The International Oil and Tanker Market
Intertanko North American Panel Meeting
March 21, 2016
Presentation Overview
Page 2
• Medium Term Oil & Tanker Market Outlook
• Floating Storage – A tanker wildcard
• The Force Awakens – The impact of U.S. crude oil exports
• Iran is back! – What are the implications?
• The Expanded Panama Canal – Game changer or non-event?
Medium Term Oil & Tanker Market Outlook
The American Shale Oil Boom
Page 4
Source: EIA
Source: EIA
The Dramatic Decline In U.S. Seaborne
Crude Oil Imports
Page 5
Source: EIA
Asia Continues To Be The Engine Of
Global Oil Demand Growth
Page 6
Global Oil Demand Growth, by Region, 2001 - 21
Source: IEA
Source: IEA
OECD Americas Will Drive Non-OPEC
Supply Growth
Page 7
IEA – Medium-Term Oil Market Report 2016
Global Oil Markets May Not
Rebalance Until 2017
Page 8
Global Oil Balance Base Case (2004 – 2021)
IEA – Medium-Term Oil Market Report 2016
Global Ton Mile Oil Demand Growth Is
Decelerating
Page 9
Import Region
OECD Americas
OECD Europe
OECD Asia/Oceania
China
Other Asia
Trade in Mb/d
2015
2021 Change
3.9
3.5
-0.4
9.6
8.8
-0.8
5.8
4.6
-1.2
6.6
8.4
+1.8
7.1
8.4
+1.3
33.0
33.7
+0.7
2.1%
Trade in Ton Miles (Bln)
2015
2021 Change
1,251
1,139 -112.1
2,070
1,927 -142.5
1,741
1,395 -346.7
2,196
2,711 +514.2
1,005
1,183 +178.3
8,264
8,355
+91.1
1.1%
Source: IEA
Growing Global Refining Capacity
Supports Crude And Product Trade
Page 10
• Global refining capacity is forecast to increase
by 7.7 Mb/d to 104.9 Mb/d in 2021
Change in Refining Capacity 2016-2021
– Over 90% of net expansions come from non-OECD
• Capacity in the Middle East will increase by 2.3
Mb/d
– Focused on product exports
• China will remain a large contributor to growth
adding 2.2 Mb/d
– Focused on satisfying domestic demand
– China has become a net product exporter in 2015
• OECD countries will only add a net 0.6 mb/d
over the period:
Source: IEA
Change in Regional Demand and Refining Capacity
(2015-2021)
– OECD Americas: +0.8 Mb/d
– OECD Europe: -0.04 Mb/d
– OECD Asia Oceania: -0.3 Mb/d
• Global refinery margins will come under
renewed pressure as a result of the growing
surplus after strong gasoline demand growth
pushed margins up in recent quarters
Source: IEA
Regional Oil Product Balances 2015 - 2021
Page 11
Regional Refinery Developments: Capacity and Runs (Mb/d)
Gasoline / Naphtha (Kb/d)
Gasoil / Kerosene (Kb/d)
Fuel Oil (Kb/d)
Some Medium to Long Term Demand Drivers
Are Supportive – Vessel Supply A Concern
Page 12
•
Market share fight between OPEC and non-OPEC has been good for the tanker market
–
•
The lifting of the U.S. crude oil export ban could be a game-changer in the medium to long-term
–
•
U.S. shale oil producers could become the world’s swing suppliers
However, expectations for a boost in the short-term are muted
Return of Iran to the world markets will further boost OPEC oil exports
–
Overall impact on tanker market depends on export destinations and the utilization of Iran’s controlled fleet
•
The crude oil and product tanker markets could face rate pressure when oil markets start destocking in
2017/2018
•
Longer term (2018-2020 and beyond), there could be opportunities for long-haul crude oil exports from
Canada if export pipelines come on-stream
•
Contracting has increased and deliveries will likely lead to more fleet growth from second half 2016
onwards
•
The product tanker market is supported by global economic expansion and the trend towards building
large export oriented refineries which leads to more long-haul refined product movements
Stock Building – A Tanker Wildcard
How And When Will The Current Oil
Surplus Be Resolved?
Page 14
Oil Demand
?
OPEC
Non-OPEC
WILDCARD: INVENTORIES
Crude Oil Production Has Been Expanding
Worldwide
Page 15
OPEC
Non-OPEC
Oversupply of Crude Oil Has Increased
Crude Oil Stocks Worldwide
Page 16
OECD
• Among analysts, there is consensus that the oil market was
oversupplied in 2015 and early 2016. Forecasts range from
0.7 mb/d to 1.9 mb/d
• Contango inspired floating storage is not (yet) occurring in
large volumes
– There is still (some) land-based storage available
– Contango is not wide enough to make it profitable
• However, there are logistical bottlenecks at key terminals.
Inventory levels are testing storage capacity limits. This
causes significant delays in certain discharge regions,
creating de-facto floating storage
The Force Awakens – The Impact Of U.S.
