update NewS from dNv to the tANker INduStry No 02 2011 - Hays

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What have we learnt from history?What have we learntfrom history?They say “…you never know where you’re going until you know whereyou’ve come from…”. Everybody seems to know that, yet it is difficult tosee that the oil tanker market may have learnt much from history.Text: Jakub Walenkiewicz, DNVThere is an undeniable parallel betweentoday’s scenario and the problems thatoccurred back in the 1970s, and thisgreatly troubles ship owners. Issues suchas freight rates below operational costs,plummeting asset values and weak demandall paint a gloomy picture of the future. Sowhat went wrong?Back in the 1970s, the Suez Canal closurecombined with rapid growth in UScrude imports initiated growth of 300% inthe oil tanker fleet in just five years (almostentirely due to VLCCs and ULCCs). However,these market conditions did not lastlong as the Canal was re-opened in 1975and, coincidently, US imports started todecline at the same time, leaving vast tonnagewithout employment. Consequently,the fleet shrank drastically and 28 yearspassed before it reached the same volumeas in 1976.In 2002, the fleet development pickedup momentum again. The shippingboom pushed the tanker order book tonearly 180 million DWT and subsequently›› Jakub Walenkiewicz, Senior Market Analystaccelerated the fleet’s growth to over 8%per annum. This time, the sentiment wasmainly fuelled by globalisation and therapid expansion of developing economiessuch as the BRIC countries. There werealso more pragmatic reasons, such as thenecessity of replacing single-hull tonnage.Interestingly enough, even the almost fivefoldincrease in the oil price did not manageto affect the growing demand for oil.When the market crashed in 2008, itbecame clear that the fundamentals werenot as strong as predicted. Oil consumptionis still increasing by around 1% p.a.and is currently at 89.2 mbd (IEA) p.a.Had the average trend prior to the recessioncontinued, consumption would bealmost 3 mbd higher today! Increasinglyavailable natural gas, which is a cleanersource of energy, has begun to replace oil.In addition, the environmental pressuresand declining consumption in the developedcountries have decreased seaborneoil transportation. It is worth mentioningthat high oil prices support increasedproduction from deep-sea fields as wellas from unconventional sources (tightoil, shale oil). In both cases, the US hasabundant reserves. In addition, the US iscatered for by Canada, with its constantlygrowing production from oil sands. Allthese aspects have a negative influenceon oil shipments, particularly to the US,which is still the world’s largest consumer.History is once more repeating itself.30 | Tanker UPDATE NO. 2 2011
What have we learnt from history?450Oil tankers – fleet developmentBased upon DWT. Source: IHS Fairplay400DWT [mill tonnes]35030025020015010028 YEARS!!500197019751980198519901995200020052010Small Handy Panamax Aframax Suezmax VLCCIt is not all bad news though. Emergingeconomies are increasingly hungrier foroil. Refinery capacity is gradually diminishingin Europe and North America whileincreasing in the Middle and Far East, creatingopportunities for product tankers inthe future (tonne-mile effect).The current fleet is capable of transportingforecast volumes over the next fewyears. According to IHS Fairplay, the currentfleet contains over 3,300 ships, correspondingto 402 million DWT (crude andproduct tankers over 10k DWT). Yet another418 ships (72 million DWT) remain inthe order book. Scrapping will not be ableto extinguish the tonnage increase substantially,as the fleet is very young and offerslimited replacement opportunities.The question is, what will happennow? On one hand, we still have stronglong-term fundamentals with incrementaldemand for oil. On the other, there is asubstantial oversupply of ships and weakshort-term forecast for seaborne transport.Are we facing yet another collapse in theoil tanker market? Perhaps not as bad asthe one in the 1980s, but the coming yearswill definitely be challenging. The philosopherGeorge Santayana said: “Those whocannot remember the past are condemnedto repeat it”. Do we remember? Tanker update NO. 2 2011 | 31
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update NewS from dNv to the tANker INduStry No 02 2011 - Hays

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