2010: A Tanker Odyssey?

For those tanker owners experiencing the current crisis in tanker shipping in real time, there seems to be little light at the end of the tunnel. We are not, however, so sure that the future for tanker owners will be quite as grim as things look today. If we look at some of the indicators we might almost say that the theme song for tanker owners in the future could be the old 1984 hit from band Timbuk3 called “The Future’s So Bright I Gotta Wear Shades".

First of all, let’s address the negative factors cited by pessimists as the reason for the present misery in the market and how these factors may play out in the future. The single most important negative factor is the tanker order book. This was particularly strongly felt in 2009 where there were a record number of deliveries and hardly any tankers were scrapped, and this was a major factor in the extremely negative atmosphere now prevailing in the market. If we examine the crude tanker segment, we see that the order book is substantial with close to 40 percent of the existing VLCC fleet on order, 44.7 percent of the Suezmax fleet on order and about 27 percent of the total Aframax fleet (coated and uncoated) on order. These are big numbers, but they are nowhere near the levels that the tanker order book achieved in the mid 1970s when more than 90 percent of the then existing fleet was on order. Thus, the resulting disaster is unlikely to be as great. It is also important to point out that in the mid 1970s there was no scheduled Marpol phase out. In 2010 we can expect a total of 84 VLCCs, 23 Suezmaxes and 42 single hull Aframaxes to bow out of the market. This will provide a strong psychological lift.

Another negative factor often cited by pessimists is the ongoing financial crisis. In spite of this, a number of countries, like France and Germany, have announced that, at least for them, the recession is over. The U.S. government says that the economy has turned a corner, and the Japanese have said that their economy has started to grow again. These announcements can help to buoy up sagging financial markets which provide the background music for energy consumption.

Also, the logistics of the tanker market as we know it are changing fast. Venezuela has made several important long-term deals with China for the sale of Venezuelan oil and which would normally find a market in the U.S., and this means that both China and the U.S. will be importing oil over longer distances. In addition, Mexican oil production, another important short-haul supplier to the U.S. market, is faltering. In addition, North Sea production is in decline whilst Russian production is at best precarious, and this will mean that also Europe will have to obtain its oil from more distant sources. All in all, our forecast is for a strong upturn in tonne-miles starting in 2010. This upturn will effectively reduce the size of an expanding tanker fleet. On the products side, it is expected that the proliferation of new refinery capacity in the Middle East and Asia will probably mean that products emanating from these refineries will have to seek markets outside the Pacific Basin which should eventually be over-supplied with petroleum products.

Predicting the future with any degree of certainty is not easy, and the future-changing factors mentioned in this brief reckoning only hint at what we might expect in the next twelve months and beyond. Perhaps one of the main reasons why there are still so many pessimists around is because most people have difficulty imagining a future which is much different from the present. We do, however, still have a few pairs of Ray Bans available for those pessimists who may have to make a last minute purchase.

Tony Amriati

31st August 2009