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Friday, September 21, 2018

The importance of the Middle East to the tanker business

The importance of the Middle East to the international tanker business and the aptness of a Dubai Tanker Event for INTERTANKO was emphasised by Yusr Sultan, Chief Executive of  Shipping, Terminalling and LPG at Emirates National Oil Company at the conference opening when he remarked that 60% of the world’s internationally trading tankers pass the UAE at least once a year. With Dubai’s unique location right on the main tanker route into the Gulf, its vision is to become the global tanker capital, he said.

Nor did the conference session which focused on the Middle East leave one in any doubt about the current and future importance of this region either. Mohammad Souri, Chairman and Managing Director of the National Iranian Tanker Company, pointed to current petrochemical exports of 5.8m tonnes increasing to 16.3m by 2007 and 24.8m by 2010. This will boost NITC’s tanker requirement from 47 vessels this year to 184 by 2010, said Souri. Already NITC’s fleet carried more than 25% more oil in 2003 than in 2002 with more than 80% of its operations related to international trade.

In addition, Iran gas production is set to overtake its oil production as the huge South Pars gas field builds up to 211m tonnes a year by 2010 compared to Iran’s 200m tonnes a year of oil production, requiring 34 LNG vessels to carry the gas to markets including India, China, Japan, South Korea and Europe.

Souri concluded with an invitation to all interested parties to enter joint ventures with NITC to satisfy its increasing tanker requirements, expressing the desire to cooperate with shipping companies in order to secure the highest safety and quality standards.

The huge potential of neighbouring Iraq was highlighted by Ruba Husari, Middle East Correspondent for the Energy Intelligence Group. Iraq’s current oil production is just a fraction of what its massive oil reserves are capable of putting out. To take the immediate first, while Basrah Oil Terminal is running at its 1.6m bbls/day capacity, Khor al Amaya is running at just 0.3m bbls/day of its 1.6m capacity (and is likely to remain low for a time since loading rates are slow, the water is relatively shallow and night berthing is not permitted|). In addition the Kirkuk/Ceyhan pipeline is running at 1.2m out of a possible 1.6m bbls/day and the Kirkuk/Syria pipeline at 0.2m bbls/day (to Syrian refineries) out of  0.7m capacity.

But only 20 Iraqi oilfields are fully developed, says Husari. The next 25 fields have the potential to add up to 4m bbls/day to present export capacity. “Developing Iraq’s huge reserves is not for tomorrow,” she adds, pointing to reserves of 45bn barrels in just 11 fields with a potential output of over 3m bbls/day, and emphasising the USD18.8bn estimated capital outlay to achieve this. This will take some time, she said, but it is a question of when rather than if this extra production will start to flow.

INTERTANKO’s members and associate members were treated to a top class overview of the tanker market by Dr Martin Stopford, Managing Director of Clarkson Research. The unusual occurrence of three distinct tanker market rate ‘spikes’ in the last four years has not been due to demand growth, says Stopford, pointing to 2% tonne-mile growth since 1995 compared to 7% from 1988 to 1994 before the spikes started. Instead he attributes it to tanker demolition which is now at the peak of the cycle for Category 1 single hulls and running at 18m dwt a year despite high earnings. This is what has made the tonnage balance so tight. However he warns that this drive will not last for ever – for a couple of years after 2005 there will be a scrapping holiday, he forecasts, unless the remaining single hulls are scrapped early.

With China boosting tanker movements, tanker demand had grown to 308m dwt by end 2003 with forecasts for an extra 14m dwt in 2004 and another 11m in 2005 – ‘that’s 25m dwt - IF the economy behaves,’ says Stopford. He went on to add that expected tanker demolition will generate demand for 25m dwt of tanker replacements by end 2005, finally comparing that 50m (25+25) dwt tanker requirement with the 54m dwt orderbook for delivery by end 2005.

In the longer term, his ‘high’ forecast is for an extra 60m dwt by 2010 but this figure could be reduced to only 30m if more short-haul production takes prominence. ‘This is not a lot compared with recent ordering rates,’ he warns, pointing to the 49m dwt of tankers ordered in 2003. His conclusion is that ‘the tanker market will stay in the volatility zone and wild cards will be king.’

Another believer in a volatile, spikey market is Klaus Rehaag, head of the Oil Industry and Markets Division at the International Energy Agency. China is the engine of demand growth, he said in the same conference session as Stopford, with gasoil and gasoline growing fast and driving the market. But he pointed out that OPEC has  spare capacity of just over 1m bbls/day – that is capacity that can be brought on within 30 days and sustained for more than 90 days. ‘That is not enough to replace Venezuela,’ he commented. Moreover refining capacity is stretched, being high in the US and Europe and catching up in Asia. Surges in demand in such a tight market will lead to volatility, he said, with tight crude oil stocks adding to the tendency for price spikes.

The good news for the tanker industry was his conclusion that crude oil is going to be increasingly pushed out of the Atlantic (with demand flat and supply growing) and pulled into the Pacific (with demand surging and supply declining). This situation, where the AtlanticBasin is increasingly long on crude and the PacificBasin is net short on crude, boosts longhaul tanker transportation such as West Africa to the Far East. However Rehaag also asks whether Saudi and Middle East crudes could get increasingly displaced out of US and EU refineries by shorter-haul crudes which would reduce tonne-miles.

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