dnb markets shipping

DNB Markets Shipping

Nicolay Dyvik +47 24 16 91 87 | [email protected]

Øyvind Berle, PhD +47 24 16 91 88 | [email protected]

Petter Haugen +47 24 16 91 86 | [email protected]

CONTENT

1. Sector overview, p. 2

2. Top pics, p. 9

3. Sub-sectors:

Dry bulk, p. 12

Product, 43

Chemical, 24

LNG, 31

Container, 37

Crude, 58

LPG, 70

Bulk, 75

4. Asset values, 82

5. Future game changers, 84

November 2014




• Shipping from a cycle perspective

• Shipping recovery in 2013 thanks to slow-steaming

• Lower oil prices is not what shipping needs

• Dry bulk market

• Crude tanker market

Table of content

Shipping from a cycle perspective







4 Shipping from a cycle perspective

-1

-0.5

0

0.5

1

1.5

111

21

31

41

51

61

71

81

91

10

111

112

113

114

115

116

117

118

119

120

121

122

123

124

125

126

127

128

129

130

131

132

133

134

135

136

137

138

139

140

141

142

143

144

145

146

147

148

149

150

151

152

153

154

155

156

157

158

159

160

161

162

163

164

165

166

167

168

169

170

171

172

173

174

175

176

177

178

179

180

181

182

183

184

185

186

187

188

189

190

191

192

193

194

195

196

1

Utilis

ation

Time

Car carriers

Chemicals

Containers

Dry Bulk

Crude tankers

LNG shipping

Product tankers

LPG

FSRU market

FLNG market

Shipping recovery in 2013 thanks to slow-steaming

Lower oil prices is not what shipping needs







6

VLCC speed (knots)

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0Q

2-0

8

Q3

-08

Q4

-08

Q1

-09

Q2

-09

Q3

-09

Q4

-09

Q1

-10

Q2

-10

Q3

-10

Q4

-10

Q1

-11

Q2

-11

Q3

-11

Q4

-11

Q1

-12

Q2

-12

Q3

-12

Q4

-12

Q1

-13

Q2

-13

Q3

-13

Q4

-13

Q1

-14

Q2

-14

Q3

-14

YT

D-1

4

La

st

20 d

ays

La

st

5 d

ays

Tanker

speed (

knot)

Source: AIS Live and DNB Markets

High bunker (oil) prices

and low rates have led to

a sharp decline in VLCC

speed (knots) increasing

capacity utilization...

…while a USD20/bbl

decline in the oil price and

rate recovery have led to a

speed increase adding

capacity to the market

We calculate that 10-12%

of crude tanker fleet is tied

up in slowsteaming




7

Historical vessel hire and bunker costs for a VLCC vessel (%)

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

100 %1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Tra

nsp

ort

ati

on

co

st

as %

of

tota

l d

eli

vere

d c

ost

% financing cost % bunker cost % hire cost Bunker cost has increased

from 20% to 80% from the

80ies until today




8

Freight cost in laden condition for a VLCC

12.2

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

5.0

6.0

7.0

8.0

9.0

10

.0

11

.0

12

.0

13

.0

14

.0

15

.0

16

.0

US

D/to

nn

e

Vessel speed (knot)

Port cost TC cost Bunker cost Financing cost Optimal speed




9

Every freight rate and oil price has its optimal VLCC speed (knots) Optimal laden speed increased from 13.8 to c14.5 knots

5.5

Bunker price 2500 5000 7500 10000 12500 15000 17500 20000 22500 25000 27500 30000 32500 35000 37500 40000 42500 45000 47500 50000

100 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6

150 16.0 16.3 16.5 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6

200 15.1 15.3 15.5 15.7 15.9 16.0 16.2 16.4 16.5 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6 16.6

250 14.4 14.6 14.8 15.0 15.1 15.3 15.4 15.6 15.7 15.9 16.0 16.1 16.3 16.4 16.6 16.6 16.6 16.6 16.6 16.6

300 13.9 14.1 14.2 14.4 14.6 14.7 14.9 15.0 15.1 15.3 15.4 15.5 15.7 15.8 15.9 16.0 16.1 16.2 16.3 16.5

350 13.4 13.6 13.8 13.9 14.1 14.2 14.4 14.5 14.7 14.8 14.9 15.0 15.1 15.3 15.4 15.5 15.6 15.7 15.8 15.9

400 13.1 13.2 13.4 13.6 13.7 13.8 14.0 14.1 14.2 14.4 14.5 14.6 14.7 14.8 14.9 15.1 15.2 15.3 15.4 15.5

450 12.8 12.9 13.1 13.2 13.4 13.5 13.6 13.8 13.9 14.0 14.1 14.3 14.4 14.5 14.6 14.7 14.8 14.9 15.0 15.1

500 12.5 12.6 12.8 12.9 13.1 13.2 13.4 13.5 13.6 13.7 13.8 13.9 14.1 14.2 14.3 14.4 14.5 14.6 14.6 14.7

