The State of the Tanker Industry

Transcription

1 Oslo IMSF May 22, 2012 The State of the Tanker Industry Erik Ranheim Senior Manager Research & Projects

2 The Common Law of Business Balance It s unwise to pay too much, but it s worse to pay too little. When you pay too much, you lose a little money that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot it can t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better. John Ruskin (

3 Sustainability Environment Transparency Responsibility Accountability

4 Tankers serve the oil industry Fixed line telec. Food producers Retailers Mining FT 100 Chevron General Electric China Mobile Shell Market value ($m) 10 largest March 2012 Beverages IT Technology Pharmac. Banks Oil & Gas I&C Bank of China IBM Microsoft PetroChina Exxon Mobil Apple 0,0 0,5 1,0 1,5 2,0 2, bn market value $bn

5 Safety & the environment

6 Tanker incidents - all tanker types and sizes Number incidents ,000 ts oil spilt Miscellaneous Fire/Expl Hull & Machinery Grounded Coll/Contact Oil pollution is a projection based on 142 days Source: INTERTANKO, based on incident reports from LMIU and pollution figures from ITOPF Accidental oil pollution from tankers was record low in 2011 and again in 2012

7 Safety Number reported fatalities Accident rate highest for highest for ships built in 2000s, lowest for pre 1980s built tankers Accident rate highest for tankers 10-29,000 dwt, lowest for the VLCCs Engine failure the biggest hull & machinery type of incidents (many un-reported?) Reduced pollution to a little extent related to double hulls

8 The environment Emission from shipping is dirty and harmful for the health and the environment MARPOL Annex Vi - sox/nox GHGs emission from shipping is not directly regulated under the Kyoto protocol EEDI SEEMP MBMs Ballast water

9 Tanker market

10 Tanker market index $ 1,000 per day Weighted by dwt 10 0 YtD Source: RS Platou

11 World GDP. Oil demand and seaborne trade growth % growth 15 GDP 10 Oil demand Tonne miles

12 World GDP. Oil demand and seaborne trade growth 24 mbd bn tonne-miles Middle East Oil Prod mbd Tonne miles Asia 50% dependent on Middle East Europe 18% US 17%

13 World increase in oil demand China, Middle East, USA, ROW* and increase in world bio-fuel production mbd 3,0 2,6 2,2 1,8 1,4 1,0 0,6 0,2-0,2-0,6-1,0-1,4-1,8 Main Changes: Area mbd Other Asia: 0.24 L America: 0.17 Africa: 0.16 FSU 0.13 Mexico/Canada Europe Middle East 0.21 USA Rest of world* USA China 0.36 Middle East China Others: 0.06 World Biofuels demand Total ,2-2,6 Source: INTERTANKO/IEA

14 Oil import to selected areas mbd USA down 1.0 mbd since 2007 (peak) Europe* down 1.2 mbd since 2003 OECD Asia** down 0.7 mbd since 2000 China up 2.7 mbd since 2000 * includes intra European import ** Japan/Korea

15 jan.83 des.83 nov.84 okt.85 sep.86 aug.87 jul.88 jun.89 mai.90 apr.91 mar.92 feb.93 jan.94 des.94 nov.95 okt.96 sep.97 aug.98 jul.99 jun.00 mai.01 apr.02 mar.03 feb.04 jan.05 des.05 nov.06 okt.07 sep.08 aug.09 jul.10 jun.11 US net crude oil import and production Jan 83 - Feb 12 mbd Production Net crude import 2 0 N American oil production +1.1 mbd demand declined 0.5 mbd

16 Oil price and freight rate mbd 120 Nominal price Arab Light Real price Arab Light 100 Nominal freight rate AG-West Real freight rate AG-West 80 Deflated by the Consumer Price Index (USD) CPI* index = % 16.5% 31,8% 8.5% 7.3% 4.8% 3.8%

17 Oil market highlights Arab light oil price $20.0 per barrel $73.0 per barrel 18 May $105.0 per barrel Energy efficiency measures accelerated Oil is in the process of losing its almost total domination as a transportation fuel The US oil import the lowest since 1998 China s growth rate curbed New Middle East export refineries New Abu Dhabi oil pipeline by-pass Hormuz Increased dependency on the Middle East Strong stock building beginning 2012 Tension in the market Iranian sanctions Still positive growth? and

