Green Hydrogen Hype Fades as High Costs Force Projects to Retreat
(Bloomberg) — Climate-friendly hydrogen was one of the most-hyped sectors in green energy. Now the reality of its high cost is taking its toll. In recent months, some of the...
Dec. 10 (Bloomberg) — The biggest U.S. oil boom in almost a quarter century is prompting refiners in the Gulf of Mexico to book the most tankers since at least 2011 to ship products to Asia, signaling a monthly record in cargoes.
Freight traders hired vessels to load 965,000 metric tons of refined fuels in the spot market in the four weeks ended Dec. 8, charters compiled by Bloomberg News show. That’s 56 percent more than the peak a year ago, when a surge in bookings correctly presaged unprecedented exports. Oil-product tanker rates are heading for the highest annual level since 2008.
U.S. crude production is rising as the nation taps reserves held in shale-rock formations, changing America’s role in energy trading because of laws that require it to be refined for export. Asia-bound cargoes of refined oil products were about a third higher in the first nine months, Energy Department data show. The region will expand at more than three times the pace of the global economy this year, according to economist estimates compiled by Bloomberg.
“We expect that shift in trade flows to continue longer term as U.S. products become more competitive globally,” said Jonathan Chappell, an analyst at Evercore Partners in New York, whose shipping-stock recommendations returned 16 percent in the past year. “Those flows are occurring because U.S. feedstock is increasingly cheap relative to international crudes.”
The surge in production from shale helped reverse 22 annual contractions in total U.S. crude output during the 23 years to 2008, Energy Department data show. The nation’s domestic supply rose to the highest in more than a decade during the mid-1980s, boosted by shipments from fields in Alaska that surged from 1977 and peaked in March 1988.
Brent, WTI
U.S. refineries buying West Texas Intermediate, the benchmark crude for North America, are paying $11.75 a barrel less than European plants processing Brent, the European benchmark. Brent averaged $1.35 a barrel cheaper five years ago, when U.S. crude imports were 25 percent higher than now.
Cheaper feedstock prices are helping U.S. plants to export more cargoes and driving up freight rates for owners including Scorpio Tankers Inc., a Monaco-based company that’s placed the most orders for new ships. Product tankers earned an average of $12,645 a day since the start of January, 18 percent more than in 2012, and rates are heading for the highest since 2008, according to Clarkson Plc, the world’s largest shipbroker.
Shares of Scorpio rose 55 percent to $11.05 in New York trading this year. They will advance a further 23 percent in the next 12 months, according to the average of 10 analyst estimates compiled by Bloomberg. The company operates 20 product tankers and has ordered 50 more, Clarkson data show.
Read More: Scorpio Dominates in Biggest Wager on Tankers Since ’08
Biggest Gains
“This is a very favorable confirmation for increase in ton miles on product tankers,” Scorpio President Robert Bugbee said by phone, referring to a demand measure multiplying cargoes by voyage distances. “It sets the stage as we enter the seasonally strong winter market. U.S. Gulf exports to all destinations are continuing to rise.”
The rally in freight rates could be curbed because economic growth is slowing in Asia, the continent accounting for at least 38 percent of seaborne demand for oil products. The region’s economic expansion will drop to 6.3 percent next year from 6.4 percent in 2013, economist estimates compiled by Bloomberg show.
The second-largest source of demand is Europe, where growth remains below the global average. The economies of the 17-nation euro area will contract 0.4 percent this year, improving to a 1 percent expansion in 2014, economist forecasts compiled by Bloomberg show. The global economy will expand 2.8 percent next year, the estimates show.
Fleet Growth
Owners must also contend with a 27 percent expansion in the fleet of product tankers since 2008, a period in which sea trade in refined petroleum increased by 17 percent, according to Clarkson data compiled by Bloomberg.
The increase in rates to haul oil products is being mirrored across other parts of the shipping industry, where a surge in fleet growth over the past several years is now starting to slow. The ClarkSea Index, a measure of earnings for all vessel types, rose 31 percent to $15,189 a day since the end of August, according to Clarkson data.
The biggest tankers transporting crude oil are earning almost $50,000 a day, close to the highest in 3 1/2 years, according to the Baltic Exchange in London, a publisher of freight costs on more than 50maritime routes.
That expansion is also being strengthened by Asian imports. Traders hired enough carriers in the spot market from owners including Frontline Ltd. and Mitsui O.S.K. Lines Ltd. to load 35.9 million tons of crude in the four weeks ended Nov. 24 and ship it to Asia, according to data compiled by Bloomberg from broker reports.
Ore Carriers
The shipments, the largest this year, expanded 53 percent since the end of August, during which time a glut of shipping capacity in the Persian Gulf shrank by about the same amount.
Capesize ships that transport most of the world’s seaborne iron ore made $25,298 a day since the start of October, on course for the highest quarterly average in two years, Baltic Exchange data show. Supramax ships hauling everything from fertilizers to coal to grains have risen for 59 consecutive days, the longest rally in 6 1/2 years.
For product-tanker owners, the supply of U.S. cargoes is helping boost demand. The nation’s exports will represent about 13 percent of seaborne demand for the ships this year, up from 7.6 percent five years ago. Global shipments will advance 4.2 percent next year, faster than a 3 percent expansion in the fleet, Clarkson predicts.
Billionaire Ross
Rates for the three main types of product tanker will advance next year, according to analyst estimates compiled by Bloomberg News. The biggest gain will be for Large Range 2 tankers, which are often used to haul cargoes between continents. They will earn an average of $18,000 a day next year, 17 percent more than in 2013, according to the average of eight forecasts.
Scorpio will earn $87.9 million next year, four times its income this year, according to the average of 21 analyst estimates. Other investors include Wilbur Ross, the billionaire founder of WL Ross & Co., who was part of a group that spent $900 million on 30 product tankers in 2011. John Fredriksen, the richestship owner, is building his biggest fleet of products tankers ever. Funds controlled by Blackstone LP, the biggest manager of alternative assets, are buying the ships.
The largest growth in cargoes to Asia this year has been naphtha to Taiwan and distillate fuels including gasoil and diesel to Singapore, Energy Department data show. Naphtha can be used as a feedstock to make petrochemicals or as a building block for gasoline.
Naphtha Glut
The U.S. has a surplus of naphtha because surging output of light crude oil and natural-gas liquids leads refiners to produce lighter products, according to Hart Energy Research & Consulting, a Houston-based research company.
Naphtha supply on the Gulf Coast, the nation’s largest refining region, will expand by 500,000 barrels a day while demand falls by as much as 100,000 barrels a day in the next seven years, Hart Energy estimates.
“We see the U.S. as having surplus volumes of naphtha going forward,” said Christian Waldegrave, research manager at Teekay Corp., a company that owns oil tankers, LNG carriers and vessels serving the offshore oil industry. “The U.S. has emerged as a pretty major products exporter. Most of it stays in the Atlantic, but increasingly, we are seeing cargoes going across to Asia.”
– Alaric Nightingale, Copyright 2013 Bloomberg.
Join the gCaptain Club for curated content, insider opinions, and vibrant community discussions.
Join the 110,922 members that receive our newsletter.
Have a news tip? Let us know.
Access exclusive insights, engage in vibrant discussions, and gain perspectives from our CEO.
Sign UpMaritime and offshore news trusted by our 110,922 members delivered daily straight to your inbox.
Essential news coupled with the finest maritime content sourced from across the globe.
Sign Up