550 12.2 12.4 12.6 12.7 12.8 13.0 13.1 13.2 13.3 13.5 13.6 13.7 13.8 13.9 14.0 14.1 14.2 14.3 14.4 14.4

600 12.0 12.2 12.3 12.5 12.6 12.7 12.9 13.0 13.1 13.2 13.3 13.4 13.5 13.6 13.7 13.8 13.9 14.0 14.1 14.2

650 11.8 12.0 12.1 12.3 12.4 12.5 12.7 12.8 12.9 13.0 13.1 13.2 13.3 13.4 13.5 13.6 13.7 13.8 13.9 14.0

700 11.7 11.8 11.9 12.1 12.2 12.3 12.5 12.6 12.7 12.8 12.9 13.0 13.1 13.2 13.3 13.4 13.5 13.6 13.7 13.7

750 11.5 11.6 11.8 11.9 12.0 12.2 12.3 12.4 12.5 12.6 12.7 12.8 12.9 13.0 13.1 13.2 13.3 13.4 13.5 13.5

800 11.4 11.5 11.6 11.8 11.9 12.0 12.1 12.2 12.3 12.5 12.6 12.7 12.8 12.8 12.9 13.0 13.1 13.2 13.3 13.4

850 11.2 11.4 11.5 11.6 11.7 11.9 12.0 12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8 12.9 13.0 13.0 13.1 13.2

900 11.1 11.2 11.4 11.5 11.6 11.7 11.8 12.0 12.1 12.2 12.3 12.4 12.5 12.5 12.6 12.7 12.8 12.9 13.0 13.0

950 11.0 11.1 11.2 11.4 11.5 11.6 11.7 11.8 11.9 12.0 12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.7 12.8 12.9

1000 10.9 11.0 11.1 11.3 11.4 11.5 11.6 11.7 11.8 11.9 12.0 12.1 12.2 12.3 12.4 12.4 12.5 12.6 12.7 12.8

OPTIMAL SPEED LADEN

TC rates [$/day]

Dry bulk







11

Capesize market performing while smaller vessel sees lower rates

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

jan feb mar apr may jun jul aug sep oct nov dec

Capesiz

e s

pot

rate

s (

C4T

C,

US

D/d

ay)

2014 2013 2012 2011

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000


Panam

ax s

pot

rate

s (

P4T

C,

US

D/d

ay)

2014 2013 2012 2011

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000


Supra

max s

pot

rate

s (

S6T

C, U

SD

/day)

2014 2013 2012 2011

Capesize spot rates Panamax spot rates

Supramax spot rates

Iron ore







13

2014 has been a very good year in the seaborne iron ore market

Brazilian iron ore exports up 5% YTD Australian iron ore exports up 26% YTD

15.0

25.0

35.0

45.0

55.0

65.0

75.0

Austr

alia

n iro

n o

re e

xport

s (

m tonne p

er

month

)

2010 2011 2012 2013 2014

15.0

17.0

19.0

21.0

23.0

25.0

27.0

29.0

31.0

33.0

35.0

Bra

zili

an iro

n o

re e

xport

s (

m tonne p

er

month

)

2010 2011 2012 2013 2014




14

Chinese iron ore imports up 16% YTD

YOY growth by month YTD Chinese iron ore imports up 16% YTD

15.0

25.0

35.0

45.0

55.0

65.0

75.0

85.0

95.0

Ch

inese iro

n o

re im

port

s (

m tonne p

er

month

)

2010 2011 2012 2013 2014

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Ja

nu

ary

Feb

rua

ry

Marc

h

Apri

l

May

Ju

ne

Ju

ly

Aug

ust

Sep

tem

ber

Octo

ber

No

vem

be

r

De

cem

be

r

YO

Y g

row

th

Brazil

Australia

China




15

DNB full-year iron ore growth estimates versus YTD growth

26%

5%

18%

11%

0%

5%

10%

15%

20%

25%

30%

Australia Brazil

Exp

ort

gro

wth

2014 v

s 2

013 (

%)

Actual YTD DNB full year




16

How we look at spot rate formation in shipping




17

Our positive view on iron ore imports is taken from our annual iron

ore and coal survey where we contact 90% of the industry

-3%

-6%

-5%

-6%

-9%

-8%

-10%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1,500

2,000

2,500

3,000

3,500

4,000

2013e 2014e 2015e 2016e 2017e 2018e 2019e

2014-

vs 2

013-s

urv

ey

(%)

Expecte

d e

xport

s (

m tonne)

