Archives for posts with tag: delivery

The shuttle tanker fleet consists of a relatively modest 88 vessels, but is of critical importance to the offshore story. The sector has always played a key role in exports from fields divorced from established pipeline infrastructure. As the move offshore into deeper and more remote areas gathers pace, shuttle tankers will be required to support production, particularly off Brazil.

Exponential Growth

The fleet has a long track record of steady growth (it was just 19 vessels at the start of 1989), and has recently undergone another expansion phase, growing from 65 vessels at end 2010 to 88 currently (up 35%). There are 8 vessels on order: until the contracting of three specialised Arctic units at Samsung in July, no orders had been placed since January 2013.

This might appear, on the surface, to be a sign of a fleet sector with muted demand growth prospects, particularly when considered in conjunction with the decade-long decline in North Sea shuttle tanker transportation evident in the Graph of the Month. However, the outlook is actually somewhat brighter. Brazilian usage has gradually increased year on year. Brazilian fields are expected to be at the forefront of the sixty potential field developments identified globally which are likely to use shuttle tankers.

There are now 25 likely future field developments offshore Brazil, which are expected to need shuttle tankers, and potentially add 1.5m bpd to shuttle tanker movements off Brazil. In the pre-salt areas, pipelines are often not feasible due to deep water and long distances to shore, so fields need shuttle tanker offtake from FPSOs.

The North Sea is an established shuttle tanker region, and now one with much activity under way to halt production decline. There are 9 future start-ups expected to require shuttle tankers, including Bream and Johan Castberg. These are expected to help shore up North Sea oil transportation on shuttle tankers to above 1m bpd in the medium term.

Fleet Consolidation

Recent years have seen the fleet become more consolidated. At the end of 2004 there were over 10 companies with just one shuttle tanker to their name but as of September 2014 there are just two companies owning only a single ship. Teekay Offshore and Knutsen NYK continue to account for a large portion of the fleet, owning 32 and 25 units each. This year alone, Knutsen acquired Lauritzen’s fleet of 3 ships: these were the first recorded shuttle tanker sales for over 5 years.

Tread With Caution

Of course, shuttle tankers are not immune to the usual cyclic problems of the offshore industry. In the past 18 months, delays in field start-ups in Brazil and the North Sea have led some companies to let charter options expire or fail to renew existing timecharters. This may limit ordering (typically orders are placed with an initial charter in mind). Over the longer term, however, further fleet expansion will be required to service additional demand. Whilst the graph no doubt shows the ‘best-case’ scenario, and some field start-up slippage will no doubt intervene, the shuttle tanker sector looks positioned for a relatively bright future.


Who would have thought it? Nowadays a surprising number of people around the world seem to know about shipbuilding. Even taxi drivers can sometimes tell you there’s been a shipbuilding boom, and they’re right. For two decades the maritime industry watched in awe as shipyard output grew eightfold from 19m dwt in the early 1990s to 166m dwt in 2011.

Nice Steady Investment Story

Then came the crash. Deliveries dropped to 109m dwt in 2013, a big fall, but not the disaster many expected. Somehow the industry bailed itself out, and while lower deliveries grabbed the limelight, the yards were running flat out to keep up with the new investment profile which was throwing them a lifeline. In the run-up to the boom, 42% of estimated investment was in the tanker and container sectors; 50% in bulk and specialised, and 7% in gas. This pattern was largely maintained during the boom. All nice and steady, but then everything changed.

All Change for the Recession

Since 2008, there has been a major re-alignment in market shares, as structural changes in these segments have altered investment patterns. Tankers and containerships have suffered, falling to 22% (the tanker share fell from 24% in the boom years to 12%, and containers from 18% to 10%). Meanwhile, the bulk and specialised share jumped to almost 70%.

Time for Transition

On the tanker side, high oil prices, sluggish OECD growth and greater US energy self-sufficiency have all nibbled at demand. Meanwhile container trade growth has slowed since the boom and the sector is still struggling to absorb overcapacity. No wonder investors are easing back.

