singapore council meeting may 10, 2012
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Singapore Council meeting May 10, 2012. Tanker market review Erik Ranheim Senior Manager Research & Projects. The Common Law of Business Balance. - PowerPoint PPT PresentationTRANSCRIPT
Leading the way; making a difference
Singapore Council meeting May 10, 2012
Tanker market review
Erik RanheimSenior Manager Research & Projects
Leading the way; making a difference
It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money — that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot — it can’t be done. If you deal with the lowest bidder, it is well to
The Common Law of Business Balance
John Ruskin (1819-1900)
add something for the risk you run, and if you do that you will have enough to pay for something better.
prominent social thinker and philanthropist
Leading the way; making a difference
Sustainability
Eco
no
mics
En
viron
men
t
So
ciety/Eq
uity
Transparency
Accountability
Responsibility
Leading the way; making a difference
An occurrence such as price ceilings, price floors, or tax subsidies that involves an intervention in a specific market by a governing body. A market distortion can have the ultimate effect of creating a market failure, where resources cannot be efficiently allocated due to the breakdown of price mechanism caused by factors such as establishment of monopolies.
However, it can also enhance the welfare of society and the availability of resources and presence of conditions required for reasonably comfortable, healthy, and secure living and it includes government support for the poor and otherwise disadvantaged members of the society, usually through provision of free and/or subsidized goods and services
Market distortion
Leading the way; making a difference
Failure in the tanker marker
• The tanker market is to a great extent part of the oil market the oil companies among the world biggest, and
• The oil companies do to a great extent set the standard• Commercially• Technically
• Demand development relatively steady• Strong fluctuation in freight rates and values• Fragmented ownership• Spot market dominance• Zeor tolerance for
Leading the way; making a difference
Contracting by Country/Region (all types of ships)
m cgt contracting
1996 – 2004, 519 contracts 13.6 m cgt
$ m price
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Pro120
20
40
60
80
100
0
15
30
45
60
75
Japan South Korea
P.R.China Europe
Others Average
Aframax NB price
2005 – 2008, 234 contracts
2008 – 2012283 contracts
Leading the way; making a difference
% growth
World GDP. Oil demand and seaborne trade growth
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
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
-10
-5
0
5
10
15
GDP
Oil demand
Tonne miles
Leading the way; making a difference
mbd
World GDP. Oil demand and seaborne trade growth
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
9
12
15
18
21
24
4,000
5,800
7,600
9,400
11,200
13,000
Middle East Oil Prod mbd
Tonne miles
Asia 50% dependent on Middle Europe 18% US 7%
bn tonne-miles
Source: Fearnleys/Platou
Leading the way; making a difference
mbd
Middle East oil production
OPEC production Mar 2012 31.43 mbdOPEC production sustainable production capacity: 34.91 mbdOPEC spare production capacity Feb. 2012 3.48 mbdOf which Saudi Arabia spare production capacity 1.88 mbd, Nigeria 2nd biggest 0.50 mbd
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 1116
17
18
19
20
21
22
23
24
Jan-10M
ar-10M
ay-10Jul-10Sep-10Nov-10Jan-11M
ar-11M
ay-11Jul-11Sep-11Nov-11Jan-12M
ar-12
21,000
22,000
23,000
24,000
Source: IEA
Leading the way; making a difference
mbd
World increase in oil demand China, Middle East, USA, ROW*and increase in world bio-fuel production
Source: INTERTANKO/IEA
19
95
19
96
19
97
19
98
19
99
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
-2.6
-2.2
-1.8
-1.4
-1.0
-0.6
-0.2
0.2
0.6
1.0
1.4
1.8
2.2
2.6
3.0
Rest of world* USA Middle East
China World Biofuels demand
Other Asia: 0.24
L America: 0.17
Africa: 0.16
FSU 0.13
Mexico/Canada -0.22
Europe -0.33
Middle East 0.21
USA -0.01
China 0.36
Others: 0.06
Total 0.77
Main Changes:
Area mbd
Leading the way; making a difference
mbd
World oil demand 2012 (and production self sufficieny %)
27.3% 16.5% 31,8% 8.5% 7.3% 4.8% 3.8%
OECD
China
Other
N America Europe Asia/Pacific Middle East Latin America FSU Africa0
5
10
15
20
25
30
Mexico
Canada
62%
USA
25%
29%
Production
Leading the way; making a difference
mbd
Oil import to selected areas
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
0
2
4
6
8
10
12
14
USA down 1.0 mbd since 2007 (peak)
Europe* down 1.2 mbd since 2003
OECD Asia** down 0.7 mbd since 2000
China up 2.7 mbd since 2000
* includes intra European import** Japan/Korea
Leading the way; making a difference
mbd
US net crude oil import and production Jan 83 - Feb 12
Jan-
83
Jan-
84
Jan-
85
Jan-
86
Jan-
87
Jan-
88
Jan-
89
Jan-
90
Jan-
91
Jan-
92
Jan-
93
Jan-
94
Jan-
95
Jan-
96
Jan-
97
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
120
2
4
6
8
10
Production
Net crude import
EIA expects U.S. total crude oil production to average 6.2 mbd in 2012, an increase of 0.5 mbd from last year, and the highest level of production since 1998 .