2014-survey 2013-survey

2012-survey 2014 vs 2013>>




18

Lower Chinese iron ore prices has been good for Chinese import

substitution

168

128 135

102

93 96

94

84

80

76 78

76

76 76

76

76

73

72

73

30

50

70

90

110

130

150

170

19020

11

20

12

20

13

YT

D20

14

Ju

n-1

4

Ju

l-14

Aug

-14

Sep

-14

Oct-

14

No

v-1

4

04

.11.2

01

4

05

.11.2

01

4

06

.11.2

01

4

07

.11.2

01

4

10

.11.2

01

4

La

st

20

15

20

16

20

17

By year Last 6 mths Last 6 observations Forward

Invento

rie

s (

m tonne;

days

of

import

)

Source: Bloomberg (various)




19 Current level on iron ore prices makes most of Chinese domestic

production loss-making (CIF China, USD/tonne)




20

Expected growth in iron ore exports based on our survey

13%13%

8%

7%

15%14%

8% 8%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2014e 2015e 2016e 2017e

Gro

wth

in

iro

n o

re e

xport

s (

%)

DNB estimate of growth Expected growth from survey respondents




21

USD80/tonne is not a problem, but USD65/tonne would be

30 35 40 45 50 55

50 16,168 5,571 -5,027 -15,625 -26,223 -36,821

55 26,766 16,168 5,571 -5,027 -15,625 -26,223

60 37,364 26,766 16,168 5,571 -5,027 -15,625

65 47,962 37,364 26,766 16,168 5,571 -5,027

70 58,560 47,962 37,364 26,766 16,168 5,571

75 69,158 58,560 47,962 37,364 26,766 16,168

80 79,755 69,158 58,560 47,962 37,364 26,766

85 90,353 79,755 69,158 58,560 47,962 37,364

90 100,951 90,353 79,755 69,158 58,560 47,962

95 111,549 100,951 90,353 79,755 69,158 58,560

100 122,147 111,549 100,951 90,353 79,755 69,158

105 132,745 122,147 111,549 100,951 90,353 79,755

110 143,342 132,745 122,147 111,549 100,951 90,353

FOB Brazil (USD/tonne)

CIF

Ch

ina

(U

SD

/to

nn

e)

Assumptions

Intake 180 k tonne

Distance 12000 n miles

Vsl speed 13 knot

Voy length 76.9 days

Port days 8 days

Bunker price 600 USD/tonne

Cons per day 45 tonne/day

Coal







23

Chinese coal imports set for a 14% YOY decline (run-rate)

Chinese coal imports by quarter (m tonnes) Chinese coal imports (m tonnes)

14

3538

4044

37

4244

32

38

53

5962

78

63

86

80 79 80

8884

76

63

0

10

20

30

40

50

60

70

80

90

100

Ch

ine

se

co

al im

po

rts (

m to

nn

es)

127

166

183

289

327

283

210 %

31 %

10 %

58 %

13 %

-14 %

-50 %

0 %

50 %

100 %

150 %

200 %

250 %

0

50

100

150

200

250

300

350

2009 2010 2011 2012 2013 2014e

YO

Y c

hange in im

port

s (

%)

Chin

ese c

oal im

port

s (

m tonnes)




24

Chinese coal prices; average 2014 price 10% below 2013 (full-year)

average

70

80

90

100

110

120

13020

10

20

11

20

12

20

13

YT

D14

No

v-1

3

De

c-1

3

Ja

n-1

4

Feb

-14

Mar-

14

Apr-

14

Ma

y-1

4

Ju

n-1

4

Ju

l-14

Au

g-1

4

Sep

-14

Oct-

14

No

v-1

4

Cu

rre

nt

By year Last 12 mths

Ch

inese c

oal price

s (

6000kcal/kg,

excl

VA

T)




25

…which again is caused by weak coal prices …

Chinese coal prices are down about 50% from 2011, taking away the arbitrage for Atlantic coal

1825

34

47 47

29 27

0

20

40

60

80

100

120

140

2008 2009 2010 2011 2012 2013 2014Coal price (

6000kcal/kg,

US

D/tonne)

China; last:82.2, last update 11/07/2014

US; 23 USD/tonne less than China, last update 25/07/2014

Spread China-US (FOB Big Sandy River)




26 …as the global supply curve relatively expensive compared with

iron ore (these are FOB prices, i.e. excluding freight)

BEIJING, July 24 (Reuters) -

More than 70 percent of

China's coal firms are making

losses, the head of the coal

industry association said on

Thursday, with prices eroded by

falling demand growth, a

worsening supply glut and a war

on smog.

