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Freight rates for some tanker segments at rock bottom

Tanker Supply and Demand Graham Westgarth Chairman INTERTANKO Nor-Shipping DNV Seminar Oslo 25 May 2011. Looking beyond the next two years toward 2015, what sort of balance will there be in the tanker market?

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Freight rates for some tanker segments at rock bottom

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  1. Tanker Supply and DemandGraham WestgarthChairman INTERTANKONor-Shipping DNV SeminarOslo 25 May 2011

  2. Looking beyond the next two years toward 2015, what sort of balance will there be in the tanker market? Will there be a similar consolidation in the tanker market as we have seen in the container market? What are the drivers for and against consolidation? Assuming that the large energy importing countries increase their control of the total value chain, to what extent will there be a role for the independent tanker owner?

  3. Tanker Supply and Demand What to watch • Freight rates for some tanker segments at rock bottom • Fundamentals still strong, but great uncertainty caused by • High oil price • Political unrest • Debt crises, unemployment, housing crises • Many deliveries (but delays), young fleet • Slack in supply of tankers • slow steaming (ballast) • Lowering C/P speed • Fewer tanker transits through Suez Canal • Piracy effect – longer routes/inefficiency • New refineries in Saudi Arabia

  4. World GDP and Oil Demand Change % Oil/tanker demand correlates with economic growth Positive growth projected – but there is great uncertainty Signs of oil slower growth demand due to high prices Source. IMF/BP/IEA/Fearnleys

  5. Oil Price and Freight Rates 1970-2011 $ per barrel

  6. VLCC Newbuilding Prices and Break Even Rates m $ $/day New tankers coming on to the market ordered at high prices Based on LRFairplay

  7. Tanker Demand

  8. Increase in World Oil Demand in ME*, USA, China and ROW** bn tonne-miles Based on IEA

  9. Tanker Trade bn tonne-miles Based on Fearnleys

  10. Seaborne Oil Trade and Middle East Oil Production mbd 000 bn tonne-miles Asia 80% dependent on Middle East, Europe 18% and US 17% - some 15 mbd crude oil through Hormuz 2010 Based on Fearnleys/IEA

  11. Middle East Oil Production January 2000 to March 2011 mbd VLCC rates have approximately over the last years tracked Middle east oil production – no longer! Based on Fearnleys/IEA

  12. Trade Movements mbd Demand shifting from west to east Based on BP

  13. Tanker Supply

  14. Tanker Fleet Development(Assumed max phase out, orderbook March 2009, include chemical tankers) m dwt number Tanker fleet increase 2003-2013 some 75%

  15. Tanker Phase Out, Deliveries, Scrapping Tankers 10,000 dwt+ Balance Assuming Various Demand Increases m dwt

  16. Strategic Considerations and Conclusions

  17. Oil Demand, Tonne-mile, and Tanker Fleet Indices Index value Tanker fleet increase 2002-2010: 46% Fleet surplus has been disguised by storage, slow steaming and special events Demand increased strongly in 2020, butDemand increase abating? Fleet increasing Source: IEA, Fearnleys, INTERTANKO

  18. Strategic Tanker Considerations • A young fleet - 70% will be with us for at least another 10-15 years (built >2000) • China expected to drive demand and the Middle East has the reserves • World economy still under threat, the high oil price adds to the uncertainty • Market balance set to weaken the next couple of years • Successful Green House Gas emission reduction will mean reduced oil consumption • Costs reduction needs careful risk management • Product tanker market may be the strongest, fewer delivers, new Saudi refineries

  19. Long and Short Term Considerations Positive • Population increase • Slow steaming and reduced C/P speed • GPD increase • Around the cape transits • Little use of Suez canal for crude transits • Long term oil demand forecast up • Increased dependence on Middle East oil • Oil use per capita still low in China, India, Africa Wild cards: Oil price $ risik Disruptions: insurgency, hurricanes, strikes,……. Storage/stocks Long term Short term • Peak oil? • Fuel efficiency • Large shipyard capacity • Alternative use of energy • Young fleet, little scrapping • Many deliveries • GHG emission • Still fragile economy • Energy security Negative

  20. A Fragmented IndustryLargest operators/shares VLCCs 560 Some 140 owners 7% Suezmaxes 420 Some 110 owners 7% Aframaxes 890 Some 230 owners Based on LRFairplay

  21. Four Scenarios

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