When an expert panel address the outlook for the tanker and gas trades at this year’s Asian Logistics and Maritime Conference at the Hong Kong Convention and Exhibition Centre (22-23 November), they will be rightly satisfied with the industry’s performance over 2015 and much of 2016. They may view the immediate future with less satisfaction.
Unlike the dry bulk and liner sectors, which have recently suffered some of their worse years in terms of profitability, tankers have thrived. The tanker business covers a wide range of products that can be broken down between crude oil tankers, product tankers carrying products such as refined petroleum, chemical tankers, and tankers carrying gas such as LNG and LPG.
Crude oil and product carriage experienced healthy freight rates throughout 2015, largely driven by the fall in oil prices that had begun the year before. Low supply-side growth also made a contribution in boosting freight rates as the carriage of crude oil grew 3.8% compared with just 1% in capacity growth.
Overall, average tanker earnings per vessel increased by 73% compared to 2014, according to Clarksons Research. Product tankers also did well as growth in refinery capacity and product exports from the Middle East had an impact together with strong naphta import demand.
But not for long
In 2016, it first looked as if the good fortunes might just keep coming but as the fourth quarter unfolds the storm clouds have begun to gather in the form of increasing supply and diminishing demand.
“The acceleration in tanker supply growth in 2016 continues to exert pressure on the supply-demand balance. Whilst crude and product tanker deadweight demand growth is projected to increase by a relatively healthy 3.3% and 3.7% respectively in 2016, demand growth is still expected to lag behind that of supply,” Clarksons Research reported in October.
On the demand side global seaborne crude oil trade is forecast to increase just 1.3% in 2017, as against 5.1% growth in tanker supply. Product tankers too will increase capacity by an estimated 3.9%. With this negative disturbance to the supply-demand equilibrium tanker operators will almost certainly see a decline in their fortunes next year.
LNG tankers await better fortunes in 2018
Unlike carriers of crude, product and chemicals, gas carriers have been suffering from poor returns that according to some analysts will not improve for a year or maybe two.
The reason behind this has been a flood of newbuildings hitting the water without any significant new export volumes to match the new capacity.
Drewry’s lead analyst Shresth Sharma summed up the dilemma for LNG carrier operators when he said: “All in all, the additional export volume is not expected to have any major effect on LNG shipping rates as this is being matched by vessel deliveries. Therefore, our outlook is that the market must wait till 2018 for more US plants to come online, as only large production capacity will consume inflated vessel supply.”
Looking further into the future but with the caveat that the sector does not continue to overbook capacity, the future looks bright as the world turns to cleaner fuels to power its economy.
Finally, as shipping stocks fall across the globe following the US presidential election, the ALMC expert panel may have to include the Trump factor in their considerations.
The members of the Maritime Forum 2 expert panel Tanker and Gas Trade are:
Mr Tim Huxley, chairman Mandarin Shipping Limited (moderator)
Mr Nigel Anton, managing director & head, Shipping Finance, Standard Chartered Bank (Hong Kong) Ltd
Mr Knut Stangebye Olsen, head of Research, Lorentzen & Stemoco AS
Mr Anthony Gurnee, chief executive officer, Ardmore Shipping Corporation
Mr Henrik Hartzell, managing director, Far East, Heidmar
If you are keen to get vital insight into tanker prospects for 2017 and beyond book your place at ALMC 2016 now. www.almc.hk