Spot coal price in China is now

USD78/tonne (6000kcal/kg),

Cape spot is USD8/tonne (i.e.

would need FOB Aussie

USD70/tonne or less)




27

US coal exports down 17% YTD (2014 annualized)

53

44

3639

44 45 45

54

74

54

74

97

114

107

91

0

20

40

60

80

100

120

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

US

coal export

s (

metr

ic t

onnes)




28

2014e growth from the long haul Atlantic based exporters is down

70% in this year’s survey

6

20

47

7 8

18 18

10

19

29

2

6 5 5

0

5

10

15

20

25

30

35

40

45

50

Africa Asia Australia Canada Europe SouthAmerica

USA

Gro

wth

in c

oal export

s d

uring 2

014 (

m

tonne)

2013-report 2014-report




29

Summarizing coal: we forecast continued growth, but believe our

survey respondents are too optimistic

6%

7%

5% 5%

8%

10%

6%

5%

0%

2%

4%

6%

8%

10%

12%

2014e 2015e 2016e 2017e

Gro

wth

in c

oal export

s (

%)

DNB estimate of growth Expected growth from survey respondents

Supply/demand







31 Dry bulk investment case still applies as we believe China will act

(economically) rational and not subsidise domestic miners

Fleet growth set to hit 11-year low and… …demand looks solid (old=prior to August 2014)

3.0

% 4.4

%

2.6

%

2.4

%

6.8

%

7.1

%

6.8

%

6.6

%

6.7

%

10.0

%

17.0

%

14.9

%

10.6

%

5.7

%

5.0

% 6.8

%

5.9

%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

e

20

15

e

20

16

e

Annual fleet growth 2000-2013 average growth

5%

10%

12%

8%

4%

8%

10%

7%

0%

2%

4%

6%

8%

10%

12%

14%

2013 2014e 2015e 2016e

YO

Y incre

ase i

n t

on-m

ile d

em

and

Demand growth, old Demand growth, new




32 Without new ordering 2016e fleet growth is 5% when assuming

~1% scrapping while 2017e orderbook has yet to fill up

3%

6% 7%

7%

7%

5%

8%

16%

14%

11%

6%

5%

7%

5%

-1%

-10%

-5%

0%

5%

10%

15%

20%

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

e

20

15

e

20

16

e

20

17

e

Deliveries Scrapping Conventional fleet growth




33 …but high rates will be accompanied by more ordering, we think;

YTD ordering has overshot our model. 12

20 23 26

25

25

44

81

100

100

63

53

63

60

59

0

20

40

60

80

100

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

e

20

15

e

20

16

e

20

17

e

De

live

rie

s (

m d

wt)

Expected deliveries from new ordering (m dwt)

Expected deliveries from current OB (m dwt)

Historical deliveries (m dwt)

Series4

3%

8%

12%

11%

9%

17%

46%

27%

9%

23%

8%

4%

15%

10%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

YT

D14C

ontr

acting (

% o

f fleet

as s

tart

of

year)

Contracting as % of fleet Model contracting as % of fleet




34 We expect scrapping of 17m dwt in 2014e, while YTD14 scrapping

is lagging our model -4

0

-1 -2

-1

-6

-11

-7

-23

-33

-23

-17

-12

-13

-13

-40

-35

-30

-25

-20

-15

-10

-5

0

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

e

20

15

e

20

16

e

20

17

e

Scra

ppin

g (

m d

wt)

Historical scrapping (m dwt) Expected scrapping (m dwt) Series4

We expect 17m dwt scrapped this year

YTD14

y = 0.0001x - 0.003R² = 0.5835

0.0 %

1.0 %

2.0 %

3.0 %

4.0 %

5.0 %

6.0 %

80 180 280 380 480 580

Scra

ppin

g a

s %

of

fleet

Scrap price / earnings

Our scrapping model

Dry bulk market balance

35




36

Spot rate estimates (old = prior to 14 August)

26,0

00

37,0

00

35,0

00

16,0

00

29,0

00

26,0

00

28,0

00

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2014e 2015e 2016e 2017e

US

D/d

ay

Capesize (USD/day), old Capesize (USD/day), new

15,0

00

21,0

00

20,0

00

8,0

00

17,0

00

16,0

00

17,0

00

0

5,000

10,000

15,000

20,000

25,000

2014e 2015e 2016e 2017e

US

D/d

ay

Panamax (USD/day), old Panamax (USD/day), new

15,0

00

19,0

00

18,0

00

10,0

00

16,0

00

15,0

00

16,0

00

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2014e 2015e 2016e 2017e

US

D/d

ay

Supramax (USD/day), old Supramax (USD/day), new

12,0

00

14,0

00

13,0

00

8,0

00

12,0

00

11,0

00

12,0

00

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2014e 2015e 2016e 2017e

US

D/d

ay

Handysize (USD/day), old Handysize (USD/day), new




37

Dry bulk market balance; actual utilisation is rather flat, because…

80%

86%

83%

84%

99%

96%

89%

93%

93%

89%

90% 9

2%

86%

86%

86%

87%

88%

81%

73%

72% 73% 75%

74%

75%

60%

65%

70%

75%

80%

85%

90%

95%

100%

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

e

20

15

e

20

16

e

20

17

e

Utilis

atio

n o

f th

e d

ry b

ulk

fle

et

(%)

Utilisation (adjusted for speed) (%) Conventional utilisation (not speed adjusted) (%)




