Archives for posts with tag: product tanker

For many of the markets covered by Shipping Intelligence Weekly, the first part of 2015 was relatively kind. Rates for crude and product tankers were riding high, boxship charter rates picked up for the first time in years and VLGC rates have hit levels above 2014 averages. Even Capesizes have recently shown signs of life. But spare a thought for the offshore sector, the hardest hit by the oil price decline.

Price Drop

Back in the downturn of 2008/09, most commodity and shipping markets felt the negative impact and the offshore markets were no exception, with dayrates dropping by an average of around 35% (see graph).  Moving forward to the current time, however, the 50% decline in oil prices since mid-2014 has brought some relief for merchant vessels, in the form of cheaper bunkers, and stimulated oil demand, helping trade. But cheaper oil has meanwhile put heavy pressure on the offshore sector, where field operators already faced cashflow problems as field developments ran late and over-budget. The response has been sharp cuts in exploration and production (E&P) budgets. It is estimated that spending on offshore E&P will fall by 19% this year.

Investment Cuts

This means investment decisions on new projects have been deferred, whilst expenditure to enhance recovery from existing fields has also slipped. Accordingly, drilling demand has fallen, just as deliveries of new jack-up and floating drilling rigs have accelerated. Rates for ultra-deepwater floaters are now almost 50% below their late 2013 peak, at around $300,000/day. This reflects the reduced demand in frontier areas for exploration and appraisal drilling, not helped by the corruption investigations in Brazil. Meanwhile, jack-up drilling rig rates have been equally hard hit, with shale gas production killing demand in one of their traditional major markets, the shallow water Gulf of Mexico. Utilisation of jack-ups is below 80%, and rates have fallen more than 35% to around $100,000/day.

Less Support For Vessels

This has had rapid knock-on consequences. The 5,365 vessels and 1,133 owners in the OSV market are also exposed to the downturn in exploration drilling and operational field maintenance. Fewer active rigs harms the AHTS market for rig towage and positioning, whilst PSVs rely on the growth in active offshore installations (drilling rigs, plus mobile and fixed production platforms) to add to demand. Rates for OSVs are down in all regions, by over 35% on average in terms of the index on the graph. PSVs have a further problem of a robust supply growth to contend with (and close to 40% of the fleet on order for the largest units over 4,000 dwt).

Of course, markets are cyclical, and the offshore sector had its moment in the sun during 2012/13, at a time when several of the merchant shipping markets were in the doldrums. Although the current oversupply in world oil markets of around 1.5m bpd is a clear short-term hurdle, projected demand trends suggest that higher oil prices remain a likely prospect in the long-term, and the improvement in other sectors suggests that there will eventually be light at the end of the tunnel for offshore too. It’s just that it could be a little way off yet. Have a nice day.

SIW1080Fuel efficiency has become one of the hottest topics in shipping. Any new design now comes equipped with a whole host of ‘Eco’ features to reduce consumption and emissions. But shipping is not alone in this shift. The car drivers of the US form one of the largest parts of global oil demand (12%) and they have also been reacting to recession and high oil prices by reducing fuel consumption. Yet, paradoxically, this has turned out to be a net positive for product tankers

Vroom Vroom

Motorists in North America accounted for 10.4m bpd of oil demand in 2012, forming the lion’s share of the 23.7m bpd of overall North American oil demand. This has long made the US the largest single component of global oil demand. But since a peak in summer 2007, the growth in the amount of driving being done by Americans has ceased: the latest figures are around 10 billion miles per month below the peak, and the impact of the often discussed sea-sonal upturn during the “driving season” (US holidaying promotes long-distance driving) has been weak.

Circling the Station-Wagons

US driving patterns have been interrupted before: in the early 1990s, in 1978-9 and 1973-4, as the graph shows. That is to say, during the other periods in the last 40 years when shocks to the US economy have dampened consumer demand for car usage. But post-2009, this has been compounded by a significant improvement in new vehicle fuel economy – just like the one now on its way in new ships.

All this is problematic for the major import trades into the USA, both in terms of direct gasoline imports, and crude imports for refining. Transatlantic gasoline trade remains a mainstay of MR requirement. However, demand is less than it was: in 2008 the US imported 0.63m bpd of products from Northern Europe, but this was down to 0.40m bpd in 2012. At the same time, crude imports by the US have also been declining steadily.

Actually a Good Thing?

So, is this an exclusively negative story for products tankers? Not necessarily (though lower US crude imports certainly don’t help their larger cousins). The shale oil boom and weak local demand have generated strong growth in US product exports. Most of this is gasoil, with much being exported to Europe, allowing triangulation, or to South America (up 30% y-o-y in 2012). US gasoline exports to South America have also grown: by 69% in 2010 and 41% in 2011. At 0.62m bpd of total products trade, US-South America is now a significant trade flow exceeding the transatlantic gasoline trade.

Moreover, the distances from the US Gulf to the west and east coasts of South America are more than that from Rotterdam to New York: by around 25% and 60% respectively. So, the more parsimonious attitude of US drivers towards fuel consumption is actually producing a net tonne-mile boost for product tankers – the drop in demand at least generating some good news. Have a nice day.