THE TANKER MARKET WHERE IT IS IN 2018; WHERE IT COULD BE IN 2020 & WHERE IT SHOULD BE IN 2050 How the tanker market could develop over the next couple of years and a few thoughts about how it should be developing once it starts focusing on meeting the IMO s 2050 Vision for Greenhouse Gas Emissions (GHG) Martin Stopford Non-Exec President, Clarkson Research 26-Nov-18 Climate change: four responses to IMO's maritime challenge 1
1: QUICK OVERVIEW OF MAIN CONCLUSIONS What can we learn about GHG reduction from the sulphur cap? Tanker index $12,994/day in last 12 months 48% below trend World industry cycle hovering at peak 3.3% pa Oil imports (ton-miles) grew 4.6% in 2017, down to 2.4% in 2018 Asset values pretty sluggish, newbuildings up a bit. China oil imports growing.5 mb pd but variable between years Tanker contracting 40 m dwt to end September Deliveries 30 m dwt in 2018, and 30.4 m dwt in 2019. Demolition 28 m dwt in 2018, but now fading - 11 m dwt in 2019? Fleet growth 2018 0.7%, but 3.2% expected in 2019 Little underlying market strength
PART 1: WHERE THE TANKER MARKET IS TODAY
Tanker market about 48% below 7 year trend Chart shows average earnings in last 12 months as a % of average earnings in last 7 years Nov 2011 to Oct 2018) Bulk carriers are above the 7 year trend (but it was an easy target to beat) Tankers below trend Gas market now well below trend Container Gas Offshore Chemical Tanker Handymax Panamax Capesize Cl Prod Aframax Suezmax VLCC 1990s Containers 40% Gas -36% Offshore -36% Chemical -21% Tankers -48% below trend Bulkers 26% above trend -100% -50% 0% 50% 100% Data to 2nd November 2018
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Average daily spot earnings over last 3 months Tanker market just passed a 25 year low. 1990 mini boom 1997 mini boom 2000 mini boom 2003-7 super boom starts 2003-7 super boom ends 2015 mini boom starts 25 year low $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 Average earnings 1990-2018 $29,156/day $20,000 $10,000 $0 Spot earnings for all oil tankers (VL, Suez, Aframax, MR) 1990-2018 (average over last 3 months)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Crude tanker spot earnings last 12 months Products tanker 12 month earnings Similar crude & products tanker earnings cycles 1990-2018 (products on right AXIS) $80,000 35,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 Crude tankers Products tankers 12 month av (in arrears) Average earning 1990-2018 Crude Tanker - $29,156 Products Tanker - $14,768 30,000 25,000 20,000 15,000 10,000 $10,000 $0 The freight earnings 1990-2018 (average over last 12 months) 5,000 0
Tanker second hand price index Feb 1992=100 Tanker 2nd hand price index not much asset play 250 200 150 1980 micro boom starts 1990 mini boom 2000 mini boom 1997 mini boom 2004-7 super- boom 2015 miniboom 100 1983-1986 distress prices 50 0 jan '18 Jan '16 Jan '14 Jan '12 Jan '10 Jan '08 Jan '06 Jan-04 Jan-02 Jan-00 Jan-98 Jan '96 Jan-94 Jan-92 Jan-90 Jan-88 Jan-86 Jan-84 Jan-82 Jan-80 Jan-78 Jan-76
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $000 PER DAY Bunker cost $ TC rate Since 2008 daily bunkers cost more than the ship Based on Aframax tanker, 1 year TC rate and bunker cost at 50 TPD, 14.5 KTS, Rotterdam 380cst 40,000 TC COST OF THE 35,000 AFRAMAX WAY ABOVE COST OF 30,000 BUNKERS Aframax 1 year 25,000 timecharter rate in $/day 20,000 15,000 10,000 5,000 0 5,098 4,062 4,171 3,337 4,201 4,796 5,286 4,792 3,381 4,670 6,922 5,872 6,684 7,643 7,763 11,699 14,652 17,253 23,595 17,691 22,411 31,000 31,950 29,700 Bunker cost in $/day 26,650 NOW BUNKERS COST MORE THAN SHIP 13,250 10,650 15,250 18,300
PART 2: WHERE TANKER DEMAND IS HEADING
% growth per annum World Industry 1993-2018 (August) at a weak peak 1. US Financial Crisis 14 12 10 8 6 4 2 0-2 -4-6 -8-10 -12-14 1993 1994 1995 1996 2. Asia Crisis 1997 1998 1999 2000 3. Dot.com Crisis 2001 2002 2003 2004 2005 2006 4. Credit Crisis 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 5. Next crisis due 2017 2018
World oil demand growth million BPD World oil demand growing about 1.2 m bpd 5 4 Average since 1987 1.2 m BPD increase 3 2 1 0-1 -2-3 2019 2017 2015 2013 2011 2009 2007 2005 2003 2001 1999 1997 1995 1993 1991 1989 1987 1985 1983 1981 1979 1977 1975 1973 1971 1969 1967