N American oil production +1.1 mbd 2010 - 2012 – demand declined 0.5 mbd
Leading the way; making a difference
US product import and export
mbd
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Export Import
Trade: 2000 3.0 mbd – 2006 4.5 mbd – 2012 4.9 mbd
Leading the way; making a difference
mbd
Oil price and freight rate
27.3% 16.5% 31,8% 8.5% 7.3% 4.8% 3.8%
19
70
19
71
19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
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
0
20
40
60
80
100
120
Nominal price Arab Light Real price Arab Light
Nominal freight rate AG-West Real freight rate AG-West
Deflated by the Consumer Price Index (USD)CPI* index 1982-84=100
Leading the way; making a difference
Oil market hightlights
• Arab light oil price 1990-2004 $20.0 per barrel• 2005-2012 $73.0 per barrel
now $110.0 per barrel• Energy efficiency measures accelerated• Oil is in the process of losing its almost total
domination as a transportation fuel • The US oil import the lowest since 1998• China’s growth rate curbed
• Still – positive growth and• Increased dependency on the Middle East
Leading the way; making a difference
Projected Tanker Fleet Development 1992-2013
m dwt number19
92
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
275
329
383
437
491
545
3,300
3,920
4,540
5,160
5,780
6,400
dwt Number
Leading the way; making a difference
Tanker deliveries and removals
m dwt
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015-25
-5
15
35 SH phase out
Scrapping/ conversion
Delveries
Balance deliv-eries - deletions
year
Assumed removal of double hull tankers
Leading the way; making a difference
Tanker phase out, deliveries, scrapping tankers 10,000 dwt+ balance(surplus) assuming various demand increases
m dwt
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015-25
0
25
50
75
Last phase out
Deletions
Delveries
Surplus zero trade growth
Surplus 2.5% trade growth
Surplus 4% trade growth
Surplus 6% trade growth
year
Assumed market balance end 2008
-1.8 % growth in 2009 3.8% growth in 20100.5% growth in 2011
Assumed removal DH tankers
Leading the way; making a difference
VLCC - 15 years old and scrap value
m $
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
4m
12
0
10
20
30
40
50
60
Source: Clarkson/SIW
Leading the way; making a difference
Tanker contracting by segment in bn USD and m dwt
$ bn
Source: Clarkson/SIW
m dwt
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
1Q12
0
11
22
33
44
55
0
17
34
51
68
85
Handy Aframaxes
Suezmaxes VLCCs
m dwt
m dwt
Leading the way; making a difference
Contracting by Country/Region (all types of ships)
m cgt contracting $ m Afra price
Average 18 m cgt Average 58 m cgt Average 30 m cgt
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Est120
20
40
60
80
100
0
15
30
45
60
75
Japan South Korea P.R.China
Europe Others Aframax NB price
Contracting by Country/Region (all types of ships)cgt $ m price
Leading the way; making a difference
Deliveries by Country/Region (all types of ships)
m cgt contracting
Average 18.3 m cgt Average 38.8 m cgt 13.6 m cgt
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20140
10
20
30
40
50 Others max 2.6 2013
Europe max 6.2 2008
China max 19.7 2011
S Korea max 16.1 2011
Japan max 9.9 2006
Leading the way; making a difference
Average age tanker fleet
Years
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
6
8
10
12
14
16
Leading the way; making a difference
Tanker trends - fleet, VLCC price, oil demand, and tonne-miles indices
19
93
19
94
19
95
19
96
19
97
19
98
19
99
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
