john fredriksen

Blackstone to Billionaires Boost Ship Bets on U.S. Fuel Exports

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November 12, 2013

Norwegian investor John Fredriksen looks on in Oslo in this July 26, 2005 file photo. REUTERS/Hakon Mosvold Larsen/Scanpix/Files

By Alaric Nightingale

Nov. 12 (Bloomberg) — Blackstone Group LP, the world’s largest manager of alternative assets, as well as billionaires Wilbur Ross and John Fredriksen are amassing tanker fleets to tap America’s surging fuel exports.

Blackstone’s Tactical Opportunities Fund invested “several hundred million dollars” of equity in ship assets in the past two years, its New York-based Principal Jasvinder Khaira said by phone on Oct. 31. The venture, which acquired stakes in nine tankers hauling gasoline and other fuels last year, is also financing an expansion by Eletson Gas, the second-largest owner of midsize liquefied petroleum gas carriers. Separate Blackstone funds own a company hauling fuel between U.S. ports.

The nation’s highest oil and gas production in more than three decades is enticing investors to ships hauling processed fuels because the U.S. bans most crude exports. Demand for the carriers is accelerating at a time when the most of the maritime industry is slumping. Fredriksen, the richest shipping investor, is building his biggest-ever fleet. Ross, founder of WL Ross & Co., acquired control of an LPG shipper in October 2012, about a year after investing in product tankers.

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“They have all seen that shipping has been dragged through the mud,” said Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo, whose recommendations returned 24 percent in the past year. “What’s going on in U.S. energy makes companies that can export fuels, gas and even chemicals among the industry’s more attractive investments.”

Scorpio Rising

Oil-product tankers earned $12,825 a day since the start of January, 20 percent more than in 2012 and the most since 2008, according to data from Clarkson Plc, the largest shipbroker. Rates advanced to a record $49,273 in January 2006, spurring a surge in orders for new vessels just before the global recession. Returns fell to $3,491 by April 2009.

The boom in U.S. energy production is lowering feedstock prices for refineries, allowing them to ramp up exports of petroleum products to destinations including China, Brazil, Venezuela and Nigeria.

Shares of the biggest publicly traded owner of oil-product carriers, Monaco-based Scorpio Tankers Inc., advanced 68 percent to $11.95 in New York this year and will climb 6 percent in the next 12 months, the average of 13 analyst estimates compiled by Bloomberg showed. Only one of 17 analysts whose ratings are tracked by Bloomberg advises selling the stock.

BW Group, the world’s biggest operator of ships hauling liquefied petroleum gas, will sell shares in its LPG shipping unit in Oslo, with trading expected to start around Nov. 25. The Singapore-based firm delisted from the same exchange about 4 1/2 years earlier.

Record Exports

The per-metric-ton charter cost for ships hauling LPGs such as propane and butane averaged $59.15 since the start of January, heading for the best year on record, according to the Baltic Exchange in London. The gases are used for everything from making petrochemicals to cooking.

American seaborne oil-product exports will advance 4.8 percent to 2.39 million barrels a day this year, the most since at least 2000, Clarkson predicts. The nation’s shipments to overseas buyers more than doubled in the past five years and now represent 12 percent of global trade in the fuel.

“The sudden boom in U.S. product exports has been very attractive to investors who have a lot of cash to invest and are looking for assets that will give them returns,” said Nikhil Jain, a shipping analyst at Drewry Shipping Consultants in New Delhi. “This is a market that is able to offer much better prospects compared to other markets in shipping.”

European Economy

While U.S. fuel-cargo exports are accelerating, ship owners also need Europe’s economy to return to growth. The continent accounts for about 31 percent of all seaborne oil-product imports, according to Clarkson, and the 20.8 million tons of LPG shipments it will purchase this year equate to about 47 percent of all cargoes.

The economy of the 17-nation euro area contracted for seven consecutive quarters through September, official data and the mean of 29 economist estimates compiled by Bloomberg showed before third-quarter figures due Nov. 14.

World economic growth will be weaker than previously expected, the International Monetary Fund said Oct. 8, reducing its 2014 forecast to 3.6 percent from 3.8 percent. That may curb fuel-consumption and in turn limit ship demand.

Shipping companies tapping U.S. fuel suppliers’ surging exports are overcoming that slump. The nation produced about 1.1 billion tons of oil and gas equivalent last year, the most in more than three decades, according to data from BP Plc.

Navigator Holdings

Blackstone is a shareholder in Hafnia Tankers Ltd., a Hellerup, Denmark-based shipowner that sold equity in a private placement last month. Other investors include Barclays Natural Resources and Tufton Oceanic, a hedge-fund group and private- equity firm. It also insured Citigroup Inc. last year against initial losses on a $1.2 billion pool of shipping loans. Separate Blackstone funds are the largest shareholders in American Petroleum Tankers Parent LLC, a Jones Act ship owner.

Ross’s LPG-shipping company, Navigator Holdings Ltd., said Oct. 17 it plans an initial share sale in New York. The billionaire has also raised $100 million to buy as many as eight vessels hauling iron ore and grains, he said Nov. 8.

“There are a lot of assumptions being made about future U.S. oil and gas production, but these investments do look pretty exciting,” said Nigel Prentis, the head of consultancy at ship brokerage Hartland Shipping Services Ltd., who has worked in shipping since 1981. “These fuels have got to be exported.”

Brazil, China

Monthly shipments of oil products to Brazil averaged 5 million barrels so far this year from 4.7 million barrels in the same period in 2012, according to Energy Department data to August. Venezuela-bound fuels rose to 2.7 million barrels from 1.7 million, while deliveries to China also gained.

The surge in vessels to export U.S. fuels contrasts with the slower recovery in other parts of the shipping industry. The ClarkSea Index, a Clarkson measure of earnings for the entire merchant fleet, averaged $9,662 a day this year, which would be the second-lowest annual average on record after 2012.

The largest crude carriers earned $8,558 a day. Running costs for the ships including crew and repairs were $10,350 last year, according to Moore Stephens, a U.K. accountant that tracks industry expenses.

“There are certain spots where demand has picked up faster than GDP and the supply of ships is less onerous,” Blackstone’s Khaira said. “Those are ones that are tied to shale gas, and what’s happening with the U.S. energy complex specifically.”

Copyright 2013 Bloomberg.

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