Crude Oil Exports
Lifting The U.S. Crude Oil Export Ban
Could Be A Game Changer
Page 18
•
On Friday, December 18, 2015, President Obama signed a $1.8 trillion spending package into
law, ending the 40-year-old ban on crude oil exports
•
A number of export cargoes have already been shipped out of the U.S. Gulf: several to Europe,
at least one to Venezuela and one or two (test) cargoes to Asia (China and Japan)
–
•
The volumes and destinations of future exports will depend on different factors:
–
–
–
•
Future U.S. production
World oil markets
U.S. export infrastructure
Over the medium to long-term, prospects for increased U.S. crude oil exports are good,
especially if improved infrastructure allows for the use of larger vessels (Suezmax/VLCC)
–
•
All vessels so far have been Panamax and Aframax sized
Plans are being discussed to convert LOOP to an import as well as an export terminal
Relative pricing of U.S. crudes relative to other regional grades will be the most important driver
of potential exports
U.S. Crude Exports Peaked in August 2015
Page 19
Source: IEA
Convert LOOP To Enable Exports As Well
As Imports
Page 20
•
LOOP is the largest U.S. waterborne
crude receipt terminal
–
–
–
–
–
LOOP Offshore Oil Terminal & Pipeline Assets
It can accommodate up to ULCC’s
LOOP also receives crude from various offshore
U.S. Gulf fields (via pipeline)
Oil is pumped via pipeline to a storage facility at
Clovelly, 25 miles inland
Clovelly can store 68 million barrels
LOOP is connected to several refineries
•
Lousiana’s Offshore Oil Port (LOOP) could
become a Gulf Coast crude blending and
trading hub if its infrastructure is
upgraded to facilitate exports
•
LOOP could become an export terminal
for increase GOM production as well as
other domestic and Canadian crudes
•
The ability to use VLCCs will open up
Asian markets for U.S. shale or GOM
grades
Source: Shell Midstream Partners
Iran Is Back
Iranian Crude Re-enters World Markets
Page 22
• International sanctions related to Iran’s nuclear
program were lifted on January 16, 2016
Iranian Floating Storage
• Many U.S. sanctions remain in place, complicating
P&I insurance and US$ transactions (at least initially)
– Could take several months to sort out
• The Iranians have a significant fleet consisting
primarily of VLCCs
– Poten estimates that 13 of Iran’s 37 VLCCs are used
for storage (crude and condensates)
– The Iranian vessels will gradually re-enter the world
market
Source: Foresea Oil
• Iran produced about 3.6 Mb/d of crude oil in late
2011, but due to sanctions has reduced production
to about 2.9 Mb/d currently; local oil demand is
about 1.9 Mb/d
– Iran has aspirations to increase output to around 5.0
mb/d in 2020, although the IEA expects them to only
reach 3.94 mb/d by that time
• Iran aims to start selling crude again to its old
customers in Europe, but initial moves will be to
existing Asian clients (India, China and Korea)
Long Term Opportunities Outweigh Short
Term Challenges In Iran
Page 23
Short Term Challenges
– U.S. sanctions remain in place
– Threat of snap-back sanctions concern
investors
– Other oil producers have taken market share
(esp. in Europe)
– Current low oil price environment reduces
the appetite of IOC’s to invest in Iran
– The Iranian fleet has been underutilized for
several years and some of their vessels need
repairs and lack class certificates
Long Term Potential
– Iran has the world’s fourth largest proven oil
reserves
– The IEA expects Iran’s crude production
capacity to increase by 340,000 b/d and
reach 3.94 mb/d in 2021
– NITC wants to contract newbuildings to
replace ageing tankers
Iran Crude Capacity Scenarios
Source: IEA
The Expanded Panama Canal – Game
Changer or Non-Event?
Panama Canal Expansion to be Completed
mid-2016
Page 25
• Greatest impact will be on container trades
• New locks will accommodate ships of up to 366 m in
length, 49 m in width and more than 15 m in depth
• Panama Canal tolls are applied on a round-trip basis
under the Worldscale system and are for the charterer’s
account
• The new locks will be able to accommodate fully laden
Aframaxes (~95,000 MT), and partially laden Suezmaxes
(~130,000 MT)
• New locks can accommodate 12 transits per day
– Container vessels are expected to be the main users
• Tankers transiting the Canal will have
significant competition
• The Trans-Panama crude oil pipeline (600 kbd) was reversed in
2006 to flow from the Caribbean to the Pacific; this infrastructure
change had a greater impact on crude oil trade flow than the canal
expansion is likely to have
• Container vessels can “pre-book” and have priority
as they have to follow a schedule
• LNG and LPG tankers are also likely users of the
new locks, in particular since the U.S. is expected
to become a significant gas exporter
• Tankers may encounter more waiting time and
delays when transiting
• Tankers may use the new locks for movements to
the USWC. VLCC’s will be used for long-haul
movements to Asia
Final Thought
Page 26
Thank You!
Poten & Partners, Inc.
Tanker Research & Consulting
805 Third Avenue
New York, NY 10022
+1 (212) 230-2000
[email protected]