38

…higher speed will add supply

11.2

10.910.9

12.312.2

12.3

10.0

10.5

11.0

11.5

12.0

12.5

2012 2013 2014e 2015e 2016e 2017e

Actu

al speed f

ore

cast, t

ota

l fleet

weig

hte

d

by

dw

t (k

not)

Actual speed estimate

Crude tankers







40

VLCC spot rates showing strength into high season

1917

22

1719 18

9

4 5

9

28

13

2

64

14

19

16

68

16

49

52

39 39

2421

15

19

3331

19

32

47

0

10

20

30

40

50

60

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

VL

CC

ra

tes (

US

D/d

ay)

3 year avg. 2013 2014

0 %

20 %

40 %

60 %

80 %

100 %

120 %

140 %

160 %

180 %

200 %


Seasonality rates Average of the year

2013 2014

Monthly VLCC rates (1,000/day VLCC seasonality compared to yearly average

Demand outlook




CONTENT


2. Top pics, p. 9

3. Sub-sectors:

Dry bulk, p. 12

Product, 43

Chemical, 24

LNG, 31

Container, 37

Crude, 58

LPG, 70

Bulk, 75

4. Asset values, 82





42

US crude export, 2000–YTD

0

50

100

150

200

250

300

350

400

450Ja

n-2

00

0

Oct-

200

0

Ju

l-20

01

Apr-

200

2

Ja

n-2

00

3

Oct-

200

3

Ju

l-20

04

Apr-

200

5

Ja

n-2

00

6

Oct-

200

6

Ju

l-20

07

Apr-

200

8

Ja

n-2

00

9

Oct-

200

9

Ju

l-20

10

Apr-

201

1

Ja

n-2

01

2

Oct-

201

2

Ju

l-20

13

Apr-

201

4

US

cru

de e

xport

s (

k b

pd)

In our previous outlook

report on 21 March, we

expected US exports of

375k bpd for 2016e.

But since then we have

become more confident

on US exports, as we

observed a steep

increase of exports in

June and July of close to

0.4m bpd.

More or less all exports

go to Canada, but

regardless of the

destination this means

that US imports – in

particular from the Middle

East – have not declined

as much as they would

have.




43 US crude production at its highest level since 1986 as its has grown

by an average of 985kbpd over the past three years

0

2,000

4,000

6,000

8,000

10,000

12,000

Ja

n-2

0

Oct-

24

Ju

l-29

Apr-

34

Ja

n-3

9

Oct-

43

Ju

l-48

Apr-

53

Ja

n-5

8

Oct-

62

Ju

l-67

Apr-

72

Ja

n-7

7

Oct-

81

Ju

l-86

Apr-

91

Ja

n-9

6

Oct-

00

Ju

l-05

Apr-

10

US

cru

de o

il pro

duction (

kbpd)




44 …which has reduced imports, but not 1:1 mainly due to increased

export of petroleum exports…

0

2,000

4,000

6,000

8,000

10,000

12,000

Ja

n-2

0

Oct-

24

Ju

l-29

Apr-

34

Ja

n-3

9

Oct-

43

Ju

l-48

Apr-

53

Ja

n-5

8

Oct-

62

Ju

l-67

Apr-

72

Ja

n-7

7

Oct-

81

Ju

l-86

Apr-

91

Ja

n-9

6

Oct-

00

Ju

l-05

Apr-

10

US

net

cru

de im

port

s (

kbpd)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Ja

n-1

98

1

Sep

-198

2

May-1

984

Ja

n-1

98

6

Sep

-198

7

May-1

989

Ja

n-1

99

1

Sep

-199

2

May-1

994

Ja

n-1

99

6

Sep

-199

7

May-1

999

Ja

n-2

00

1

Sep

-200

2

May-2

004

Ja

n-2

00

6

Sep

-200

7

May-2

009

Ja

n-2

01

1

Sep

-201

2

May-2

014

US

pro

duct

export

(k b

pd)




45

…and the reduction is mainly from near-distance sources

-244

-766

197

-282

-402

-813

-412

-1200

-1000

-800

-600

-400

-200

0

200

400

600

2008 2009 2010 2011 2012 2013 2014

Annual change in

im

port

s (

k b

pd)

Canada

Others

Africa

South and CentralAmerica (inclMexico)

Middle East

Net change




46 DNB now forecasts US crude exports of USD1m bpd in 2017

for mainly 3 reasons

In our new forecasts,

we expect US crude

exports of:

0.3m bpd for 2014e

(almost all for Canada)

0.5m bpd for 2015e (0.4m

for Canada)

0.8m bpd for 2016e (0.2m

for Canada. 0.2m to Asia

and 0.4m to Europe)

1m bpd for 2017

0

200

400

600

800

1,000

1,200

Cru

de e

xport

s (

kbpd)

USA




47

1) US crude oil production continues to surprise on the upside

(annual change in kbpd)

