Spot Market * Freight Swaps
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Transcript Spot Market * Freight Swaps
Tanker Market
Drivers, Issues and Outlook For The
Major Tanker Sectors –
VLCC, Suez, Afra, Pmx & MR
October 2012
Jerry Lichtblau
True North Chartering
Jerry Lichtblau
[email protected]
203-202-7490
Broad Theme
Impact of evolving oil demand has been joined by changing logistics of
crude supply to negatively impact tanker demand.
Increased tanker supply and shorter voyages from source to destination of
primary areas of demand growth have …
Combined with increased crude production from historic centers of demand
that remain critical for tankers due to nominal volume of oil consumed to
weaken earnings
Growth of crude supply has exceeded oil demand during 2012
Aided tanker rates pre-summer 2012; impact of Iranian sanctions and softer
Chinese demand have helped thwart any kind of post-summer recovery –
are among primary issues to monitor going forward
U.S. “new crude”, in particular, not necessarily crude of choice –
displacing some crudes while increasing demand for others
Increased attention to crude specifications as historic trade patterns impacted
Evolving demand/production has impacted product as well as crude
2
trades
Supply Picture
Past growth has been centered in Suez & Afra sectors
This year growth will be significant and/or increase its pace for VL’s &
Suez, while moderating for Aframaxes
VL’s – 2012/’13 – 106 deliveries -- 62 in 2012 & 44 in 2013
Suez – 2012/’13 – 117 deliveries -- 63 in 2012 & 54 in 2013
Afra – 2012/’13 – 83 deliveries -- 54 in 2012 & 26 in 2013
Proj. approximately 25 scrapping/removals for both VL’s and Sz in 2012
Proj. approximately 45 scrapping/removals of Afra’s in 2012
Thru September 7 VL’s, 19 Sz and 27 Afra’s have been scrapped
3
Historically VL’s have large # of “other removals” – 20 in 2011 vs. 12 scrap
Supply Picture Con’t
Growth for the Panamax sector anticipated to continue to be moderate
MR sector growth to flatten after 50% supply growth during the ‘06/’12
period
Pmx – 2012/’13 – 40 deliveries -- 22 in 2012 & 18 in 2013
MR – 2012/’13 – 156 deliveries -- 80 in 2012 & 76 in 2013
Proj. approximately 12 scrapping/removals for Panamax in 2012
Proj. approximately 40 scrapping/removals of MR’s in 2012
In 2011 there were 12 Panamaxes and 35 MR’s ≥ 35k dwt scrapped/removed
4
VLCC Environment
Shift in demand from US/Europe to China/India has augmented the
impact of supply growth since end 2007 by over 75%
This was dampened during the 1st half of 2012 by increased WAF/East
volumes and increased AG/USG due to Motiva ramp-up & increased U.S.
light sweet production –
Both moderated during the 1st part of summer – WAF/East volume returned
during September, but …
Seasonal reduction of AG exports Q3 – for regional power generation
outweighed impact of increased WAF/East activity for September cargoes
Potential for a near-term Iranian exports increase (state backed cargo insurance)
to augment increased Q4 oil supply this yr, but not near 100%
Very soft Q3 market experienced the last two years may become more
pronounced in coming years if regional demand for power requires increased
volumes of direct run crude
5
VLCC Environment
Continued
2013/2014 to be further impacted by:
Previously noted tanker supply issues - increased deliveries in 2012 and
2013 – >100+ vessels (or 18%+ Jan ‘12 fleet) scheduled between both years
2% ≥ 20 years, near 15% ≥ 15 years
Increased ESPO volumes likely to impact Chinese VL usage – slowly at
first as export ramp-up likely to be gradual – but a source for increased
Afra demand – slides 19 & 20 for further detail
Above to be countered by increased AG/USG volumes once Motiva
addition back on-line as well as incrementally higher imports due to
increased indigenous light sweet crude requiring increased heavy sour
volumes to meet target slate in USG – approx. avg API of about 27.3 and
sulfur of 1.9% -- Timing to be key regarding Q1 seasonal strength
6
Oil Demand Impact on
Tanker Market Since Financial Crisis
∆ VL Supply
Shift in demand from
US/Europe to China/India
have essentially balanced
each other nominally, but
have augmented the impact
of moderate VL supply
growth since end 2007 by
75%+ as previously noted –
supply growth had been
moderate until 2012, but
tanker demand hurt by
changing geography of oil
demand …
7
Oil Demand Impact on
Tanker Market Since Financial Crisis
∆ Oil Demand
Globally – demand grew by about 2.7 mm bpd from 2007 through the
end of 2011 and YTD 9/12 has added an additional 0.9 mm bpd
U.S., Europe, China and India -- four focal protagonists split East and
West of Suez have nearly balanced each other nominally – the rest of the
world “in-effect” providing the growth in oil demand, both occurring to
the detriment of long-haul trades …
8
Chronology of Evolving Oil
Demand’s Impact on VL Sector
A decline in VL demand of 70 – 80 tankers since the end of 2007
9
Easing Chinese Demand
Easing Chinese Crude imports – point to softening demand
Indications are September imports/demand have improved,
will need additional data points to determine if this is a revival
10
2012 WAF/East Volumes
WAF/East activity
coincided with a firm
market
September was
obvious exception –
lower AG volumes
in 3rd qtr dominate
market
Angola has been
beneficiary of
incremental growth
Future of increased 2012 volume is a question, as Sudan output returns
Continuing reduction to U.S. demand for imports of light/sweet crude
imply that if Sudan bumps Angolan exports to China - There will
likely be another surprise/revision to trade patterns as the Angolan crude
will need a destination, government budgets should resist reductions 11
to actual output regardless of quotas
U.S. AG Sourcing Vs. North
Dakota Bakken Production
Increased light/sweet
crude production has
coincided with increased
AG imports.