% growth of trade in year Oil trade growth slips to 2.4% in 2018 & about 2% in 2019? 15% 10% 5% 0% -5% -10% 8.3% 7.1% 5.4% 4.9% 4.8% 6.0% 5.9% 4.5% 2.8% 1.7% 0.4% 0.6% 1.4% -0.9% -0.3% -1.8% -2.5% -3.4% -4.8% -7.6% 6.2% 5.7% 2.4% 1.7% 2% Crude tonmiles Products tonmiles 2019 (f) 2018 (f) 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 forecast
1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Products imports by region million tonnes Products import growth dominated by Non OECD 900 800 700 600 500 Europe USA Japan Non OECD countries Africa, 97 M East, 49 CIS, 15 OECD, 354 400 300 200 100 0 Asia, 475 Products Imports 2017 M Tonnes
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Oil imports M bpd China anchors Oil imports - about.5 m bpd pa but varies 10 9 8 7 6 China imports still the biggest single driving force in the crude tanker market 5 4 3 2 1 0 1.1 1.7 1.5 1.7 2.2 2.9 2.9 3.2 3.5 3.9 4.3 4.9 5.1 5.5 5.6 5.9 6.4 7.3 8.0 8.6
PART 3: IS SUPPLY/DEMAND BALANCE IN 2021 POSSIBLE?
1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Million dwt contracts & deliveries Shipbuilding contracts & deliveries 1963-2018 still pretty robust 120.0 100.0 80.0 60.0 Updated 11 Nov 2018 Deliveries Delivs Fcst Contracting Contracting collapsed after the 1973 bubble 2006 peak 93m dwt Contracting 34 m dwt in 2017 and about 24 m dwt in 2018 40.0 20.0 0.0 26/11/2018 Martin Stopford Hong Kong November 20 th 2018 16
% growth of tanker fleet (in DWT) Tanker fleet & demand growth both slowing 18% Oil Tanker Fleet (dwt) Oil demand (dwt) 13% 8% 3% -2% -7% -12% 2018 2016 2014 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 1970
1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Billion dwt supply/demand % surplus capacity at normal speed Tanker fleet balance still some surplus? 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 Bars show surplus (+) & shortage (-) capacity as % of the fleet shortage surplus Demand in billion dwt (left axis) Tanker capacity in billion dwt (left axis) shortage surplus scenario 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25%
PART 4: IS 50% LESS CARBON EMISSIONS IN 2050 POSSIBLE?
The tanker industry should be forging bonds with the energy industry, whose product it carries, to lead the shipping industry towards making IMO s vision happen. 1. IMO s vision is to reduce GHG emissions from international shipping. 2. Emissions should peak as soon as possible and fall by at least 50% by 2050 compared to 2008. 3. At the same time, the industry should pursue efforts towards phasing out GHG emissions entirely".
Million tonnes CO2e emissions Under Do nothing scenario GHG emissions could grow from 970Mt CO2 in 2008 to 3,000 Mt CO2 in 2050 3,500 3,000 2,500 2,000 1,500 Do nothing Scenario based on 3.2% cargo growth, 14 knots, produces 3,000 Mt of emissions in 2050 1,000 500 2050 Target - 2050 2048 2046 2044 2042 2040 2038 2036 2034 2032 2030 2028 2026 2024 2022 2020 2018 2016 2014 2012 2010 2008 2006 2004 2002 2000 1998 1996
26/11/2018 Martin Stopford Hong Kong November 20 th 2018 22 Four ways to get from 3,000 Mt CO2 emissions in 2050 to 470 Mt CO2 Step 1: Transport less cargo by changing trading patterns, transport policies, pricing and better information systems (36% saving) Step 2: Cut carbon emissions/ship km by slowing down to 10.1 knots; using bigger small ships; better designs; retrofitting for safe operation at slow speeds etc (40% saving) Step 3: Develop zero carbon propulsion systems. Electric fuel cells look the best bet for volume and performance (8.5% saving) Step 4: Make solutions 1-3 effective by a complete re-think of the industry s organization and personnel structures
Million tonnes CO2e emissions 26/11/2018 Martin Stopford Hong Kong November 20 th 2018 23 26-Nov-18 23 CO2 Emissions by the world cargo fleet -5 ways to cut them 3,500 3,000 2,500 2,000 Key conclusion We must start actively planning for ships to go much slower in future. And introduce hydrogen (e.g. burnt in fuel cells in internal combustion engines), as soon as possible to finish the job 2.Double ship size from 32,000 dwt to 70,000 dwt 1,500 1,000 500-1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 4. 10.1 knots, 2.2% pa cargo 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2050 IMO target 470 Mt CO2e
THE END