Q M c. McQuilling Services. Tanker Market Outlook Managing Performance in Extreme Markets. INTERTANKO Conference, Istanbul April 2008

Transcription

1 Tanker Market Outlook Managing Performance in Extreme Markets INTERTANKO Conference, Istanbul April 2008 INTERTANKO, Istanbul, April 2008 Slide 1

2 2007: An Extreme Year Preface The Influence of Fundamentals Outlook: Potential for Market Extremes The Return of Optimum Speeds Managing Deployment Managing Market Timing Fill it Up Summary and Observations INTERTANKO, Istanbul, April 2008 Slide 2

3 The Year in Review: 2007 BDTI TD 3 - VLCC AG / East US Thankgiving Day market spike OPEC incr. prod. by 500 MBD to 27.2 MMBBL/Day Min. VLCC spot rate for 2007 WS40 AG/USG $9.8K/Day Hebei Spirit oil spill US$ 250,000 / Day + Max. VLCC spot rate for 2007 WS285 AG/China $262 K/Day BDTI - Baltic Exchange Tanker Index 2007 WS 0 0 1Q 2Q 3Q 4Q Source: Baltic Exchange INTERTANKO, Istanbul, April 2008 Slide 3

4 4Q 2007 Effect The Year in Review: 2007 Percent of Average Annual Spot Rate VLCC AG EAST VLCC AG WEST SUEZ WAFR USAC SUEZ BSEA MED AFRA CARIB USG PANA CARIB USAC AFRA AG JAP PANA AG JAP MR CARIB USAC MR SING JAP Last 40 days End-year surge influenced large tanker sectors the most, as much as 20% Rates across dirty sectors increased on average 11% Rates across clean sectors increased on average 3% 0% 20% 40% 60% 80% 100% INTERTANKO, Istanbul, April 2008 Slide 4

5 Average Spot Rates (2008 WS) The Year in Review: 2007 YTD Nov VLCC (East) 265 MMT TD 2/ VLCC (West) 280 MMT TD Suezmax 130 MMT TD Aframax 70 MMT - TD Panamax 50 MMT TD Aframax 75 MMT - TC Panamax 55 MMT TC MR (Caribs) 38 MMT TC MR (Far East) 30 MMT TC INTERTANKO, Istanbul, April 2008 Slide 5

6 Average Spot Rates (2008 WS) The Year in Review: VLCC (East) 265 MMT TD 2/ VLCC (West) 280 MMT TD Suezmax 130 MMT TD Aframax 70 MMT - TD Panamax 50 MMT TD Aframax 75 MMT - TC Panamax 55 MMT TC MR (Caribs) 38 MMT TC MR (Far East) 30 MMT TC End-year effect masks actual performance for majority of year INTERTANKO, Istanbul, April 2008 Slide 6

7 Average TCE Revenues The Year in Review: 2007 US$ / Metric Ton J F M A M J J A S O N D New York Harbor Residual Fuel Oil 1.0 % Sulfur LP Spot Price CIF (US$/MT) Gulf Coast Residual Fuel Oil 1.0 % Sulfur LP Spot Price CIF (US$/MT) Rotterdam (ARA) Residual Fuel Oil Sulfur <= 1.0 Spot Price FOB (US$/MT) (US$ 000 / Day) VLCC (East) 265 MMT VLCC (West) 280 MMT Suezmax 130 MMT Aframax 70 MMT Panamax 50 MMT Aframax 75 MMT Panamax 55 MMT MR (Caribs) 38 MMT MR (Far East) 30 MMT Source: US EIA INTERTANKO, Istanbul, April 2008 Slide 7

8 Supply & Demand Summary, 2007 The Year in Review: 2007 (Growth, %) Demand Supply VLCC Suezmax Aframax Panamax (4.5) 8.6 MR Overall Surplus Surplus Surplus Surplus Surplus Surplus Increasing tonnage surplus relative to demand in 2007 INTERTANKO, Istanbul, April 2008 Slide 8

