Intertanko
Energy and Tanker Market Review
March 2005
Overview
• Energy Market Overview
• Crude Oil Supply/Demand Outlook
• Tanker Market General Market Trends
• Emerging Trade Patterns
• VLCC Analysis
• Summary/Conclusions
2
Oil Supply Summary
• Not growing fast enough to meet current and future demand
• OPEC currently producing near its maximum
• Little spare production capacity
• Supply Disruptions
• Hurricane Ivan disrupted US Gulf Coast offshore
• Strikes, insurgency in oil producing countries
• Summer crude supply reductions for Alaskan crude on USWC
3
Oil Demand Summary/Outlook
• Overall world energy demand is growing
• Oil is the largest source of energy and is projected to have highest
growth over next several decades
• Transportation fuel demand growing
• Energy demand is mostly in the industrialized nations
• Concentrated in the US, Europe, and Japan
• Developing nations have the highest growth rate in demand
• India, China
• Higher quality products required
• Low sulfur contents
4
Emerging Tanker Regulation Trends
• IMO/Marpol Single-Hull Phase-Outs
• All non-SBT vessels to be scrapped by April 2005
• All other Single-Hull vessels to be scrapped by 2010
• All Double-Sided and Double-Bottom vessels to be scrapped by their
25th Anniversaries
• These regulations are subject to enforcement by the countries
controlling the individual ports.
• IMO/Marpol Ban on Transport of Heavy Grades of Oil
5
China: The Waking Giant
Oil Production and Consumption in China
6400
000 Bpd
5200
4000
Net Im porter
2800
Net Exporter
Production
Consum ption
1600
1980
1985
1990
1995
2000
• Estimate China’s growing oil consumption has increased VLCC demand by
equivalent 31 vessels over the past 18 months
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The World Tanker Market
• Tanker owners today are enjoying record profits due to a
series of events:
•
•
•
•
Increased demand for crude oil and refined products
Robust economic growth in China, India and elsewhere
Political dynamics in key countries
Regulatory changes
• Fuel substitution is a long-term threat to traditional tanker
owners
• Natural Gas
• Coal
• Nuclear
• Shipyard capacity can lead to overbuilding – depressing
rates for years to come
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Tanker Market Summary
10 YEAR AVG
12 MONTH AVG
% CHANGE
VLCC (AG-USG)
$34,658
$68,647
+ 98.1 %
SUEZMAX (WAF-USG)
$30,127
$57,345
+ 90.3 %
AFRAMAX (CAR-USG)$21,962
PANAMAX (CAR-USAC)
•
$34,873
$19,234
+ 58.8 %
$29,857
+ 55.2 %
Vessel spot market earnings the past 12 months have been considerably
higher than long-term historical averages
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Evolving Trading Patterns: Yesterday
December 1989 VLCC Movements
2
1
3
5
1
3
21
21
2
64
2
4
10
2
8
• VLCC trade depended heavily on AG crude exports 15 years ago
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Today’s question:
What’s a backhaul cargo?
February 2005 VLCC Movements
1
6
1
1
2
3
3
2
1
3
1
1
18
12
3
23
76
1
10
134
2
5
8
38
1
4
4
3
9
8
1
1
• Today the VLCC crude trade patterns are larger, more diverse and require a global
operation to support activities
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Tanker Rates vs. OPEC Production
OPEC Production Through February 2005
330
33,000
300
32,000
270
31,000
240
30,000
210
180
28,000
150
000 BPD
WS
29,000
27,000
120
26,000
90
25,000
60
AG - Far East
30
24,000
OPEC Production
0
Jan-97
•
23,000
Jul-98
Jan-00
Jul-01
Jan-03
Jul-04
VLCC rates and OPEC production closely tied and both vary widely. EIA data shows that
current worldwide crude demand of 85 mbpd is up 6.0 mbpd from 18 months ago
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Monthly Average AG VLCC Spot Market Liftings
120
Average Fixtures
100
80
60
40
20
0
2002
2003
2004
YTD 2005
• Estimate that overall VLCC demand is up 75 ships from 2002 levels. The AG is
providing about 70% of the demand increase with West Africa the balance
12
VLCC Spot vs. Timecharter
$/Day
210,000
Jan 2000 - Feb 2005 Averages
180,000
$38,563 : Time Charter - 1 Year
$34,627 : Time Charter - 3 Year
$47,015 : 260 kt AG - Far East (TCE)
150,000
120,000
90,000
60,000
30,000
0
Jan-00
Jan-01
Time Charter - 1 Year
•
Jan-02
Jan-03
Time Charter - 3 Year
Jan-04
Jan-05
AG - Far East (TCE)
Depending on timing, the average spot market rate has been a more expensive option
for owners over the past five years
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280kt AG-USG VLCC Cost per Barrel
$/BBL
VLCC - AG/USG 280kt
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
4.6%
2002
6.9%
8.3%
2003
2004
7.9%
Current
•VLCCs are currently almost three times more expensive per barrel now versus 2002
averages.
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AGE PROFILE V/ULCC FLEET
443 Vessels as of February 2005
>20 = 2%
10-20 = 42%
<10 = 56%
1979
1984
1988
1992
1996
2000
2004
Year Built
15
45
40
35
30
25
20
15
10
5
0
2008
- Significant number of
deliveries (170) over
past 4 years has led to a
fairly modern fleet
- Similar number of
removals over past 4
years (175) has kept
fleet size roughly equal
- Only 11 vessels are
more than 20 years old
VLCC Market Summary
•
Increased crude demand and more complex trading patterns have increased
overall VLCC demand
•
•
Fleet supply has been steady for the past four years with scrapping roughly equal
to delivery.
•
•
Fleet has been just barely able to meet significant increase in demand in past 18
months.
Sizable orderbook:
•
•
•
China, India and US will remain key to demand growth
2005-2008 – The fleet will begin to increase as limited number of vessels to scrap
But 2010 phase-out schedule suggests that more vessels will be needed
Most analysts are bullish on the tanker market in the short-run
•
Market participants that have taken long positions over the past 18 months have been
correct
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Long-Term Tanker Market Outlook
•
Despite some expected new locations for crude sources, the major trading
patterns for crude oil are unlikely to change much in the next 10 years
•
Impact of new refinery capacity can have unintended consequences on the
tanker market:
• For example, India is now a major importer of crude instead of refined
products
•
Fuel substitution is a long-term threat to traditional tanker owners
• Natural Gas
• Coal
• Nuclear
•
Shipyard capacity can lead to overbuilding – depressing rates for years to
come
17
Poten & Partners
New York ● London ● Perth
Athens ● Houston
WWW.POTEN.COM
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