Hiatus likely in coming
reporting months, but
will return with Motiva
expansion
2015+ AG sourced crude will increasingly be competing with Western
Canadian sourced crude – planned pipelines will be able to deliver larger
volumes of this crude to USG region
Additionally – will need to monitor plans for refineries basis crude slates
– in order to run shale oil efficiently significant investment required –
Flint Hills refinery recently announced it will spend $250 mm to 12
better run shale oil
U.S. AG Sourcing Vs. North
Dakota Bakken Production – Con’t
Sulfur content of USG
has generally increased
and the crude has gotten
heavier as Bakken
production has grown –
The July drop in avg.
API is tied to the decline
in Iraqi imports whose
API average for U.S.
crude imports is about
30.5
13
Reduced Q 3 Flows From
AG Expected to Recover
Source: Citibank Commodity
Research
Source: Citibank Commodity
Research
AG direct crude-burn increases seasonally – a reduction in this usage
and the bullet below point to increased AG crude supply in Q4
Japan and India have worked out state-backed supplementary cargo
insurance schemes and Korea expects to increase imports going
forward
14
Suez Environment
Correlated to VLCC’s due to substitution issues, WAF market –
particularly Sz East movements and to a lesser extent AG volumes
Concerns regarding USAC refinery closures have been both alleviated
and re-born although the issues driving the re-birth are not a surprise
2 of 3 refineries to remain open, but alternative crude sourcing to temper
support for sector
Reduced U.S. crude imports has led to sector owners seeking/finding
increased diversity in demand, particularly in Caribbean, but …
2013 developments in Russian logistics likely to counter this to some
degree and weigh on sector demand
Increased Kozmino and Baltic (Ust-Luga) volumes expected to reduce
Black Sea exports which utilize Suez tonnage
Sudan production shut-in aided WAF/East market during ’12, but
pending 2013 return raises issues regarding level of Chinese imports
from WAF in coming year – to impact both Suez and VL sectors 15
Bakken Production Vs. U.S.
Nigerian Imports
Bakken, Eagle Ford,
Permian Basin & other
shale oil pushed Nigerian
crude out of USG – USAC
imports from WAF nation
to face similar competition
USAC refineries usage of
rail delivery of Bakken
crude to compete with
mainstay of Suez delivery
PBF to have as much as 140k bpd of rail delivery capability at its
Delaware City facility
Among planned investments at Philadelphia refinery by new
owners is a high speed rail unloading facility at the refinery
16
Total Chinese Crude Imports
& From Angola Specifically
Chinese imports from Angola soared
when strife between Sudan and South
Sudan effectively removed Sudan as a
reliable source of crude – with
agreement with the “South” Sudan
production expected to return in 2013
Chinese imports came off in
total & from WAF during Q3
as AG exports declined –
expect Q4 increase as AG &
global supply increase
17
Suez Supply
Largest amount of scheduled NB’s of crude carrier both in number
and percentage of fleet at 117 – over 25% of Jan ‘12 fleet
8% of beginning of 2012 fleet is ≥ 20 years of age and about 18% is
≥ 15 years of age
Scrapping through mid-year about 3% of beginning year fleet
Reality may be a little less onerous as over 40% of the scheduled
2013 NB’s are from China and may be delayed based upon recent
history
Approximately 25% of total 2012/2013 scheduled deliveries are
being built in China – majority from the Rongsheng yard
18
Aframax Environment
After years of supply pressure that had seen the fleet size grow by about
50% from 2004 to the beginning of this year, supply pressure has begun
to alleviate – growth rate expected to subside this year and 2013
scheduled deliveries are less than half that for 2012
This will coincide with increased demand as Russian export logistics
undergoes significant changes
Kozmino volumes to expand – initially believed to about 425k bpd; increased
Baltic volumes is a trend that is already visible
600k bpd Kozmino exports was original plan, but recent reports indicate
current East Siberian production is less than was expected – view is that
production will step up going forward 600k will happen (will be 25 cargoes/mth)
Two-tier market potential due to 100k MT Russian stems and relatively small
portion of fleet ≥ 110k Dwt
Anticipation of increased VLCC volumes to USG will aid regional
Aframax market that has suffered since Venezuelan exports to the
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U.S. have declined
Historical Russian Logistics &
Aframax Fleet Profile
110k+ Dwt
portion of fleet is
less than 30%, but
was utilized for
nearly 60% of
2012 Baltic
volume* 20
* As per TNC and Lloyds data
Aframax Supply
2012 scheduled deliveries are similar to 2011 amount but 2013
scheduled deliveries decline by over 55%
Scrapping through August has exceeded the 2011 total
9% of beginning of 2012 fleet is ≥ 20 years of age and about 19% is
≥ 15 years of age
For all three sectors, 2014 and beyond orderbook is negligible – the
combination of earnings and yard prices have dissuaded ordering
thus far, but if yard prices are reduced during 2013 the market could
be surprised
A non-fundamental issue to monitor going forward is the EU
implementation of regulations regarding carbon taxes that will set
limits on shipping as well as other industries – this could provide
incentive to order newer more fuel efficient vessels for all sectors –
21
may become an incentive regarding vessel ordering.