-104 32

-165

-151

-61

-527

204

-79 2

341

153

423

1,0

54

796 1

,104

-800

-600

-400

-200

0

200

400

600

800

1,000

1,200

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

*

Annual (D

ec-D

ec)

cru

de o

il pro

duction

incre

ase (

kbpd)

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

US

oil

pro

duction (

m b

pd)

2014-report

2013-report

2012-report

2011-report

2010-report

IEA’s estimates for US oil

production (including NGL)




48

1 continues) US crude oil production continues to surprise on the

upside (annual change in kbpd)

11.4

11.812.0

13.2

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.5

IEA's current estimates Applying average forecast error

US

oil

pro

duction (

m b

pd)

2014 2015

0.6

1.3

1.1

5%

11%

13%

0%

2%

4%

6%

8%

10%

12%

14%

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

2015 growth oncurrent estimates

2015 growth onadjustedestimates

Average growth2011-2013

US

oil

pro

duction g

row

th f

or

2015 (

%)

US

oil

pro

duction g

row

th f

or

2015 (

m b

pd)

m bpd %

IEA expects 0.6m bpd increase from 2014 to

2015, but adjusting for historical forecast error

this increases to 1.4m bpd… …which is in-line with past three years of

production increase.




49

2) and as US refineries are running at very high utilization…

70.0

75.0

80.0

85.0

90.0

95.0


U.S

. P

erc

ent

Utiliz

ation o

f R

efin

ery

O

pera

ble

Ca

pacity

2014 2013 2012 2011 15y avg




50 3) and as new refining capacity in the US is not sufficient to process

the large amount of new US crude and we do not expect a curb in

US oil production

29

75

-5

289

395

50

-50

0

50

100

150

200

250

300

350

400

450

2014 2015 2016 2017Cru

de d

estilla

tion a

dditio

ns a

nd e

xpansio

ns

(kbpd)

2013 2014

Refinery expansion in North America

104

214

-499

423

0

3,1

30

612

773

843

3367

29

-110

-429

422

0

2,2

90

775

608

1,3

28

275

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

OE

CD

Nort

hA

merica

OE

CD

Euro

pe

OE

CD

Pacific

FS

U

No

n-O

EC

DE

uro

pe

Ch

ina

Oth

er

Asia

La

tin

Am

erica

Mid

dle

East

Afr

ica

k b

pd

2013-report 2014-report

Total refinery additions for 2014-2017




51

US crude imports by quality

US crude imports by quality, 1983–YTD Average API degree for US imports, 1983–YTD

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Ja

n-1

98

3

Ju

l-1

98

4

Ja

n-1

98

6

Ju

l-1

98

7

Ja

n-1

98

9

Ju

l-19

90

Ja

n-1

99

2

Ju

l-1

99

3

Ja

n-1

99

5

Ju

l-19

96

Ja

n-1

99

8

Ju

l-1

99

9

Ja

n-2

00

1

Ju

l-2

00

2

Ja

n-2

00

4

Ju

l-2

00

5

Ja

n-2

00

7

Ju

l-2

00

8

Ja

n-2

01

0

Ju

l-2

01

1

Ja

n-2

01

3

k b

pd

Heavy Light

25

26

27

28

29

30

31

32

33

34

Ja

n-1

98

3

Ju

l-19

84

Ja

n-1

98

6

Ju

l-19

87

Ja

n-1

98

9

Ju

l-19

90

Ja

n-1

99

2

Ju

l-19

93

Ja

n-1

99

5

Ju

l-19

96

Ja

n-1

99

8

Ju

l-19

99

Ja

n-2

00

1

Ju

l-20

02

Ja

n-2

00

4

Ju

l-20

05

Ja

n-2

00

7

Ju

l-20

08

Ja

n-2

01

0

Ju

l-20

11

Ja

n-2

01

3

Avera

ge A

PI degre

e o

f U

S c

rude im

port

s

The main reason for the changes in the

sourcing pattern is crude oil quality. US

refineries have significant coking and

cracking capacity, which requires heavy

crude as feedstock to be fully utilised.

Higher share of heavy oil imports




52

US crude imports by selected countries

US crude imports, selected countries, 2008–YTD US crude imports, Africa and Middle East, 2008–

YTD

0

500

1000

1500

2000

2500

3000

Ja

n-0

8

Ju

l-08

Ja

n-0

9

Ju

l-09

Ja

n-1

0

Ju

l-10

Ja

n-1

1

Ju

l-11

Ja

n-1

2

Ju

l-12

Ja

n-1

3

Ju

l-13

Ja

n-1

4

US

cru

de im

port

(kbpd)

Middle East

North Africa

West Africa

0%

2%

4%

6%

8%

10%

12%

14%

Ja

n-2

00

8

Sep

-200

8

May-2

009

Ja

n-2

01

0

Sep

-201

0

May-2

011

Ja

n-2

01

2

Sep

-201

2

May-2

013

Ja

n-2

01

4

Share

of

tota

l U

S c

rude im

port

s

Africa share

Middle East share

US sourcing of imports has changed significantly in

recent years, particularly since 2008 when 10% of

US imports came from Africa, while this has fallen to

about 1–2% in 2014.

