For those in a tanker
Virtually all largest tanker operators worldwide, excluding Sovcomflot of Russia that had successfully diversified its business, demonstrated a loss in the first half of 2019. Meanwhile, both refineries and tanker fleet operators are preparing for environmental restrictions effective from 2020.
On the waves of freight rates
Spot rates in the tanker market decreased in the second quarter of 2019, versus the first quarter of the year due to seasonal factors and modernization of refineries preparing for environmental restrictions toughening for marine fuel from 2020.
According to Anthony Gurnee, CEO of Ardmore Shipping Corporation, “the second quarter reflected a typical seasonal decline marked by notably high refinery maintenance levels, with refineries frontloading maintenance in preparation for increased throughput during the second half of 2019 to meet demand for IMO 2020-compliant low sulfur fuels”.
Hugo De Stoop, CEO of Euronav said in his turn: “Our thesis for 2019 always anticipated freight rate weakness to start during the second quarter as larger and longer than usual refinery maintenance programs ahead of IMO 2020, OPEC production cuts and heavy delivery newbuilding schedule would exacerbate seasonal lower cargo volumes. This has been the case but we are disappointed not to have seen a recovery in the rates yet. Nevertheless, we remain constructive on freight rate recovery in the fourth quarter, based on continued US crude export volume growth and IMO 2020 preparation and its related induced reductions to vessel supply.”
However, some companies have reduced their loss, year-on-year. Among them is Nordic American Tankers (NAT). The company’s report says: “political unrest is normally positively impacting demand for our ships. The relationship between China and the US should be seen in this light. This feature of the tanker market is not always understood by observers. Exports of oil from the US continues to increase, also providing additional employment for our Suezmax ships”.
Russia’s Sovcomflot stands out of the pack having demonstrated a considerable profit in the first half of the year. To a great extent, that should be attributed to a success of the business diversification strategy implying participation in industrial projects and focus on sophisticated fleet.
Virtually all largest tanker operators worldwide, excluding Sovcomflot of Russia that had successfully diversified its business, demonstrated a loss in the first half of 2019. Meanwhile, both refineries and tanker fleet operators are preparing for environmental restrictions effective from 2020.
On the waves of freight rates
Spot rates in the tanker market decreased in the second quarter of 2019, versus the first quarter of the year due to seasonal factors and modernization of refineries preparing for environmental restrictions toughening for marine fuel from 2020.
According to Anthony Gurnee, CEO of Ardmore Shipping Corporation, “the second quarter reflected a typical seasonal decline marked by notably high refinery maintenance levels, with refineries frontloading maintenance in preparation for increased throughput during the second half of 2019 to meet demand for IMO 2020-compliant low sulfur fuels”.
Hugo De Stoop, CEO of Euronav said in his turn: “Our thesis for 2019 always anticipated freight rate weakness to start during the second quarter as larger and longer than usual refinery maintenance programs ahead of IMO 2020, OPEC production cuts and heavy delivery newbuilding schedule would exacerbate seasonal lower cargo volumes. This has been the case but we are disappointed not to have seen a recovery in the rates yet. Nevertheless, we remain constructive on freight rate recovery in the fourth quarter, based on continued US crude export volume growth and IMO 2020 preparation and its related induced reductions to vessel supply.”
However, some companies have reduced their loss, year-on-year. Among them is Nordic American Tankers (NAT). The company’s report says: “political unrest is normally positively impacting demand for our ships. The relationship between China and the US should be seen in this light. This feature of the tanker market is not always understood by observers. Exports of oil from the US continues to increase, also providing additional employment for our Suezmax ships”.
Russia’s Sovcomflot stands out of the pack having demonstrated a considerable profit in the first half of the year. To a great extent, that should be attributed to a success of the business diversification strategy implying participation in industrial projects and focus on sophisticated fleet.
Sergey Frank, President and CEO of PAO Sovcomflot commented: “The company achieved significant growth in the first half of 2019 compared to the same period in 2018, exceeding our budget plans. The successful operation of SCF’s vessels serving industrial oil and gas projects, together with the growth of revenues from fleet operations in the conventional tanker market segments (oil and petroleum products), reflected certain improvements in the freight market, although spot rates did not reach their historical averages”.
Is there life after sulfur?
New IMO sulfur cap has an impact both on refineries and on ship owners since they have to find solutions to ensure compliance with new standards. Some of them opt for scrubbers, some – for liquefied natural gas (LNG).
Installation of scrubbers is a time consuming and labour intensive operation. For example, three LR2 tankers of Scorpio Tankers completed their scrubber installations during the second quarter of 2019 for aggregate costs of $8.6 million (which includes the cost of the scrubber and related installation costs) and incurred an aggregate of 108 offhire days. Three MR tankers completed their class required special surveys and scrubber installations during the second quarter of 2019 for aggregate costs of $9.5 million (which includes the drydock along with the cost of the scrubber and related installation costs) and incurred an aggregate of 165 offhire days. One ice-class 1A Handymax tanker completed its class required special survey and ballast water treatment system installation during the second quarter of 2019 for aggregate costs of $2.7 million (which includes the drydock along with the cost of the ballast water treatment system and related installation costs) and incurred an aggregate of 27 offhire days. Three MR tankers entered drydock for their class required special surveys, ballast water treatment system installations, and scrubber installations during the second quarter of 2019, all of which are expected to be completed during the third quarter of 2019. The aggregate costs are expected to be approximately $13.0 million (which includes the drydock along with the cost of the scrubbers, ballast water treatment systems and all related installation costs), and these vessels were offhire for an aggregate of 37 days during the second quarter of 2019. Two ice-class 1A Handymax tankers entered drydock for their class required special surveys and ballast water treatment system installations during the second quarter of 2019, which were completed during the third quarter of 2019. The aggregate cost is expected to be $4.0 million (which includes the drydock along with the cost of the ballast water treatment system and related installation costs), and these vessels were offhire for an aggregate of 46 days during the second quarter of 2019.
Read our article about scrubbers >>>>
Sovcomflot has opted for LNG and the Korolev Prospect, the company’s LNG-fuelled Aframax crude oil tanker, has recently successfully completed a commercial voyage along the Northern Sea Route (NSR). For the first time in the history of shipping, a large-capacity oil tanker has crossed the full length of the NSR using only cleaner-burning LNG fuel. Russian President Vladimir Putin earlier emphasized the necessity of gas fuel application in the Arctic to mitigate the negative impact on the environment. Besides, application of gas fuel by Sovcomflot has given an impetus to creation of special bunkering infrastructure in Russia.
Although most of tanker operators expect positive changes in the freight market, the level of uncertainty is very high due to geopolitical tension (trade confrontation of the USA and China, sanctions ag Iran etc.) and hardly predictable implications of new environmental requirements related to oil processing and shipping. In this situation, those able to diversify their business, enter long-term industrial projects and prepare their ships for new fuel requirements will keep things on an even keel.
Vitaly Chernov
