Tankers are looking for a safe harbor
Global tanker market is having a tough time amid trade wars, excessive tonnage and reduction of oil production in OPEC+ countries. The situation can improve with introduction of tougher sulfur content requirements for marine fuel from 2020, increased demand for oil products and decrease of tonnage. In this case, Russia can become a “safe harbor” for the domestic tanker fleet.
On the market waves
Almost all large tanker companies in the world reported loss results in the first half of 2018. For example, consolidated net loss of Teekay totaled about $48 million, Euronav - $51.6 million, Torm - $7.5 million, Team Tankers - $2.9 million, DHT Holdings - $37.4 million, International Seaways - $48.11 million, Hafnia Tankers - $12,03 million, Sovcomflot - $57.8 million.
The loss should be primarily attributed to the reduction of time-charter equivalent, decline in OPEC+ supply, plummeting output from Venezuela, large stock and excessive tanker tonnage in the market.
According to Teekay, A total of 15.7 million deadweight tonnes (mdwt) of vessels were removed from the fleet in the first half of 2018 while 15.8 mdwt of newbuildings entered the fleet.
Sovcomflot says that in the first half of 2018, the tanker freight market remained challenging, with conventional tanker freight rates still well below the average levels seen over the last quarter of a century. Spot tanker earnings in H1 2018 saw a substantial decline and, for some market segments, remained more than 50 per cent below the levels of H1 2017.
Tankers with expired time-charter contracts started entering “low” spot market with the corresponding financial effect.
According to MOL analysts, the recent decade has seen average monthly spot rates for VLCCs having dropped ten times from more than $200,000 per day to about $20,000 per day. In 2018, the fall should be attributed primarily to reduced average rates in VLCC and Aframax segments.
In the segment of product carriers, average monthly spot rates fell almost six times from about $55,000 in the end of 2008 to about $8,500-$9,000 in 2018. In 2018, the fall of rates was caused primarily by reduced average rates in MR segment (up to $8,600 per day).
Teekay believes the new IMO regulations on sulphur content in bunker fuels due to come into force on January 1, 2020, could be positive for tanker demand. According to the company, some of the potential impacts that would benefit the tanker market include an increase in crude tanker trade due to increased refinery utilization and throughput in order to produce more low-sulphur fuels; an increase in clean tanker trade due to the increased production of low-sulphur fuel and the need to deliver these fuels to global bunker markets; and loating storage demand for both clean products (building inventories of low-sulphur fuel prior to 2020) and dirty products (a need to store excess fuel oil post-2020).
Meanwhile, the year of 2019 will see the peak of tankers deliveries. Reduction of excessive tonnage is needed for stabilization of the freight market. It seems to happen by 2020.
When speaking about the ecology, it should be noted that this issue will reflect on fuel systems of the new tankers. For example, Torm says it will install scrubbers on 14 vessels while Sovcomflot is building tankers driven by liquefied natural gas (LNG). In February 2018, SCF & Shell adopted cleaner-burning LNG as primary fuel for Aframax tankers and concluded long-term time-charter agreements for two dual-fuelled Aframax tankers ordered by Sovcomflot (Gagarin Prospect, the first vessel of the series, delivered in July 2018).
Commenting on the Group’s results Sergey Frank, President and CEO of PAO Sovcomflot, said: “During the first half 2018 we achieved a significant milestone with our industry partner Royal Dutch Shell, through signing a long-term time-charter agreement for the first LNG-powered ‘Green Funnel’ Aframax tankers, setting new standards for emissions and making the tanker industry greener. It is industry-leading innovations such as these, together with Sovcomflot’s unique expertise of operating in harsh environments, as well as our highly experienced team of seafarers, that leaves us better positioned for the future”.
In May 2018, Sovcomflot and Rosnefteflot signed an agreement whereby SCF’s specialists will provide technical supervision during the construction of Rosneft’s new LNG-fuelled Aframax tankers at Zvezda shipbuilding complex in Primorsky region.
Sovcomflot continues to pursue its strategic vision of industrializing its business-portfolio. Fixed income from industrial shipping businesses grew to account for 59.1 per cent of Sovcomflot’s total TCE revenue.
Measures undertaken by RF Ministry of Transport and Ministry of Industry and Trade to encourage and protect domestic shipping and shipbuilding as well as to give an impetus to the development of Arctic projects let us hope that Russia will become a kind of a “safe harbor” for the domestic tanker fleet.
Vitaly Chernov