Panamax Environment
Softening Atlantic Basin fundamentals
Core demand provided by residual/fuel oil under attack on both sides of
the Atlantic
European environmental pressures felt most severely on dirtiest crude
products
U.S.
Inventories – most of 2012 below 5-yr range
Demand – 4 week rolling avg. below 5-yr range for most of 2012
Production – 4 week rolling avg. lower end of 5-yr range through 2012
Imports – total imports below 5 yr range 5 of 7 months and below or bottom
of range for 6 of 7 months on the USAC
Exports – middle or upper end of 5 yr range most of 2012
However, flexibility has made this the “Traders Sector” – increased
opaqueness of the spot market vs. similar sectors has aided earnings
Increasing utilization, particularly in Europe for the transport of 22
clean products
U.S. Residual Fuel Picture
Stocks, Demand & Production
23
U.S. Residual Fuel Picture
Imports & Exports
Other Info
USG imports
not pictured
totaled 105k
bpd in 2008
YTD 7/12
They are 43k
bpd
24
MR Environment –
Atlantic Basin
Demand began year as a three-legged entity, but has transitioned to
having a dominate single leg
European, Caribbean and U.S. sourced cargoes all provided or were
perceived as providing substantial cargo volume …
Closing/idling of Caribbean refineries and decline of European
capacity/production …
Bankruptcy of Petroplus followed 3 other earlier European refineries
closings removing near 1 mm bpd of capacity
Market has risen and fallen based upon ability of U.S. export market to
absorb tonnage
2013 expected to experience 200k+ increase in Caribbean refinery
capacity – approximately half of additions in Colombia -- exports vs.
indigenous consumption will impact market
Return of operation of Aruba or its sale &/or increased European refinery
utilization levels could provide positive surprise for 2013 market 25
U.S. Product Exports
Increasing Dominance of Caribs
YTD U.S. product exports
continue to firm, but
Caribbean sourced volumes
have declined
U.S. sourced cargoes have
more than doubled Q1 ‘11 to
Q3 ’12
Total regional declined early
2012 following refinery
closures, but Q3 activity is
within 5-7% of peak 2011
levels – however, tanker
supply has become
concentrated
26
U.S. Product Export
Development
Total product exports have
more than doubled since 2007
Diesel exports have risen over
four-fold YTD 7/12 vs. YTD
7/07
27
Preliminary 2013/’14 Outlook
Timing of Motiva ramp-up will be critical for VL sector earning in 2013
due to its potential impact on seasonally strong Q1 results and …
Due to correlation of 2 sectors this will also shape Q1 for Suez sector
Iranian sanctions could cap recovery of VL demand from AG
2 wildcards to monitor …
If U.S. allows for limited export of shale crude as a sort of “quality swap” or
similar scheme – it would increase tanker demand & the global
supply/demand imbalance – will traditional producers need to reduce supply?
Routes utilized in Aframax outlook do not fully reflect changing
Russian logistics, market to be stronger than index below –
increased Baltic rates to aid North Sea market, but reduced Black
Sea volumes expected to result in softer X-Med earnings
Longer term, the geography of new oil supply will shape the oil
movement and thereby the tanker market
The issues tied to U.S. product exports/pricing, reduced U.S. 28
distillate yields may shape the “options available” for shale oil
Preliminary 2013/’14 Outlook
Am Early Earnings View
Earnings on left do not
reflect impact of slow
steaming during last 2 yrs
and for 2013/’14
Approx. impact of
$4-$5k aid to VL’s
$3.5-$4.5k for Suez
$0.5 - $1.5k for Afra and
smaller dwt sectors
Post 2014 wider Panama
Canal will impact crude and
clean trades as Aframax &
Suezmax tonnage will have
easier USWC & Asian
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