DREWRY SEES RISING WORLD DEMAND FOR OIL TANKERS

Growth rate in world demand for oil tankers win exceed an average 2%/year from now to 2000.

After disappointing returns in 1993, tanker owners are set to benefit from growing U.S. and Southeast Asian dependence on oil from the Middle East and members of the Organization of Petroleum Exporting Countries.

That's the view of Drewry Shipping Consultants Ltd., London, which predicts increases in freight rates gathering momentum from 1994 until a cyclical peak in 1998-99.

Spot rates are forecast to rise on average at a compounded 7.5%/year from 1994 to 2000. This is expected to trigger too many orders for new tankers, leading to weaker rates once more.

Among factors that threaten the rise in tanker rates, Drewry cites:

Resumption of oil exports from Iraq and reopening of pipeline links to the Mediterranean.
A rise in crude oil prices, which could discourage U.S. consumption, help stem the slide in U.S. production, and reduce long haul tanker demand.
Lower than expected scrapping of older tankers.
Rapid expansion of shipbuilding capacity in the Far East, which could lead to competitive costs for newbuildings and an unnecessary rise in orders for tankers.

SCRAPPING

Drewry sees tanker scrapping as the crucial factor in determining tanker supply and hence the future prosperity of the tanker industry.

In the short term, a modern very large crude carrier (VLCC) of 175,000 300,000 dwt, which cost $100 million to build, will earn little more than a VLCC built in the mid 1970s, which cost only $10 million to build.

Drewry believes most industry forecasts of scrapping rates are optimistic. Many vessels built in the mid 1970s are not due for a fourth special survey until 1996. Some older vessels have already passed their fourth survey and can trade to 1997 98.

Freight rates are expected to exceed forecasts (Table 1) only if there is a massive rise in scrapping due to tightened legislation or if owners are forced from the market by weak margins.

Drewry said provisional estimates of tanker demolitions during 1993 suggested that 117 vessels totaling 11.221 million dwt were removed from the fleet. This compared with 98 vessels totaling 10.729 million dwt scrapped in 1992.

China remains the main breaker in tonnage terms, accounting for 28 vessels of a total 4.566 million dwt last year and 31 vessels amounting to 4.982 million dwt in 1992.

India was the main breaker in terms of numbers: 44 vessels of a total 2.051 million dwt in 1993 and 33 vessels amounting to 1.855 million dwt in 1992.

TRADE PROSPECTS

Drewry reckons the world's major oil exporting countries have about half their sea borne shipments covered by term contracts.

"In the short term," the London firm said, "there is little suggestion of any increase in the volume of crude trade, which is hardly good news for tanker owners."

An increase in crude trade volumes is expected in 1996, although this will be less than 3% above 1993 levels (Table 2).

"It is not until later in the decade that the real boom in trade is forecast, as OPEC output becomes more dominant," Drewry said. "Between 1996 and 2000, there is projected to be a 24% rise in overall crude oil trade, and it is also likely that this will impact mainly on long haul trades."

Drewry sees most of the increase in long haul business coming from added volumes moving from the Persian Gulf to the Far East and North America.

Tanker demand is expected to rise from 207 million dwt in 1993 to 240 million dwt in 2000, an increase of 16% for the period. This is mainly expected to be in vessels larger than 90,000 dwt, in particular VLCCs for long hauls.

TANKER FLEET

Drewry's figures place the world tanker fleet at 265 million dwt in 1993. VLCCs made up half of the fleet, having fallen from 61% of a peak fleet of 323 million dwt in 1979.

The firm said, "This clearly shows the fleet is aging, bearing in mind that many larger vessels are unlikely to trade much beyond 20 years."

Tonnage on order peaked at 42.7 million dwt in 1992. By the end of 1993, the world order book was estimated to stand at 27 million dwt.

"Forecast demand/supply balance shows a contraction in the current surplus is expected across all size ranges through the remainder of the decade," Drewry said.

"Tightening of the balance is likely to be most clearly felt through 1996 97. It is probable that some weakness will reemerge in the market during the early part of the next decade."