Luckily for the shipyards, bulkers and specialised vessels have stepped up to fill the gap. Bulkers have accounted for 25% of investment since 2008, similar to their share during the booming 2000s. This has been helpful for Japan and China, who dominate bulker building. And they have achieved it without taking too much of a cut on prices, which have been edging up in 2013 and 2014.

A Specialised Focus

But the real star is the specialised sector, which has accounted for 43% of estimated investment since 2008, up from 27% in 2003-2008. Cruise did pretty well, but the super-star, especially for the Korean yards, was the boom in offshore investment, including alternative energy like offshore wind farms. Offshore investment jumped from $34bn in 2008 to $47bn in 2012. Really quite exciting, but challenging for the yards.

Where Next?

So there you have it. For the time being the shipyards have struggled through, thanks to this switch in product range. Although tricky, the bulkers are keeping Japan and China busy and specialised was a nice bonus, especially for the big Korean yards. But switching product range is always difficult, and that really is the issue for the future. The first rule of shipbuilding recessions is “you never know what they’ll order next” but it’s often completely different. Have a nice day.


OIMT201405Russia is forecast to account for 13% of world crude oil production and 18% of world natural gas production in 2014. While its prodigious Siberian flows tend to receive most of the credit for this feat, fields located off the country’s 16 million km of coastline are nonetheless projected to produce 390,000 bpd oil and 2.64 bcfd gas in 2014. So where exactly is Russian offshore production to be found? And what is the outlook?

Mastering the Arctic

As the Graph of the Month shows, offshore oil and gas production in Baltic & Arctic Russia stagnated after the break-up of the USSR, declining to 0.03m boepd in 2013, when it accounted for 4% of Russian offshore production. This trend was thrown into reverse when the Prirazlomnoye field came onstream in December 2013. Located 23km from shore in the Pechora Sea, the field is exploited via a ice-class platform and production is scheduled to reach 120,000 bpd by 2019. New technologies and robust oil prices are thus unlocking reserves hitherto stranded, and by 2023 Arctic oil and gas is forecast to constitute 11% of Russia’s offshore production.

Caspian and Crimean Conquests

Russia’s southern offshore fields, mainly in the Caspian, accounted for 9% of Russian offshore production in 2013. In the Caspian, as in the Arctic, harsh conditions have limited field development and disincentivised efforts to halt production decline. However, as in the Arctic, decline is now forecast to be arrested. Lukoil, for example, are planning substantial investment over the next four years at fields like Khvalynskoye and Yuri S. Kuvykin, where ice-class jack-up production units are likely to make development feasible. By 2023, the area is forecast to account for 24% of Russian offshore oil and gas production (excluding gas produced by fields off the Crimea, over which Russia now has de facto control, and which produced 410m cfd in 2013).

Expanding Eastwards

The Russian Far East is a relatively new area of offshore E&P. The Sakhalin-2 project started up in 1996 but offshore activity is still geographically limited, even if production volumes, at 0.78m boepd, are significant. The area accounted for 88% of Russian offshore production in 2013. Moreover, the Far East is Russia’s window on the developing economies of the Asia Pacific region, so companies are seeking to increase activity there, particularly with regards to LNG. In October 2013, the first Sakhalin-3 field, Kirinskoye, a subsea-to-shore development, began ramping up to 580m cfd. Further such field developments are planned out to 2023, when the area is projected to produce 0.95m boepd, its share falling to 65% despite new Capex due to faster Arctic and Caspian growth.

Thus production is forecast to grow in each of Russia’s offshore areas, driven largely by investment in high-spec jack-up, fixed platform and subsea field solutions. Total offshore oil production is projected to grow with a CAGR of 8.9% from 2014 to reach 890,000 bpd in 2023, and gas production likewise at 2.5% to reach 3.36 bcfd. Offshore would then account for 6.7% of the country’s oil and gas production, a far cry from the 2% nadir of post-Soviet decay.