65
70
75
80
85
90
95
100
105
110
115
120
125
130
135
140
145
150
155
160
165
170
175
Oil demand index
Tonne miles crude tanker index
Tanker fleet index
VLCC price index
Leading the way; making a difference
Historical VLCC hire and bunker costs
1992 2002 20120%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Bunker
TC hire (+port costs)
Leading the way; making a difference
Bunker price Fujairah and basis bunker price WS 380 Cst
$/t
02/07/199902/10/199902/01/200002/04/200002/07/200002/10/200002/01/200102/04/200102/07/200102/10/200102/01/200202/04/200202/07/200202/10/200202/01/200302/04/200302/07/200302/10/200302/01/200402/04/200402/07/200402/10/200402/01/200502/04/200502/07/200502/10/200502/01/200602/04/200602/07/200602/10/200602/01/200702/04/200702/07/200702/10/200702/01/200802/04/200802/07/200802/10/200802/01/200902/04/200902/07/200902/10/200902/01/201002/04/201002/07/201002/10/201002/01/201102/04/201102/07/201102/10/201102/01/201202/04/201202/07/201202/10/2012
0
100
200
300
400
500
600
700
800
380 cst Fujairah
Annual average Fujairah
WS basis
Leading the way; making a difference
High fuel oil price change economics in shipping
The combination of low freight rates and high fuel prices since 1973 has made it abundantly clear that one can no longer assume constant vessel speed when analysing shipping markets.
Professor Victor Normann/Research Associate Tor Wergeland - Norwegian School of Economics 1977.
Leading the way; making a difference
High fuel oil price change economics in shipping
• Real fuel prices virtually all time high• Fuel costs increased from 20% of freight to
70% of freight in 20 years• Reduced speed periodically equilibrate the VLCC market• Optimum speed for each ship depend only on
the ratio of the freight rate to the price of fuel• Consumption profile can vary strongly from ship to ship
• High pressure on the industry to reduce CO2 emission• • High oil prices has a negative effect on demand
Leading the way; making a difference
Strategic consideration • World economy, “The risks remain high -
the situation fragile” IMF boss Ms. Lagarde
• High oil prices despite weakening demand• High bunker prices change economics in shipping• Age >15 years becoming an issue• Shipbuilding over-capacity• Oil demand North America retracting/Asia expanding• Some risks and opportunities cannot easily neither be
quantified nor identified - markets are never completely rational nor efficient – success requires the use of sound reasoning and trusting your gut feeling
• The only predictable thing about futures tanker market is its unpredictability
Leading the way; making a difference
Assumptions for optimal speed
• Bunker consumption (BC) :
൬TCbasis 𝑥 𝑠𝑝𝑒𝑒𝑑𝑠𝑝𝑒𝑒𝑑 𝑏𝑎𝑠𝑖𝑠+ BCbasis 𝑥 BPrice x 𝑠𝑝𝑒𝑒𝑑𝑠𝑝𝑒𝑒𝑑 𝑏𝑎𝑠𝑖𝑠൰𝑥 𝑑𝑎𝑦𝑠
Net freight:
൬BCbasis 𝑥 ( 𝑠𝑝𝑒𝑒𝑑𝑠𝑝𝑒𝑒𝑑 𝑏𝑎𝑠𝑖𝑠) 3̂ ൰
(formula developed by MAN)
Ships should monitor to decide actual consumption
Leading the way; making a difference
5.0
5.6
6.2
6.8
7.4
8.0
8.6
9.2
9.8
10
.4
11
.0
11
.6
12
.2
12
.8
13
.4
14
.0
14
.6
15
.2
15
.8
16
.4
0
2
4
6
8
10
12
14
165
.05
.25
.45
.65
.86
.06
.26
.46
.66
.87
.07
.27
.47
.67
.88
.08
.28
.48
.68
.89
.09
.29
.49
.69
.81
0.0
10
.21
0.4
10
.61
0.8
11
.01
1.2
11
.41
1.6
11
.81
2.0
12 knot
12
.41
2.6
12
.81
3.0
13
.21
3.4
13
.61
3.8
14
.01
4.2
14
.41
4.6
14
.81
5.0
15
.21
5.4
15
.61
5.8
16
.01
6.2
16
.4
Financing cost Bunker cost TC cost Port cost Optimal speed
Vessel speed (knot)
Ch
art
ere
r’s
co
st
(US
D/t
on
ne
)
Charterers’ costs
Interest rate 5% Bunker $700 per tonne, oil price 117 per barrel, TC $20,000