9 Influence of Fundamentals INTERTANKO, Istanbul, April 2008 Slide 9

10 Influence of Fundamentals Tonnage Supply and Demand Fundamentals Capacity Index Average Spot Rate (2008 WS) Capacity Index (Percent) 30% 20% 10% 0% -10% -20% -30% The interaction of tonnage supply and demand is a key determinant of observed tanker market behavior We model this interaction with a construct called Capacity Index, a measure of the relative surplus or deficit of tonnage supply as compared to demand VLCC AG EAST VLCC AG WEST CAPACITY INDEX INTERTANKO, Istanbul, April 2008 Slide 10

11 Tonnage Supply and Demand Fundamentals Capacity Index Average Annual Spot Rate (2008 WS) AG / East Expon. (AG / East) y = 58.21e -2.81x R 2 = % -20% -10% 0% 10% 20% 30% Influence of Fundamentals The utility of the Capacity Index in predicting VLCC average annual freight rates is quite strong Similar results are obtained for clean tankers VLCC rates are the best predictor of smaller dirty tanker rates INTERTANKO, Istanbul, April 2008 Slide 11

12 Development of Outlook Past Performance Overall Performance - 5 Trades Outlook < Undercast Overcast > Jan 2007 July 2006 Jan 2006 Jul 2005 Jan 2005 Jul 2004 Jan 2004 Jul % -100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% Influence of Fundamentals Our 2007 Outlook undercast the market over five trades by 1.4% For 10 trades we undercast the market by 3% on an annual basis, 9% for clean trades and 0% for dirty trades On a monthly basis our performance was 8% undercast over 10 trades (12% for clean, 8% for dirty) Source: McQuilling INTERTANKO, Istanbul, April 2008 Slide 12

13 Outlook: Potential for Market Extremes INTERTANKO, Istanbul, April 2008 Slide 13

14 Tonnage Supply & Demand Tanker Demand Expectations Outlook: Potential for Market Extremes Tanker demand is a derived demand driven by growing energy consumption across regional economies Our calculations show a CAGR of between 3% and 5% tanker demand growth by sector over the next 5 years Significant demand uncertainty exists due to the current malaise affecting the world economy INTERTANKO, Istanbul, April 2008 Slide 14

15 Tonnage Supply & Demand Tanker Demand Expectations Outlook: Potential for Market Extremes Global economic prospects have weakened, slowed by the effects of financial disruptions that began with the U.S. subprime mortgage crisis, but have spread more widely across the financial system Growth in advanced economies appears set to decline in 2008 and we expect some deceleration in major emerging economies Growth in the U.S. economy has come to a virtual standstill and we expect it to remain weak over the coming quarters owing to deeper problems in credit and housing markets that are fed off each other Source: Press Briefing by Simon Johnson, Economic Counselor and Director of Research the IMF, April 3, 2008 INTERTANKO, Istanbul, April 2008 Slide 15

16 Tanker Supply Expectations Orderbook No. of Vessels <- HISTORICAL DELIVERIES Outlook: Potential for Market Extremes MR PANA AFRA SUEZ VLCC ORDERBOOK -> 455? As a result of the orders placed, deliveries in 2009 are projected 129% greater than the average The total orderbook in 2009 now stands at 455 vessels, 199 which are MR tankers (end 2007) Significant supply uncertainty exists regarding orderbook for 2011 and beyond Source: McQuilling INTERTANKO, Istanbul, April 2008 Slide 16

17 Tanker Supply Expectations Shipyard Capacity Outlook: Potential for Market Extremes Thousand CGT Capacity Growth (%) 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Current Orderbook 28.0% 6.0% Available capacity? 5.1% % By 2012 there will be about 50% more shipyard capacity than exists currently As new shipyard capacity comes on line, there will be tremendous pressure by certain shipyards to fill it Shipyard performance is uncertain - especially for the new, greenfield yards - in terms of financing, staffing and facilities completion Source: Worldyards INTERTANKO, Istanbul, April 2008 Slide 17