Like the big dipper at a fun fair, the shipping industry has its share of ups and downs. After a thrilling start to the century, rapid fleet growth and the financial crisis dampened the market. However, we are now seeing signs of a better balance between fleet expansion and trade growth.

All Aboard

The shipping rollercoaster has plenty of ups and downs, and one of the best ways of keeping track of the twists and turns is by looking at the balance between the growth in seaborne trade and growth in the fleet.

The Graph of the Week shows the development of fleet growth and trade over the most recent two 8-year periods. During the first phase (1999-2006 inclusive), fleet and trade growth broadly tracked each other, resulting in a competitive and, at times, prosperous market.

Trade growth started strongly at the turn of the century, prompting a “mini-boom” and giving shipping’s thrill-seekers a taste of things to come. After a couple of slower years in 2001-02 in the wake of the “dot-com crisis”, trade growth recovered and achieved a CAGR of 4.6% for the period as a whole. At the same time the fleet grew at 4.2% per annum – tracking demand growth but not exceeding it. The tight market conditions that characterised this first cycle of the century drove the shipping market to incredibly firm levels and, for some, the thrill of a lifetime.

Hold On Tight

During the second 8-year phase (2007-2014 inclusive) fleet growth has surged ahead of trade. For the first couple of years the market was strong enough to absorb the large number of new deliveries coming out of a rapidly expanding shipbuilding sector. However, in the wake of the global financial crisis, consistently higher fleet growth resulted in much weaker market conditions.
In 2009 global seaborne trade fell by 4.0%, compared to fleet growth of 7.1%. Trade made up some lost ground in 2010 when it grew by 9.6%, but with fleet growth hitting 9.5% that year and 8.8% in 2011, trade growth was unable to keep pace. Over the past 8 years as a whole, the fleet has grown by a CAGR of 6.5%, compared with trade growth of 3.5%.

Here We Go Again

Over the past two years deliveries have eased enough for fleet growth to fall back below 4% pa, and in 2014 trade growth is expected to exceed fleet growth for just the second time in over a decade (the other time being 2010 when trade was recovering from the financial crisis). As a result shipping markets are relatively tighter and faster to react to localised demand/supply imbalances. The last 9 months have seen spikes in bulker, tanker and gas carrier rates which have encouraged renewed interest in tonnage acquisition (both secondhand and more efficient newbuilds) and capital markets.

So the 21st century so far has been a breathless ride. There have been long, slow climbs and the occasional sharp drop, but many enjoy the thrill of the ride and want to get straight back on. Shall we go again? Have a fun day.


How fast will ship demand grow? It’s the ultimate question for serious shipping investors. Today’s global economy relies on owners stepping up to invest in the ships that will be needed in the future ($115 billion was invested in new contracts last year). With so much cash on the table, the future trade growth issue cannot be ignored. But it’s tricky and even experienced analysts fall back on “rules of thumb”.

Faster Than World GDP

When they worry about the future most shipping investors have the world economy at the back of their minds. But although world GDP is the obvious starting point for analysing sea transport, the relationship between the world economy and seaborne trade growth needs handling with care. Unfortunately things do not always turn out the way investors expect.

For example, over the 50 years since 1963 these two key ship demand variables have increased by a not too dissimilar amount. GDP grew on average at 3.7% p.a. and sea trade grew at 4.5% pa. Overall trade volume increased 722% and GDP by 501%. If the relationship had been steady, the ratio of trade to GDP would have followed the path shown by the dotted line on the graph, moving steadily up from 100% in 1963 to 137% in 2013 (i.e. the sea trade index 37% higher than the GDP index, both of which were 100 in 1963). Interestingly today’s GDP forecasts are close to the 50 year trend, with projected growth of 3.6% in 2014 and 3.9% in 2015. So does that mean about 4.5% trade growth?

Sea Trade Multiplier?

