Craig Jallal predicts the top five trends in the tanker shipping market for 2019
Earlier this year, I predicted fireworks in 2019 after a mostly unremarkable 2018.
And even though one of the predictions in that article is already busted – MEPC 73 made it clear there would be no delay in implementing the IMO 2020 global sulphur cap – I think the basic premise still holds true. The IMO 2020 global sulphur cap will be a highly disruptive factor in the tanker market.
Which brings me to the first of five predictions for 2019.
As an industry, we are all painfully aware that we are trying to leap over regulatory fences, and so my first prediction is a relatively easy one to make.
There undoubtedly will be some amount of logistical chaos during the switch over from one fuel to another in the run up to the IMO 2020 global sulphur cap.
This is likely to take many forms, from the availability of fuel to fuel performance after delivery.
Coupled with this is the news that some port authorities are banning the use of the equipment in port that was designed to ensure compliance, adding to the logistical nightmare on board tankers.
I'm not going out on a limb with this prediction, but it's a good one for all involved to keep front of mind.
My second prediction is that the market impacts of ongoing trade disputes between China and the US might be compounded by a cut in oil production from Saudi Arabia.
The Saudis' role of swing producer and setter of the crude oil price has been usurped by a boom in crude oil production (1M b/d alone in August) in the Permian Basin of the USA.
President Trump has spoken about the decrease in the price of crude oil as a ‘tax cut’ while Saudi Arabia is looking to push the price back towards US$70/bbl.
US net oil imports peaked at 13M b/d in 2005 and are predicted to fall to 2.4M b/d in 2018 and just 350,000 b/d by the end of 2019. This would bring a significant change in the direction of crude oil flows, even if China has shunned US imports.
In the long-term, a boost of North American shale oil exports from the north west coast of Canada to Asia is now unlikely to happen.
The third prediction follows on from the logistical chaos of the 2020 IMO global sulphur cap and the possible re-routing of tanker flows and tonne-mile increases as global oil producers seek to exert influence over the crude price, resulting in spikes in tanker earnings in the second half of 2019.
Several analysts have come out in favour of this scenario. As far as I am aware, the first to flag a more favourable Q4 was Teekay’s senior analyst Christian Waldegrave at the Capital Link event in New York back in April 2018. More recently Concordia Maritime president Kim Ullman expressed a similar view of the 2019 market.
To deal with global changes, global scale and long-term strategies are needed. Maersk has stated it has set itself a target of net zero CO2 emissions by 2050.
To my mind, for those companies with access to cash or understanding shareholders, the second half of 2019 onwards may offer some exciting investment opportunities, and this could be in the form of physical mergers, or virtual consolidation.
There will be those tanker operators who, for one reason or another, failed to plan adequately for the switchover, or simply bet on what turns out to be the wrong solution for compliance.
I'm sure many will have heard the phrase ‘Not in my backyard’ or the acronym NIMBY, both referring to the stance that progressive policy is good in theory, but not when it manifests itself in one's own neighbourhood.
The scrapping of large tankers has always had an element of NIMBY to it, but as we head into the 2020s, the EU seems to be taking an ‘In my backyard’ (IMBY) stance.
Thus, my final prediction is a somewhat cheeky one. 1 January 2019 sees the implementation of the European Regulation on Ship Recycling (EU SRR). Under EU SRR, a Greece-flagged VLCC sold for scrap will have to be recycled in a European yard.
How would this work? For instance, the Norwegian company BW Offshore has just reported that it has signed an agreement to dispose of Belokamenka (ex-Berge Pioneer) for recycling in compliance with the Hong Kong Convention.
Belokamenka is an ultra large crude carrier of 360,700 dwt capacity built in Japan in 1980. The vessel is 340.5 m long, 65 m wide and has a draught of 31.5 m. The vessel is flagged and registered in Panama, classed by DNV GL and has been in lay-up off Indonesia since 2015.
However, had Belokamenka been sold to a Greek owner for further trading – maybe gambling on storing high sulphur fuel for post-IMO 2020 global sulphur cap sale – then under EU SRR a Greece-flagged Belokamenka would have to be scrapped in Europe (IMBY).
Despite this new EU regulation, I feel very confident in predicting that no VLCC will be scrapped in Europe in 2019 ... maybe even ever.
What are your predictions for the tanker market in 2019? Email me, email@example.com
For further discussion of the prospects in 2019, book your place at the Asian Tanker Conference in Singapore.