18 Tanker Supply

19 Projected Tanker Fleet Development m dwt 545 number dwt Number

20 Tanker deliveries and removals m dwt SH phase out 35 Scrapping/ conversion 15 Delveries Balance deliveries - deletions -5 Assumed removal of double hull year

21 Tanker phase out, deliveries, scrapping tankers 10,000 dwt + balance(surplus) assuming various demand increases m dwt 75 Assumed market balance end 2008 Last phase out % growth in % growth in % growth in 2011 Deletions Delveries Surplus zero trade growth Surplus 2.5% trade growth Surplus 4% trade growth 0 Surplus 6% trade growth Assumed removal DH tankers year

22 Q12 Tanker contracting by segment in bn USD and m dwt $ bn m dwt Handy Aframaxes Suezmaxes VLCCs m dwt 51 m dwt Source: Clarkson/SIW

23 Average age tanker fleet Years

24 Tanker trends - fleet, VLCC price, oil demand, and tonne-miles indices Oil demand index Tonne miles crude tanker index Tanker fleet index VLCC price index

25 Economics changed

26 Historical VLCC hire and bunker costs 100 % 90 % 80 % 70 % 60 % Bunker 50 % 40 % 30 % 20 % TC hire (+port costs) 10 % 0 %

27 Bunker price Fujairah and basis bunker price WS 380 Cst $/tonne cst Fujairah Annual average Fujairah WS basis

28 High fuel oil price change economics in shipping The combination of low freight rates and high fuel prices since 1973 has made it abundantly clear that one can no longer assume constant vessel speed when analysing shipping markets. Professor Victor Normann/Research Associate Tor Wergeland - Norwegian School of Economics 1977.

29 High fuel oil price change economics in shipping Real fuel prices virtually all time high Fuel costs increased from 20% of freight to 70% of freight in 20 years Reduced speed periodically equilibrate the VLCC market Optimum speed for each ship depend only on the ratio of the freight rate to the price of fuel Consumption profile can vary strongly from ship to ship High pressure on the industry to reduce CO2 emission High oil prices has a negative effect on demand

30 Conclusion

31 Strategic consideration World economy, The risks remain high - the situation fragile IMF boss Ms. Lagarde High oil prices despite weakening demand High bunker prices change economics in shipping Age >15 years becoming an issue Will energy efficiency create multi-tier market EEDI -10% 1 Jan 2015 / -20% 1 Jan 2020 / -30% 1 Jan 2025 Shipbuilding over-capacity - - further pressure on prices Oil demand North America retracting/asia expanding Some risks and opportunities cannot easily neither be quantified nor identified - markets are never completely rational nor efficient success requires the use of sound reasoning and trusting your gut feeling The only predictable thing about futures Leading tanker the way; making a difference market is its unpredictability

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33 Indicative tanker freight rates $/day VLCC AG-Japan, 250,000 ts Aframax N Sea-UKCont, 80,000 ts Suezmax Wafr-US 130,000 ts Product Caribs-US, 38,000 ts

34 Middle East oil production mbd OPEC production Mar mbd OPEC production sustainable production capacity: mbd OPEC spare production capacity Feb mbd Of which Saudi Arabia spare production capacity 1.88 mbd, Nigeria 2 nd biggest 0.50 mbd jan.10 apr.10 jul.10 okt.10 jan.11 apr.11 jul.11 okt.11 jan.12

35 World oil demand 2012 mbd Mexico OECD 20 Canada 15 62% China 10 29% 5 USA 25% Other 0 N America Europe Asia/Pacific Middle East Latin America FSU Africa 27.3% 16.5% 31,8% 8.5% 7.3% 4.8% 3.8%

36 Ship deliveries - m cgt m cgt 50,0 40,0 S Korea China Japan Europe Others 30,0 20,0 10,0 0, Source: Clarkson World Shipyard Monitor Aerage 30 m cgt