That’s not always how things happen. The red line shows that the “sea trade multiplier”, which compares the cumulative year by year growth in the sea trade and GDP indices since 1963, was all over the shop. In the 1960s trade shot ahead of GDP and the multiplier reached 160% in 1974. Then the relationship reversed and in the period 1980-88 sea trade growth averaged only 0.4% pa compared with 3.2% pa for GDP. Again in 2005-09 trade lost ground as GDP growth averaged 3.5% pa and trade only 2.4%.

Structural Changes

This analysis suggests that when looking ahead more than a year or two, the structural changes that lie ahead are more interesting than the trend. The 1960s boom was driven by the OECD countries adjusting to global free trade by importing massive quantities of bulk commodities like iron ore and oil. Then the trade collapse in the 1980s was a structural response to high oil prices. And the trade slowdown in the late 2000s shows that the slowing OECD economies (less growth and more services) were important enough to shave the top off the Chinese mega-boom.

Brave New World

So, demand trends are all very well, but structural changes may matter more. Today high energy prices are squeezing the oil trade and the non-OECD world, which is increasingly important, seems to be moving into a different phase of growth. Although the 4.5% trade growth “multiplier” scenario looks convincing, remember that it is during structural changes that shipping fortunes are often made and lost. Have a nice day.


OIMT02The floating LNG or “FLNG” concept has existed for decades; however it was not until 2011 that a long term solution was officially cemented with the signing of the $3bn build contract for ‘PRELUDE FLNG’. Following this, the FLNG sector has seen a new wave of activity, and contracts for 2 further units were placed in early February. Early estimates suggest as much as $85bn could be invested in FLNG technology by 2020, making it an exciting growth area.

A Demand Story

The Graph of the Month displays the cumulative potential FLNG requirement of 36 mooted FLNG projects with targeted delivery dates up to 2020. Of course, it is highly unlikely that all of these projects will actually come to fruition, with those rated ‘possible’ significantly more speculative than the more ‘probable’ units. However, if all those FLNG projects currently deemed ‘probable’ are ordered, then the number of operational units could be as many as 10 units by 2018 and 16 by 2020.

The major reason for the interest in FLNG is the desire to exploit ‘stranded’ gas fields far from existing infrastructure, given the strength of future gas demand expectations (BP’s Energy Outlook puts gas demand growth at 2.2% p.a. in the period to 2025). Accordingly, offshore gas output is expected to grow at a compound rate of 4.5% per year to 140bn cfd by 2020. FLNG could become a key part of this.

The major focus of growth in projects which could utilise FLNG will be Asia Pacific, notably off Australia. Close to half of potential FLNG locations are in the region, many in the Browse, Carnarvon and Bonaparte basins off north west Australia. While the Asia Pacific region remains a key area of growth, the Americas and Africa also hold opportunities for the positioning of potential units, with 17% apiece.
At the start of February, 2 further FLNG orders were placed. Petronas took the final investment decision (FID) for Rotan gas field off Malaysia, and awarded the contract for the hull to Samsung H.I. Meanwhile, Exmar have added a second moored barge unit to the order already under construction for use on Colombia’s Caribbean coast.

Not Yet Tried and Tested

Although this demonstrates the continued positivity surrounding the FLNG sector, it remains untested, with FLNG technology yet to enter operation. The first FLNG unit is slated for delivery in 2014, and will be the first of the Exmar barge-shaped units for Colombia. However, until the first LNG cargo is loaded (2015), it is unclear what technical challenges may be faced. Furthermore, the FLNG sector also faces risk from commodity prices. Should the US start to export shale gas on a large scale, this may produce downward pressure on gas prices, potentially making FLNG solutions less attractive to investors.

Fuelling the Future

So, the FLNG sector is still in its infancy and the outcome of the first projects could have a big impact on future investment. Ultimately, such a nascent sector faces technological and economic challenges. However, with offshore gas output set to increase substantially, it is likely that requirements for FLNG vessels will continue to progress.

