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Thursday, October 18, 2018

Nor-Shipping: ‘Coping with unpredictability’ at the Seatrade Conference on 5 June 2003.

Erik Ranheim, Manager Research and Projects INTERTANKO, spoke at the Seatrade Conference “The State of the Markets” on the theme “Coping with unpredictability”. His presentation focused on the unpredictability of both future tanker demand and tanker supply.

In his presentation, Erik Ranheim focused on the volatility and unpredictability on the tanker demand side, but underlined that with the EU proposal for the phase-out of single-hulled tankers by age, unpredictability was now also stronger on the supply side.

He said that on the demand side, the world population was growing, which in the outset would be favourable for oil demand translated into tanker demand. However, oil intensity of use was low in countries such as China and India so that oil demand might not increase as much as one would hope.

Despite growing Chinese oil demand, the volumes imported were not yet enough to generate big increases in tanker demand and one would need the US economy (accounting for 25% of tanker demand) to recover from its present doldrums in order for an impact to be felt on tanker demand.

Great volatility in OPEC crude oil production meant that the tanker market was dependent on a volatile demand situation. The recent strike in Venezuela showed that only Saudi Arabia had any considerable spare short-term oil production capacity. Iraq was considered to have a great oil production potential, but a flexible export system with pipelines running to the Mediterranean and the Red Sea meant that increased exports would not translate into long-haul tanker demand.

Russia had strongly increased oil exports and what happened here would be important for tanker demand. Russia and China had become energy partners but increased exports to China were likely to be transported through pipelines. Furthermore, 95% of the Russian oil exports went to neighbouring countries either by pipeline or in relatively short sea voyages. European oil imports from Russia had increased at the expense of European imports from the Middle East. Speculating on whether the FSU could get back to producing as much oil as in the early 1980s, Mr. Ranheim quoted the recent Russian Energy Strategy document which left also a possibility for stagnating production.

The US had had declining oil production, which recently had been levelling out. Oil imports had increased, but not strongly as the US was no longer the world economic locomotive. Commercial oil stocks would need to be rebuilt, but there were indications that companies might prefer to keep lower stocks.

Summing up on the demand side, the tanker market would depend on China. Importers were looking at ways of becoming less dependent on Middle East oil, thus adding little to long-haul trades. Oil imports into Europe and the Far East might have a larger pipeline share. However, pipeline transportation was expensive and, for example, the Baku-Cheyhan pipeline was projected to cost about USD 3-4 per barrels compared with tanker transportation at less than USD 1 per barrel.

On the tanker supply side much focus was on the EU proposal for single-hulled tanker phase-out by age, which looked likely to become a regulation as from 1 July this year. The EU had asked the IMO to implement the same rules. Furthermore, the transportation of heavy crude oils and heavy fuel oils to and from EU ports would need to take place in double-hulled tankers. These oils accounted for about 10% of the oil traded world-wide by sea. Restricting 10% of the oil traded to double-hulled tankers would make the market less flexible. Predictability was needed in tanker transportation, pure age restrictions would be counterproductive. The 1970s-built tanker fleet was anyhow on the way out and by the end of 2003 about 54% of the tanker fleet would have double-hull. The current large tanker orderbook covered the near term phase-out until 2007. A major problem with the EU proposal was the phase-out of the MARPOL single-hulled tankers in 2010 when tankers down to 15 years of age would need to be phased out. Further complicating the picture for tanker owners was that we would now have three sets of phase-out regulations to adhere to: MARPOL 13G, the EU proposal and OPA 90.

Mr. Ranheim outlined the impact of the EU proposal on the different tanker segments and showed that, for instance, 148 VLCCs below 25 years of age would need to be phased out in 2010. This would put a strain on all the participants in the market, and the ordering of the tankers to meet the 2010 peak would have to start already around 2006. There might be little scrapping as the fleet would be young and owners did not like to sell tankers of less than 20-25 years for decommissioning.

Contact: Erik Ranheim