IntertankoIntertanko

Energy and Tanker Market Review Energy and Tanker Market Review

March 2005March 2005

2

Overview Overview

• Energy Market Overview• Crude Oil Supply/Demand Outlook

• Tanker Market General Market Trends • Emerging Trade Patterns• VLCC Analysis

• Summary/Conclusions

3

• Not growing fast enough to meet current and future demand

• OPEC currently producing near its maximum

• Little spare production capacity

• Supply Disruptions• Hurricane Ivan disrupted US Gulf Coast offshore• Strikes, insurgency in oil producing countries• Summer crude supply reductions for Alaskan crude on USWC

Oil Supply SummaryOil Supply Summary

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• Overall world energy demand is growing

• Oil is the largest source of energy and is projected to have highest growth over next several decades

• Transportation fuel demand growing

• Energy demand is mostly in the industrialized nations• Concentrated in the US, Europe, and Japan

• Developing nations have the highest growth rate in demand • India, China

• Higher quality products required• Low sulfur contents

Oil Demand Summary/OutlookOil Demand Summary/Outlook

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Emerging Tanker Regulation Trends

• IMO/Marpol Single-Hull Phase-Outs

• All non-SBT vessels to be scrapped by April 2005• All other Single-Hull vessels to be scrapped by 2010• All Double-Sided and Double-Bottom vessels to be scrapped by their

25th Anniversaries    • These regulations are subject to enforcement by the countries

controlling the individual ports.

• IMO/Marpol Ban on Transport of Heavy Grades of Oil

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China: The Waking Giant

• Estimate China’s growing oil consumption has increased VLCC demand by equivalent 31 vessels over the past 18 months

Oil Production and Consumption in China

1600

2800

4000

5200

6400

1980 1985 1990 1995 2000

000

Bp

d

Production

Consumption

Net Exporter

Net Importer

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The World Tanker MarketThe World Tanker Market

• Tanker owners today are enjoying record profits due to a series of events:

• Increased demand for crude oil and refined products• Robust economic growth in China, India and elsewhere• Political dynamics in key countries • Regulatory changes

• Fuel substitution is a long-term threat to traditional tanker owners

• Natural Gas• Coal• Nuclear

• Shipyard capacity can lead to overbuilding – depressing rates for years to come

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Tanker Market Summary

• Vessel spot market earnings the past 12 months have been considerably higher than long-term historical averages

10 YEAR AVG 12 MONTH AVG % CHANGE

VLCC (AG-USG) $34,658 $68,647 + 98.1 %

SUEZMAX (WAF-USG) $30,127 $57,345 + 90.3 %

AFRAMAX (CAR-USG) $21,962 $34,873 + 58.8 %

PANAMAX (CAR-USAC) $19,234 $29,857 + 55.2 %

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Evolving Trading Patterns: Yesterday Evolving Trading Patterns: Yesterday

• VLCC trade depended heavily on AG crude exports 15 years ago

8

21

December 1989 VLCC Movements

410

64

2

2

3

21

3

2

1

1

5

2

10

8

76

February 2005 VLCC Movements

8

4

18

134

38

5

10

3

6

3

3

12

3

49

23

1 1

1

1

1

1

1

12

21

3

1

2

Today’s question:Today’s question:What’s a backhaul cargo?What’s a backhaul cargo?

• Today the VLCC crude trade patterns are larger, more diverse and require a global operation to support activities

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Tanker Rates vs. OPEC ProductionTanker Rates vs. OPEC Production

• VLCC rates and OPEC production closely tied and both vary widely. EIA data shows that current worldwide crude demand of 85 mbpd is up 6.0 mbpd from 18 months ago

0

30

60

90

120

150

180

210

240

270

300

330

Jan-97 Jul-98 Jan-00 Jul-01 Jan-03 Jul-04

WS

23,000

24,000

25,000

26,000

27,000

28,000

29,000

30,000

31,000

32,000

33,000

000 B

PD

AG - Far East

OPEC Production

OPEC Production Through February 2005

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Monthly Average AG VLCC Spot Market Liftings

• Estimate that overall VLCC demand is up 75 ships from 2002 levels. The AG is providing about 70% of the demand increase with West Africa the balance

0

20

40

60

80

100

120

2002 2003 2004 YTD 2005

Ave

rage

Fix

ture

s

13

VLCC Spot vs. Timecharter

• Depending on timing, the average spot market rate has been a more expensive option for owners over the past five years

0

30,000

60,000

90,000

120,000

150,000

180,000

210,000

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05

$/Day

Time Charter - 1 Year Time Charter - 3 Year AG - Far East (TCE)

Jan 2000 - Feb 2005 Averages

$38,563 : Time Charter - 1 Year$34,627 : Time Charter - 3 Year$47,015 : 260 kt AG - Far East (TCE)

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280kt AG-USG VLCC Cost per Barrel

•VLCCs are currently almost three times more expensive per barrel now versus 2002 averages.

VLCC - AG/USG 280kt

0.000.501.00

1.502.002.503.00

3.504.00

2002 2003 2004 Current

$/B

BL

4.6% 6.9% 8.3% 7.9%

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- Significant number of deliveries (170) over past 4 years has led to a fairly modern fleet

- Similar number of removals over past 4 years (175) has kept fleet size roughly equal

- Only 11 vessels are more than 20 years old

AGE PROFILE V/ULCC FLEET443 Vessels as of February 2005

<10 = 56%

10-20 = 42%

>20 = 2%

0

5

10

15

20

25

30

35

40

45

1979 1984 1988 1992 1996 2000 2004 2008

Year Built

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VLCC Market Summary

• Increased crude demand and more complex trading patterns have increased overall VLCC demand

• China, India and US will remain key to demand growth

• Fleet supply has been steady for the past four years with scrapping roughly equal to delivery.

• Fleet has been just barely able to meet significant increase in demand in past 18 months.

• Sizable orderbook:• 2005-2008 – The fleet will begin to increase as limited number of vessels to scrap• But 2010 phase-out schedule suggests that more vessels will be needed

• Most analysts are bullish on the tanker market in the short-run• Market participants that have taken long positions over the past 18 months have been correct

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Long-Term Tanker Market OutlookLong-Term Tanker Market Outlook

• Despite some expected new locations for crude sources, the major trading patterns for crude oil are unlikely to change much in the next 10 years

• Impact of new refinery capacity can have unintended consequences on the tanker market:• For example, India is now a major importer of crude instead of refined

products

• Fuel substitution is a long-term threat to traditional tanker owners• Natural Gas• Coal• Nuclear

• Shipyard capacity can lead to overbuilding – depressing rates for years to come

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