The share supplied from the Middle East

is increasing.




53

China crude imports by source and ton-mile demand increases

China crude imports by source, 2016e China crude imports, kbpd and barrel miles

From 2010 to 2013, Chinese imports rose

by 18% or 14% when adjusted for

distance to source.

On our forecasts, imports in 2017e will be

19% above the 2013 level and the barrel-

mile metric 22%

South & Central America

7%Former Soviet

Union12%

Middle East51%

North Africa2%

West Africa19%

East & Southern

Africa5%

Others4%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Cru

de im

port

barrel-miles kbpd

A potential upside for crude tankers would be if the

import increase was tilted more towards Atlantic-

based crude.

Dependent on how the Middle East responds to

potentially weaker prices on the back of the increase

in US production; if the Middle East (Saudi Arabia)

cuts back on exports to support the oil price (or

scales up refineries faster than generally expected)




54

Base-case trade forecast by importer Forecast average annual change 2014–2017e by

importer

Historical average annual change 2011–2013 by

importer

275

209176

4432 8 0 0 0 0 66

234

445

0

200

400

600

800

1000

An

nu

al a

ve

rag

e a

dd

itio

ns (

kb

pd

)

285

175

15754

36 24 20 12 15 27 27 499

175

0

200

400

600

800

1000

Annual avera

ge a

dditio

ns (

kbpd)

For 2015 we forecast a 275kbpd (previously 525kbpd) decline in US crude oil imports YOY driven by a

175kbpd decline from Africa, a decline of 170kbpd from South and Central America (including Mexico), and

imports from the Middle East still at 2m bpd.

For 2016 we forecast a 195kbpd (previously 164kbpd) decline in US crude oil imports YOY driven by a decline of

100kbpd from South and Central America and a decline of 500kbpd from the Middle East, and an increase in

imports of 500kbpd from Canada.




55

We forecast 2x ton-mile growth over volume growth

Old vs. new volumes transported (incl. pipeline) Old vs. new tonne-mile demand

0.3

%

0.2

%

2.5

%

0.8

%

0.8

%

1.2

%

1.8

%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

2014e 2015e 2016e 2017e

YO

Y incre

ase in t

ransport

ed v

olu

mes

Volume growth, old Volume growth, new

0.1

%

-0.3

%

0.4

%

2.2

%

1.8

%

2.8

%

0.7

%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2014e 2015e 2016e 2017e

YO

Y incre

ase in t

on

-mile

dem

and

Demand growth, old Demand growth, new

Supply




CONTENT


2. Top pics, p. 9

3. Sub-sectors:

Dry bulk, p. 12

Product, 43

Chemical, 24

LNG, 31

Container, 37

Crude, 58

LPG, 70

Bulk, 75

4. Asset values, 82





57

Crude tanker supply Zero fleet growth for two consecutive years in 2014

and 2015…

…and a meagre fleet growth of 1% in 2017e

excluding our contracting forecast 3%

5%

8%

5% 6

%

6%

9%

7%

8%

5%

2%

0%

0%

4%

4%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

e

20

15

e

20

16

e

20

17

e


3%

5%

8%

5% 6

%

6%

9%

7% 8

%

5%

2%

0%

0%

4%

-1%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

e

20

15

e

20

16

e

20

17

e





58 Annualised, smoothed monthly growth versus YOY growth shows

very low fleet growth over next 24 months

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Ja

n-0

3

Sep

-03

May-0

4

Ja

n-0

5

Sep

-05

May-0

6

Ja

n-0

7

Sep

-07

May-0

8

Ja

n-0

9

Sep

-09

May-1

0

Ja

n-1

1

Sep

-11

May-1

2

Ja

n-1

3

Sep

-13

May-1

4

Ja

n-1

5

Sep

-15

May-1

6

Ja

n-1

7

Sep

-17

Annual fleet

gro

wth

YOY 3mths MA annualised




59

Scrapping forecasts

-15.7

-5.9

-2.6 -1

.0

-1.1

-2.3

-5.1

-7.3

-7.0

-8.0

-8.5

-8.3

-6.2

-6.1

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

-20.0

-18.0

-16.0

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.020

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

e

20

15

e

20

16

e

Scra

ppin

g (

m d

wt)

Historical scrapping (m dwt)

Expected scrapping (m dwt)