18 Outlook: Potential for Market Extremes Deletions from the Fleet IMO 13-G Phase Out VLCC Number of Vessels Uncertainty in 13-G exit profile due to unknown number of CAS life extensions; Post-Hebei Spirit impacts; whether vessels will trade to their maximum trading year Source: McQuilling VLCC STRICT LENIENT REFERENCE? Medium Range Number of Vessels MR (COATED) STRICT LENIENT REFERENCE? INTERTANKO, Istanbul, April 2008 Slide 18

19 Deletions from the Fleet Conversion Projects Conversion Projects* (number of vessels) Source: McQuilling * excluding conversion to double hull Outlook: Potential for Market Extremes? MR Panamax Aframax Suezmax VLCC A significant number of exits from the trading fleets to conversion projects occurred in An even larger program is anticipated for 2008 We may see a continuation of exits for conversion in 2009 However, changes in market outlook in the liquid and dry bulk trades create uncertainty in the number of planned exits for conversion in 2008 and beyond INTERTANKO, Istanbul, April 2008 Slide 19

20 Tonnage Supply & Demand CAGR for the period * 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% DEMAND VLCC SUEZ AFRA DPP PANA DPP Outlook: Potential for Market Extremes SUPPLY AFRA CPP PANA CPP MR CPP VLCC sector generally balanced throughout the period with demand growth slightly outpacing supply Large clean tanker sectors (LR1 & LR2) generally balanced Tonnage surplus developing in Suezmax sector and Medium Range product tanker sector These are expectations for the reference case other, more extreme supply & demand scenarios are quite possible * McQuilling reference case INTERTANKO, Istanbul, April 2008 Slide 20

21 Outlook: Potential for Market Extremes Forecast Sensitivity VLCC AG / East, Projected Spot Rate (WS 2008) 160 Low Market Case High Market Case We project a high and low market case by varying the assumptions for tonnage supply and demand There is the possibility of a significant market spike in the high market case, while pre-2000 type levels are indicated in the low market case Managing performance in these market extremes is of particular significance Source: McQuilling INTERTANKO, Istanbul, April 2008 Slide 21

22 Managing Performance INTERTANKO, Istanbul, April 2008 Slide 22

23 Speed / Fuel Consumption Relationship Fuel Consumption (MT / Day) Laden VLCC Speed / Fuel Consumption Curve Ballast Speed (knots) The Return of Optimum Speeds In the days of steam turbine powered tankers, due to high fuel consumption there was an optimum speed calculation that balanced vessel daily value against fuel cost Since the speed / fuel consumption relationship is cubic, slowing down a little saved a lot of bunkers As turbines were replaced by fuel efficient slow speed diesel engines in an environment of inexpensive bunkers, optimum speed was most always full speed for motor ships Source: McQuilling INTERTANKO, Istanbul, April 2008 Slide 23

24 Running at Optimum Speed The Return of Optimum Speeds TCE Earnings (US$ / Day) 75,000 70,000 65,000 60,000 55,000 50,000 Source: McQuilling optimum speed VLCC Optimum Speed Curve Speed (knots) As bunkers have increased in cost, the downside of the optimum speed curve was again observed for motor tankers Missing the optimum speed by 1 knot in a WS 80 market at US$ 450/MT bunkers means a lost benefit of US$ / Day or US$ K per voyage AG/West Note that as vessels are slowed down, it reduces available tonnage supply - in the VLCC sector a 1 knot speed cut across the fleet equals between vessel reduction in tonnage supply INTERTANKO, Istanbul, April 2008 Slide 24

25 Enhanced Vessel Utilization Managing Deployment Laden Ballast The small tanker / product fleet has traditionally employed tramping deployments that increase vessel utilization An optimized deployment for a 50 Mdwt products carrier capable of vegetable oil yields TCE revenues 115% over a round trip transit on a vegetable oil trade or 152% over a UKC / USAC CPP trade INTERTANKO, Istanbul, April 2008 Slide 25

