Increased Ton-Mile Demand is Good News for Tanker Owners

Front Shanghai. Image (c) Frontline

By Keith Wallis

SINGAPORE, Oct 16 (Reuters) – Shifting trade patterns and China’s growing love affair with the car will help fuel an increase in shipping costs for very large oil tankers, ship brokers and owners said.

A rise in charter rates could help shipowners return to profitability: earnings from very large crude carriers (VLCCs) currently fail to cover ship operating costs.

Spot charter rates for a 300,000 deadweight tonne (dwt) VLCC are around $10,000 per day, but operating costs including crew, repair and maintenance plus insurance are around $12,300, according to estimates from shipping consultant Drewry.

“Very big structural changes are coming with more long-haul trades,” said Nicolai Hansteen, senior shipping analyst at Pareto Securities.

This will see more oil shipped on VLCCs from West Africa and the Caribbean to China and the rest of Asia, he said.

While China has ramped up its imports of crude from West Africa in the last few months, the shift in trade patterns “is a story for next year”, said Henry Curra, head of research at shipbroker ACM Shipping in Singapore.

“Although with the return of Libyan crude exports and Iraq coming out of maintenance, Nigeria is probably already looking for Asian buyers to replace lost European demand for West Africa barrels,” Curra added.

Peter Sand, chief shipping analyst with trade group BIMCO, said China would be shopping around.

“This trend is here to stay, as China will avoid being too dependent on a few suppliers. This is also a geopolitical game, as China seeks to diversify its sources of imports,” he said.

Imports could also favour sulphur-rich sour crude from Venezuela and Colombia because refineries in China are geared to processing sour crudes rather than sweet crudes from countries such as Nigeria and Angola.

Around 25 million tonnes of crude oil was transported from the Caribbean to Asia in 2010. That had doubled to around 50 million tonnes in 2012 and Hansteen said it was expected to double again towards the end of this decade.

CHINA OFFSETS U.S.

U.S. imports have been falling since 2005 due to rising domestic production and increased fuel efficiency.

“The increase in Chinese seaborne imports is effectively making up for the decline in U.S. shipments,” said Peter Illingworth, managing director of the crude oil and LNG tanker group at DVB Group Merchant Bank (Asia) in Singapore.

“West Africa to China is now an established trade for Chinese state-owned charterers, while Venezuela is in its infancy with enormous increases planned by 2015,” he said.

At 13,000 miles (20,900 km), the sailing distance and transit time from Venezuela to China is double that from the Arabian Gulf to China.

Around 40 VLCCs are committed to the West Africa-China oil trade and this is expected to climb to 77 by 2017, Hansteen said.

China’s oil imports are set to climb to 7.9 million bpd in 2018 from 5.6 million bpd in 2012, based on figures from the International Energy Agency. Consultancy Wood Mackenzie has forecast it will overtake the United States as the world’s biggest crude importer by 2017.

Imports into the rest of Asia will also rise, Hansteen said, to 17.6 million bpd in 2018 from 15.7 million bpd in 2012, using IEA forecasts.

China’s surge in oil imports is fuelled by increasing vehicle ownership, Hansteen said. Vehicle sales grew 12.7 per cent in the first nine months of this year compared with January-September 2012, the China Association of Automobile Manufacturers said.

However, shipowners say there are still too many ultra-large tankers in the market.

“Changing trade patterns will help, but it’s getting the fleet back to a sensible balance which will determine prosperity,” said Tim Huxley, chief executive of Wah Kwong Maritime Transport Holdings, one of Hong Kong’s biggest independent owners of VLCCs.

“The lack of ordering in the past couple of years has helped, but we still need more scrapping and a lot of resilience from owners to try and get rates above break-even … There is certainly a bit more optimism about, but we need a bit more justification for that optimism,” he added. (Editing by Alan Raybould)