SIW1107Pete Seeger, who died this week, knew how to get his message across. His well-known Where Have All The Flowers Gone topped the pop charts and was one of the New Statesman’s top 20 political songs. Its lyrical style softens the theme that human beings never really learn, but in the end it doesn’t matter much. Words with a familiar ring for shipping folk.

No Hammer? Try a Steel Box

The shipping industry doesn’t have a folk singer, but if it did, he could write a shanty about the disappearing bulkers. It’s a story which raises questions about what we are up to. These basic steel boxes crawled into the 2000s on their knees after a couple of gloomy years in 1998/9. Their gloom was reflected in deliveries, which averaged only 14.5m dwt p.a. between 1998 and 2002 (see graph).

Too Many “Little Boxes”?

Then China got busy, the 2003-8 boom started and bulker deliveries surged 50% to 21.7m dwt p.a. The financial crisis put an end to booming freight, but deliveries trebled to 76.8m dwt p.a. 2009-13. Two thirds of the tonnage delivered since 1998 has hit the market in the last 5 years. Supply has grown more than twice as fast as demand, from 417m to 722m dwt. But few bulkers are laid up. So where are they?

Unlike the 1980s, owners are keeping their ships moving. Slower speeds, waiting, multi-porting, and dead freight have soaked up deliveries, opening the way for market spikes, driven by cargo fluctuations at major loading areas. A shipping network creeping round the world at 11 knots is harder to tap for quick tonnage than a pool of laid up ships, as the Capesize market has discovered.
Turn! Turn! Turn! – Please

But the capacity to go faster is there and as rates rise, so will the available supply. For example a Panamax bulker operating at 11 knots might need around $21,000/day to cover costs – say $13,000/day for the ship and $8,000/day for bunkers. If, however, rates move up to around $30,000/day, that might be enough to pay for bunkers operating at 14 knots. Of course the owner could keep on slow steaming and pocket the extra cash, but in a tight market charters and competitors would soon put a stop to that.

So spotting the turning point depends on whether all the bulkers have gone for good, locked in to permanent slow steaming. Investors who ordered 80m dwt of bulkers in 2013, obviously think much of the capacity has gone for good and so must analysts predicting $60,000/day this year.

We Shall Overcome

So there you have it. Bulkers are ferrying their cargo around the world at snail’s pace, and helping their bank balances whilst saving the planet with a downsized carbon footprint (maybe half what it used to be?). But economics and history say speed can still crawl out of the woodwork – all it needs is the right amount of cash. So the good news is there might be higher rates ahead, or it could just mean that most of it will go on bunkers. Well, that’s life. Have a nice day.

SIW1101In the Financial Times last week Bill Gates gave the shipping industry a nice tribute. Asked to recommend a book for Christmas, he chose ‘The Box That Changed The World’. Explaining his choice he described shipping as “one of the cornerstones of globalization”, and said that since reading the book he “won’t look at a cargo ship the same way again”. A small but significant step along the road to wider public recognition.

Unsung Heroes

In 2013 the shipping industry will prove its worth by moving 10 billion tonnes of cargo. An amazing number and a reminder that whatever the state of the market, shipping companies must still deliver the goods. Another statistic that might impress Bill Gates is 1.5 tonnes of cargo delivered per capita. An astonishing number, which includes every man, woman and child on the planet. Of course some import more than others, and as this changes it will challenge shipping in the coming decades.

Must We Do Better?

All this is positive, but looking ahead the the focus is now on delivering more cargo with less carbon emissions. Doing this is hard enough, but how can the industry monitor its progress? One perspective is provided by tracking the tonnes of cargo delivered per dwt per annum. The industry’s performance over the last 20 years shows the complexity. Back in 1986, during a deep depression, the world fleet delivered 6.3 tonnes/dwt. But by 2004 this had surged by 30% to reach to 8.2 tonnes/dwt.