26 Enhanced Vessel Utilization Laden Ballast Managing Deployment Traditionally, larger tankers were deployed on primarily round trip trades Triangulating AG / West + Wafr / China on a VLCC reduces ballast time from 45% to 31% compared to AG / East - TCE revenues increase 37% from US$51.4 K to US$70.5 K per day Triangulating increases available tonnage supply in this case by 20% in terms of voyage days INTERTANKO, Istanbul, April 2008 Slide 26

27 Market Cycles Spot / Period Coverage Managing Market Timing Traditionally, owners and charterers have relied on fixed rate period charters to hedge against spot market fluctuations and operational exposure We have seen the emergence marketrelated period charters and an increasingly liquid FFA market over the last few years These tools enable market participants to decouple managing freight exposure from operational exposure and allow for more finely tuned freight revenue or cost streams Source: McQuilling INTERTANKO, Istanbul, April 2008 Slide 27

28 Managing Market Timing Spot Market Cycles VLCC Arab Gulf Spot Fixtures Single Hull Double Hull Jan Feb Mar Apr INTERTANKO, Istanbul, April 2008 Slide 28 12/31/07 01/07/08 01/14/08 01/21/08 01/28/08 02/04/08 02/11/08 02/18/08 02/25/08 03/03/08 03/10/08 03/17/08 03/24/08 03/31/08 04/07/08 04/14/08 04/21/08 04/28/08 05/05/08 Source: McQuilling

29 Spot Market Cycles VLCC Arab Gulf Spot Fixtures Managing Market Timing Number of Fixtures Fixing curve March for April Month Fixing Range MA Reported Date Source: McQuilling INTERTANKO, Istanbul, April 2008 Slide 29

30 Capacity Utilization Fill it Up 100% 80% 60% 40% 20% 0% 8% 12% 13% % 21% VLCC SUEZ AFRA PANA MR The average ship carrying capacity of each tanker class has been steadily increasing with time However, cargo stems, port restrictions and other marine transport system limitations restrict the size of cargoes actually carried We analyzed Bill of Lading and Vessel Dwt data for over 3,800 tanker voyages in the period 2003 through 2007 Results showed a significant capacity underutilization across tanker classes Source: McQuilling INTERTANKO, Istanbul, April 2008 Slide 30

31 Capacity Utilization Savings in delivered cost Fill it Up US$/BBL VLCC SUEZ AFRA AFRA CPP Source: McQuilling 0.09 PANA 0.09 MR CPP Loading incremental barrels on internally controlled tonnage is like moving these barrels for free Increasing the loaded quantity 5% significantly reduces overall delivered cost per barrel Savings on standard routes range from US$ 0.09/BBL to US$ 0.17/BBL at US$ 500/MT bunkers and current period charter rates. INTERTANKO, Istanbul, April 2008 Slide 31

32 Summary & Observations While we see moderate oil demand growth in the timeframe there is significant uncertainty due to the current economic malaise In 2008 a large tanker conversions program should reduce tonnage supply while demand increases moderately - leading to increases in freight rates over 2007 levels In 2009 excess tonnage will begin to influence rates negatively Uncertainty in 13-G phase outs, continuing conversions program, shipyard performance and discretionary exits make supply most difficult to predict The market is entering a period where business performance clearly differentiates market participants There are several means to manage performance in extreme markets effectively INTERTANKO, Istanbul, April 2008 Slide 32

33 , LLC Marine Transport Advisors Ocean House ~ 1035 Stewart Avenue ~ Garden City, New York Tel: ~ Fax: Management consulting Marine systems analysis Project analysis Market analysis Information technology applications Shipbuilding consulting Personnel training Thank you for your attention INTERTANKO, Istanbul, April 2008 Slide 33