Tanker Market Drivers, Issues and Outlook For The Major Tanker Sectors – VLCC, Suez, Afra, Pmx...

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Transcript of Tanker Market Drivers, Issues and Outlook For The Major Tanker Sectors – VLCC, Suez, Afra, Pmx...

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Tanker Market Drivers, Issues and Outlook For The Major Tanker Sectors VLCC, Suez, Afra, Pmx & MR October 2012 Jerry Lichtblau True North Chartering Jerry [email protected] Slide 2 Broad Theme Impact of evolving oil demand has been joined by changing logistics of crude supply to negatively impact tanker demand. Increased tanker supply and shorter voyages from source to destination of primary areas of demand growth have Combined with increased crude production from historic centers of demand that remain critical for tankers due to nominal volume of oil consumed to weaken earnings Growth of crude supply has exceeded oil demand during 2012 Aided tanker rates pre-summer 2012; impact of Iranian sanctions and softer Chinese demand have helped thwart any kind of post-summer recovery are among primary issues to monitor going forward U.S. new crude, in particular, not necessarily crude of choice displacing some crudes while increasing demand for others Increased attention to crude specifications as historic trade patterns impacted Evolving demand/production has impacted product as well as crude trades 2 Slide 3 Supply Picture Past growth has been centered in Suez & Afra sectors This year growth will be significant and/or increase its pace for VLs & Suez, while moderating for Aframaxes 3 VLs 2012/13 106 deliveries -- 62 in 2012 & 44 in 2013 Suez 2012/13 117 deliveries -- 63 in 2012 & 54 in 2013 Afra 2012/13 83 deliveries -- 54 in 2012 & 26 in 2013 Proj. approximately 25 scrapping/removals for both VLs and Sz in 2012 Proj. approximately 45 scrapping/removals of Afras in 2012 Thru September 7 VLs, 19 Sz and 27 Afras have been scrapped Historically VLs have large # of other removals 20 in 2011 vs. 12 scrap Slide 4 Supply Picture Cont Growth for the Panamax sector anticipated to continue to be moderate MR sector growth to flatten after 50% supply growth during the 06/12 period 4 Pmx 2012/13 40 deliveries -- 22 in 2012 & 18 in 2013 MR 2012/13 156 deliveries -- 80 in 2012 & 76 in 2013 Proj. approximately 12 scrapping/removals for Panamax in 2012 Proj. approximately 40 scrapping/removals of MRs in 2012 In 2011 there were 12 Panamaxes and 35 MRs 35k dwt scrapped/removed Slide 5 VLCC Environment Shift in demand from US/Europe to China/India has augmented the impact of supply growth since end 2007 by over 75% This was dampened during the 1 st half of 2012 by increased WAF/East volumes and increased AG/USG due to Motiva ramp-up & increased U.S. light sweet production Both moderated during the 1 st part of summer WAF/East volume returned during September, but Seasonal reduction of AG exports Q3 for regional power generation outweighed impact of increased WAF/East activity for September cargoes Potential for a near-term Iranian exports increase (state backed cargo insurance) to augment increased Q4 oil supply this yr, but not near 100% Very soft Q3 market experienced the last two years may become more pronounced in coming years if regional demand for power requires increased volumes of direct run crude 5 Slide 6 VLCC Environment Continued 2013/2014 to be further impacted by: Previously noted tanker supply issues - increased deliveries in 2012 and 2013 >100+ vessels (or 18%+ Jan 12 fleet) scheduled between both years 2% 20 years, near 15% 15 years Increased ESPO volumes likely to impact Chinese VL usage slowly at first as export ramp-up likely to be gradual but a source for increased Afra demand slides 19 & 20 for further detail Above to be countered by increased AG/USG volumes once Motiva addition back on-line as well as incrementally higher imports due to increased indigenous light sweet crude requiring increased heavy sour volumes to meet target slate in USG approx. avg API of about 27.3 and sulfur of 1.9% -- Timing to be key regarding Q1 seasonal strength 6 Slide 7 Oil Demand Impact on Tanker Market Since Financial Crisis VL Supply Shift in demand from US/Europe to China/India have essentially balanced each other nominally, but have augmented the impact of moderate VL supply growth since end 2007 by 75%+ as previously noted supply growth had been moderate until 2012, but tanker demand hurt by changing geography of oil demand 7 Slide 8 Oil Demand Impact on Tanker Market Since Financial Crisis Oil Demand Globally demand grew by about 2.7 mm bpd from 2007 through the end of 2011 and YTD 9/12 has added an additional 0.9 mm bpd U.S., Europe, China and India -- four focal protagonists split East and West of Suez have nearly balanced each other nominally the rest of the world in-effect providing the growth in oil demand, both occurring to the detriment of long-haul trades 8 Slide 9 Chronology of Evolving Oil Demands Impact on VL Sector 9 A decline in VL demand of 70 80 tankers since the