37 US product import and export mbd 4,0 3,5 3,0 2,5 2,0 1,5 Export Import 1,0 0,5 0, Trade: mbd mbd mbd

38 m12 VLCC - 15 years old and scrap value m $ Source: Clarkson/SIW

39 Contracting by Country/Region (all types of ships) m cgt contracting cgt 100 Japan Contracting by Country/Region (all types of ships) South Korea $ m Afra price $ m price 75 P.R.China Europe 80 Others Aframax NB price Est12 0 Average 18 m cgt Average 58 m cgt Average 30 m cgt

40 Deliveries by Country/Region (all types of ships) m cgt contracting Others max Europe max China max S Korea max Japan max Average 18.3 m cgt Average 38.8 m cgt 13.6 m cgt

41 Worldscale A chartering tool

42 Purpose of Worldscale To enable a tanker to obtain the same net return per day at the same WS percentage regardless of the voyage actually undertaken.

43 Why use a freight scale? Ease of conducting business Standard of reference Faster response to quotations Facilitates competition Geographical options included

44 Freight Scales History Originally, tanker fixtures had several pages of freight rates covering many optional ports Freight scales developed by UK and US government during World War II Basic principle: owners should receive the same net daily revenue irrespective of voyage performed

45 WS Organisation Produced by two non-profit making organisations in London/New York aiming at independence from external bias and narrow market views Financed on subscription basis Boards, major shipbrokers in London and New York

46 WS Basic An Index of Reference Rates with common calculation factors Flat rate expressed in USD per tonne of cargo carried Market rates are expressed as a percentage of the published flat rates Amended yearly for changes to bunker prices, port charges and exchange rates Issued early January WS book contains 73,000 rates, web-site has over 500,000 rates Further rates available from the WS Associations Rates for particular ports may be corrected over the year if substantial changes WS circular issued Available on annual subscription basis only

47 WS Basis for calculation Tanker size 75,000 dwt Average speed 14.5 knots Bunker consumption Steaming 55 ts per day 100 ts per round voyage for other than steaming 5 ts for each port Port time, 4 days from one loading to one discharge port, +12 per extra port Fixed hire element: $12,000 per day Bunker price 380 cst ( per tonne 2012) Ports costs based on specific exchange rates Canal transit times: 24 hours for Panama Canal 30 hours for Suez Canal

48 Conclusion China still the driving force Scrapping of first generation of double hull tankers started Age becoming an issue Shipbuilding over-capacity, but perhaps also Limited access to capital Some risks and opportunities cannot easily neither be quantified nor identified - markets are never completely rational nor efficient success requires the use of sound reasoning and trusting your gut feeling Global economy is certainly not yet in rude health. In Ms Lagarde s words: The risks remain high; the situation fragile. The only predictable thing about futures tanker market is its unpredictability

49 Core activities 2006/2007 US oil import peak 13.7 mbd mbd Safety/technical Security/piracy Regulatory/Legal Tanker Information

50 Oil import to selected areas mbd USA down 1.0 mbd since 2007 (peak) 4 2 Europe* down 1.2 mbd since 2003 OECD Asia** down 0.7 mbd since 2000 China up 2.7 mbd since 2000 * includes intra European import ** Japan/Korea

51 Tanker contracting by segment - m dwt 85 7% increase in the tanker fleet Record ordering $64 bn/69 m dwt Iran used tankers for temporary floating storage Start of slow steaming Handy Aframaxes Suezmaxes VLCCs m dwt m dwt Peak US oil import Record ordering Hebei Spirit accident 7 December 2007: charterers reluctant to take SH tankers Total US oil import - crude and products - mbd

52 2008 Oil price peaks July 3, 2008, at $145.3/bbl Primo 2008, low oil stocks, 8 m dwt tankers sold for conversion 4 m scrapped Tanker contracting by segment - m dwt 2009 Deliveries of tankers 10-6,000 dwt peak at 11 m dwt Storage on tankers peak Dec at 154 m barrels Total US oil import - crude and products - mbd

53 2010 Strong reduction in floating storage Many tankers sold for conversion 8 m dwt sold for conversion 4 m scrapped Tanker contracting by segment - m dwt 2011 Deliveries of tankers 10-60,000 dwt peak at 11 m dwt Storage on tankers peak Dec at 154 m barrels Total US oil import - crude and products - mbd