Ship to System Gains

This improvement was driven by a tightening market. With higher freight rates, charterers used ships more efficiently. Ships sailed faster, emitting more carbon, but logistical inefficiencies like multi-port discharge, dead-freight and waiting were squeezed out. For example the US Gulf-Japan grain trade, previously a 55,000 tonne parcel in a Panamax bulker for Panama Canal transit, was downgraded to Supramaxes loading a full cargo with no dead-freight.

Cheap and Cheerful

This performance surge did not survive the downturn. After 2009 the ratio fell to 6.6 tonnes/dwt and by 2013 to only 6.1 tonnes/dwt, lower than in 1986. Slow steaming driven by sky high bunker costs has played a big part in this reduction, whilst rock bottom freight rates encouraged charterers to use cheap ships less intensively. In fact the average global transport performance of the fleet may not be any better than 27 years ago; the flat trendline confirms this.

Living up to Bill’s Accolade

So there you have it. Bill Gates is impressed by shipping’s contribution to the global economy. But shipping is not delivering much more cargo per dwt than nearly 30 years ago. Could tighter logistics help it meet IMO’s carbon footprint target? How does 10 tonnes/dwt in 2030 sound? Certainly challenging, but is it theoretically possible? Now that’s a question worth a closer look. Have a nice day.

SIW1087Amazing how the obvious doesn’t always happen. When Lehman Bros collapsed 5 years ago banks stopped trading with each other, letters of credit became a nightmare, and the financial system was close to collapse. Against this background shipping analysts looked at the enormous shipbuilding orderbook and concluded that it wouldn’t be deliv-ered.

Orderbook Out of Order

The problems seemed insurmounta-ble. The orderbook was an enormous 584m dwt, 47% of the fleet, with a contract value of $542bn. The first obstacle was that the banks had too many problems with their existing ship loan portfolios to contemplate adding another $200-300bn. Secondly, bulkers, backbone of the boom, were in free-fall. Cape rates peaked at more than $200,000/day in June 2008 but by November were down to less than $4,000/day. Meanwhile values had crashed from $155m in July for a 5 year old Cape, to $45m at year end. Finally, with the world economy in meltdown, maritime lawyers were burning the midnight oil trying to break contracts. Obviously the orderbook was on the slipway to oblivion.

Steady as She Goes, Sailor

But that’s not what happened. The end 2008 orderbook was spectacu-lar (see line in chart), with scheduled deliveries of 179m dwt in 2009, 197m dwt in 2010 and 155 m dwt in 2011. It was the big-gest shipbuilding boom ever, expanding output to ten times the 1990 level. And most of it did get delivered.

Actual deliveries are shown by the bars in the chart. Between 2009 and 2012 the total tonnage of ships delivered was 587m dwt. That is higher than the end 2008 or-derbook of 584m dwt. Of course there were quite a few cancellations along the way and some heroic ordering in 2010. But one way or another, yards did their job and removed all doubt that once the shipbuilding juggernaut gets going, it really does deliver.

Three Wheels on My Wagon

In deadweight, actual deliveries peaked at 164m dwt in 2011, about 20% below the original scheduled peak. But the yards have hung on pretty well. In 2012 they delivered a massive 154m dwt and the cur-rent forecast for 2013 is 123m dwt, followed by 100m dwt in 2014. Measured in CGT, a better guide to work content, this year world shipyard capacity will still be operating at around 80% of its peak level, an outcome that seemed implausible five years ago. This is partly due to yards’ success in diversifying. Offshore, gas and containers all played a part as did the enthusiasm of bulker investors.

Five Years Into the Crisis

So there you have it. The orderbook got delivered, the fleet is 40% bigger than at the end of 2008 and all those extra ships are carrying cargo at a more leisurely pace. The banks have struggled through, and despite everything, investors have hung onto their enthusiasm for bulk carriers. Obvi-ously none of this was expected. But don’t expect to see 164m dwt deliveries again in a hurry. Have a nice day.