% of fleet start of year >>




60

Renewal survey schedule for the current fleet

0.1% 0.2% 0.3% 0.7%1.0%1.9% 1.5%

2.6%

5.2% 3.5%5.5%

6.7%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2015e 2016e 2017e 2018e

% o

f fleet

% of fleet doing the 3th renewal survey



Rates & utilization




CONTENT


2. Top pics, p. 9

3. Sub-sectors:

Dry bulk, p. 12

Product, 43

Chemical, 24

LNG, 31

Container, 37

Crude, 58

LPG, 70

Bulk, 75

4. Asset values, 82





62

2015 VLCC rate forecast raised by 40% and by 50% for 2016…

Old vs. new VLCC spot rate forecast Old vs. new suezmax spot rate forecast

28,0

00

30,0

00

29,0

00

30,0

00

41,0

00

42,0

00

36,0

00

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2014e 2015e 2016e 2017e

US

D/d

ay

VLCC (USD/day), old VLCC (USD/day), new

21,0

00 25,0

00

25,0

00

20,0

00

30,0

00

31,0

00

28,0

00

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2014e 2015e 2016e 2017e

US

D/d

ay

Suezmax (USD/day), old Suezmax (USD/day), new

Old vs. new speed adj. utilization (%)

90%

88%

87%

92%

88%

88%

86%

82%

83%

84%

85%

86%

87%

88%

89%

90%

91%

92%

93%

2014e 2015e 2016e 2017e

Utilisation, old Utilisation, new

Selected crude market slides




CONTENT


2. Top pics, p. 9

3. Sub-sectors:

Dry bulk, p. 12

Product, 43

Chemical, 24

LNG, 31

Container, 37

Crude, 58

LPG, 70

Bulk, 75

4. Asset values, 82





64

Long Term Oil Price Forecast – New

Historical Historical

Nominal $/b Real (2013) $/b

2001 24.4 32.2

2002 25.0 32.4

2003 28.8 36.5

2004 38.3 47.2

2005 54.5 65.0

2006 65.1 75.3

2007 72.4 81.3

2008 97.3 105.2

2009 61.7 67.0

2010 79.5 84.9

2011 111.3 115.2

2012 111.7 113.3

2013 108.7 108.7

Forecast Forecast

Nominal $/b Real (2014) $/b

Q1-14 108 108

Q2-14 110 110

Q3-14 104 104

Q4-14 85 85

2014 102 102

2015 80 80

2016 85 84

2017 88 85

2018 90 85

2019 93 86

2020 95 86

0

20

40

60

80

100

120

140

160

1995 1998 2001 2004 2007 2010 2013 2016 2019

$/b

Spot Brent History & FWD looking

Possible range FWD (nominal) Forecast nominal

Historical Forecast real (2014 USD)Source: Reuters, DNB Markets




65

70-90 $/b Brent Required For Further Growth

Source: Rystad Energy




66

Why Should Saudi Cut Its Exports? - Same revenues in 2015 by keeping exports and letting oil prices slide to 85 $/b

Volume cut:

2015 Million b/d $/b price Revenue billion $Saudi oil exports 2014: 8.3 100 303

Saudi exports cut 2015: 1.3

Saudi production after cut: 7.0 100 256

No volume cut:

2015 Million b/d $/b price Revenue billion $Saudi oil exports 2014: 8.3 100 303

Saudi no exports cut: 0.0

Saudi exports after cut: 8.3 85 258

0

50

100

150

200

250

300

350

2000 2003 2006 2009 2012 2015 2018 2021 2024

Saudi Oil Revenues In Billion USD

Calculated total oil exports revenues if Saudi cuts 1.3 mbd in 2015 and 400kbd in each year there after, OPEC basket price 100 $/b

Calculated total oil exports revenues if Saudi only cut exports 0.5 mbd in2015, flat exports at 7.8 mbd there after, OPEC basket 80 $/b

Source: JODI, IEA, DNB

Saudi is better off by

2017 when cutting

0.5mbd in 2015 with

flat exports at 7.8mbd

at oil price of

USD80/b…

…than cutting

1.3mbd with an oil

price of USD100/b




67

Saudi Benefits Of A Lower Oil Price

-Saudi can afford to think a bit more long term

• Better global oil demand

• Lower growth in US shale oil production

• The shale industry will spread slower to the rest of the world

• Iran will be significantly hurt by lower oil prices

• Lower investments also in the offshore industry

• Negative for alternative energy sources and hence good for Saudi Arabia

• Discipline the rest of the cartel




68

68

Oil Stocks Have Been Building So Far In 2014 - OECD oil stocks are up 131 million barrels Jan-Aug (0.54 mbd)

2,500

2,550

2,600

2,650

2,700

2,750

2,800


Millio

n barr

els

OECD Total Oil Industry Stocks

5 year range 5 year avg 2013 2014Source: IEA




69

69

Non OECD Oil Stocks Building 194 Million Barrels Jan-Aug 2014 - This equals 0.81 million b/d over supply so far in 2014 – And since July the market has been in steep contango…

3000

3050

3100

3150

3200

3250

3300

3350

3400

3450

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15

Mill

ion b

arr

els

Non-OECD Oil StocksJODI-data are adjusted for countries w ith irregular reporting - and China is added w ith Xinhua New s Agency Data

Source: JODI, DNB Markets




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