia’s war. Being an industrial center, trade hub, logistical knot, and bunkering port, the shift from ARA is likely to have knock-on effects on the other activities by negatively impacting the flexibility of industries and increasing production prices.
On a brighter note, the Netherlands is likely to remain an important natural gas hub. After all, natural gas has become a very important energy currency in Europe after ditching Russian oil, and the Netherlands is home to the Title Transfer Facility (TTF), the largest natural gas digital trading platform in Europe.
Over the past decades, the Dutch government has made substantial investments and implemented policies that have made the country the key European hub for natural gas.
Indeed, the TTF handled more than 70% of Europe’s gas trades in 2020.
The Dutch government is also planning to expand its LNG import capacity at the Gate terminal in Rotterdam as well as the EemsEnergyTerminal thus placing the Netherlands in a pole position to also become an important LNG hub given its already extensive gas infrastructure.