Overseas Shipholding Group Inc. (OSG), New York, predicts long term growth in tanker demand will outstrip newbuilding.
With current orderbooks full, OSG's 1989 annual report projects delivery delays of as much as 3 years on orders for new tankers. "In this environment," it says, "trading conditions for modern, efficient tankers should improve over the next few years."
Considering the large tanker surpluses of the mid-1970s, soft freight rates for very large crude carriers (VLCCs), and increased building activity, a tanker supply crunch seems unlikely.
But the OSG report outlines four factors in support of its forecast: increased production by members of the Organization of Petroleum Exporting Countries, increased non-Communist oil consumption, decreased worldwide shipyard capacity, and an aging international tanker fleet.
RUST IN THE HULL
Because of falling scrappings rates and high construction and resale prices, one third of the existing world tanker fleet, including 35% of VLCCS, is at least 15 years old. OSG believes this figure will rise to two-thirds by early 1995 if the present newbuildings rate remains constant and scrapping rate is zero.
There is no reason to believe there will be any short term increase in the number of vessels scrapped as long as building and resale prices remain high. In fact, the 1989 scrappings rate fell to less than 2 million dwt, the lowest since 1974.
In the long run, however, scrappings should begin to surge after 1995, OSG said. Older vessels will begin to need frequent, costly repairs and renewals to comply with insurance and safety regulations. Such demands will make them more expensive to maintain and operate than more modern tankers.
At some point, OSG said, economic considerations require older tankers to be scrapped. Growing worldwide concerns for tanker safety and environmental protection are likely to speed retirement of substandard tonnage.
OPEC EFFECT
Tanker newbuilding figures appear, at first glance, to be encouraging to shippers. Deliveries last year were 9 million dwt, the highest rate since 1978, and another 9 million dwt are on line for delivery in 1990.
In addition, non-Communist tanker fleet capacity, rose by 7 millon dwt to 239 million dwt. But those increases barely kept track with demand.
Non-Communist oil consumption was up 2.2%, and oil supply, bolstered by steady increases in OPEC production, increased 2.6% in 1989.
Greater Middle East crude shipments helped boost ton-mile performance by about 9% and seaborne trade in oil and oil products by 7.5%, to 1.5 billion tons.
As a result, tanker employment was up 13% last year, and laid up international tonnage remained at a negligible 1.1 million dwt.
"For the year as a whole," OSG said, "tanker markets approached equilibrium as slow steaming and other components of the worldwide tanker surplus declined to relatively low levels."
BUILDING BOOM?
By the end of 1989, the newbuilding backlog for tanker delivery during the next 3 years totaled 25 million dwt, the biggest since 1977.
Even so, Samsung's Koje Island, South Korea, shipyard was able to promise mid-1992 delivery on two double hull, 95,000 dwt tankers ordered by Conoco Shipping Co. The added safety of double hulls is part of a Conoco Inc. program designed to improve environmental protection (OGJ, Apr. 16, p. 89).
OSG contends it will be years before the world's shipyards can rebound from the mid-1970s when tanker surpluses forced a 60% decline in shipyard capacities.
VOLATILE RATES
OSG reported demand for VLCCs and other large tankers fell early in 1989 because of reduced OPEC oil production and remained soft throughout most of the year, except for an October rally. VLCC rates finished the year lower than their peak and have since declined further.
Small tanker rates rose throughout the fourth quarter 1989 after a late year rebound. And rates for medium sized tankers generally stayed above 1988 levels throughout the year.
Copyright 1990 Oil & Gas Journal. All Rights Reserved.