end of 2007 Slide 10 Easing Chinese Demand Easing Chinese Crude imports point to softening demand 10 Indications are September imports/demand have improved, will need additional data points to determine if this is a revival Slide 11 2012 WAF/East Volumes WAF/East activity coincided with a firm market September was obvious exception lower AG volumes in 3 rd qtr dominate market Angola has been beneficiary of incremental growth 11 Future of increased 2012 volume is a question, as Sudan output returns Continuing reduction to U.S. demand for imports of light/sweet crude imply that if Sudan bumps Angolan exports to China - There will likely be another surprise/revision to trade patterns as the Angolan crude will need a destination, government budgets should resist reductions to actual output regardless of quotas Slide 12 U.S. AG Sourcing Vs. North Dakota Bakken Production Increased light/sweet crude production has coincided with increased AG imports. Hiatus likely in coming reporting months, but will return with Motiva expansion 12 2015+ AG sourced crude will increasingly be competing with Western Canadian sourced crude planned pipelines will be able to deliver larger volumes of this crude to USG region Additionally will need to monitor plans for refineries basis crude slates in order to run shale oil efficiently significant investment required Flint Hills refinery recently announced it will spend $250 mm to better run shale oil Slide 13 U.S. AG Sourcing Vs. North Dakota Bakken Production Cont Sulfur content of USG has generally increased and the crude has gotten heavier as Bakken production has grown The July drop in avg. API is tied to the decline in Iraqi imports whose API average for U.S. crude imports is about 30.5 13 Slide 14 Reduced Q 3 Flows From AG Expected to Recover AG direct crude-burn increases seasonally a reduction in this usage and the bullet below point to increased AG crude supply in Q4 Japan and India have worked out state-backed supplementary cargo insurance schemes and Korea expects to increase imports going forward 14 Source: Citibank Commodity Research Slide 15 Suez Environment Correlated to VLCCs due to substitution issues, WAF market particularly Sz East movements and to a lesser extent AG volumes Concerns regarding USAC refinery closures have been both alleviated and re-born although the issues driving the re-birth are not a surprise 2 of 3 refineries to remain open, but alternative crude sourcing to temper support for sector Reduced U.S. crude imports has led to sector owners seeking/finding increased diversity in demand, particularly in Caribbean, but 2013 developments in Russian logistics likely to counter this to some degree and weigh on sector demand Increased Kozmino and Baltic (Ust-Luga) volumes expected to reduce Black Sea exports which utilize Suez tonnage Sudan production shut-in aided WAF/East market during 12, but pending 2013 return raises issues regarding level of Chinese imports from WAF in coming year to impact both Suez and VL sectors 15 Slide 16 Bakken Production Vs. U.S. Nigerian Imports Bakken, Eagle Ford, Permian Basin & other shale oil pushed Nigerian crude out of USG USAC imports from WAF nation to face similar competition USAC refineries usage of rail delivery of Bakken crude to compete with mainstay of Suez delivery 16 PBF to have as much as 140k bpd of rail delivery capability at its Delaware City facility Among planned investments at Philadelphia refinery by new owners is a high speed rail unloading facility at the refinery Slide 17 Total Chinese Crude Imports & From Angola Specifically Chinese imports from Angola soared when strife between Sudan and South Sudan effectively removed Sudan as a reliable source of crude with agreement with the South Sudan production expected to return in 2013 17 Chinese imports came off in total & from WAF during Q3 as AG exports declined expect Q4 increase as AG & global supply increase Slide 18 Suez Supply Largest amount of scheduled NBs of crude carrier both in number and percentage of fleet at 117 over 25% of Jan 12 fleet 8% of beginning of 2012 fleet is 20 years of age and about 18% is 15 years of age Scrapping through mid-year about 3% of beginning year fleet Reality may be a little less onerous as over 40% of the scheduled 2013 NBs are from China and may be delayed based upon recent history Approximately 25% of total 2012/2013 scheduled deliveries are being built in China majority from the Rongsheng yard 18 Slide 19 Aframax Environment After years of supply pressure that had seen the fleet size grow by about 50% from 2004 to the beginning of this year, supply pressure has begun to alleviate growth rate expected to subside this year and 2013 scheduled deliveries are less than half that for 2012 This will coincide with increased demand as Russian export logistics undergoes significant changes Kozmino volumes to expand initially believed to about 425k bpd; increased Baltic volumes is a trend that is already visible 600k bpd Kozmino exports was original plan, but recent reports indicate cur