In a continuation of the trend that began at the start of the year, elderly VLCCs are being purchased by unknown buyers
Contracting in the tanker sector has leapt upwards, albeit from a low base. In 2020, only 34 tankers of all sizes ranges were contracted for construction, and only one of those was a VLCC tanker. Move forward 12 months, and in February and March 2021, a total of 92 tankers of all size ranges have been added to the orderbook.
In the VLCC sector in 2020, there was a lone order by Pan Ocean at Daewoo Shipbuilding & Marine Engineering (DSME) for a reported US$90M. According to VesselsValue data, there were 24 VLCCs ordered in the same period in 2021. The headline order is the 10 LNG-dual fuel VLCCs ordered at DSME. These had been first rumoured in December 2020, but confirmation in February 2021 included the news that Swiss-based Advantage Tankers will charter four of the VLCCs to Shell. Advantage Tankers is controlled by Nazli Williams and currently has a fleet of 17 tankers, including two VLCCs.
The specification of the 10 Shell-chartered tankers is reported to include deck-mounted LNG tanks. The LNG fuelling system is said to add US$15M and the reported total price per VLCC is US$100M. MAN Energy Solutions is reported to have won the order to supply 10 MAN B&W 7G80ME-GI Mk9.5 dual-fuel engines.
Three of the 10 VLCCs have been long-term chartered to Shell by AET, the energy logistics and tanker operating arm of the Malaysian state-owned energy group MISC Berhad. The third tranche of the 10 VLCCs consists of three VLCCs to be owned and operated by US International Seaways, run by Lois Zabrocky. International Seaways has a live tanker fleet of 31 vessels, including 11 VLCCs.
Since then, International Seaways, Inc (INSW) and Diamond S Shipping Inc, (Diamond S), have announced that their boards of directors have unanimously approved a definitive merger agreement pursuant to which INSW will merge with Diamond S in a stock-for-stock transaction. Subsequent to the merger, INSW and Diamond S shareholders will own approximately 55.75% and 44.25% of the combined company, respectively, using fully diluted share counts as of 30 March 2021. The companies said the merger of Diamond S with INSW unites two companies with long-term customer relationships, similar cultures, and complementary positions in key tanker sectors. The merger will enhance INSW’s capabilities in both the crude and product markets and create ’power alleys’ for INSW in the large crude VLCC, Suezmax, LR1/Panamax and MR markets. The merger will create the second-largest US-listed tanker company by vessel count and the third-largest by deadweight.
Contracting activity in the Suezmax sector was quiet, with just three contracted, all at Samsung: two for Centrofin and one for Unisea Shipping.
“The remarkable factor is the number of VLCCs sold to undisclosed Chinese interests”
In the smaller large-tanker sector, BRL reported that Sumitomo has won an order for two Aframax tankers for US$48M each. These are thought to be standard designs, although Sumitomo was awarded approval-in-principle (AiP) from LR in June 2020 for an Aframax tanker equipped with ‘high-pressure type’ LNG dual-fuel systems. The AiP tanker design includes an LNG dual-fuel system and two IMO Type-C large-capacity LNG tanks.
According to VesselsValue, Sumitomo has constructed 104 Aframax tankers that are still in the water and the yard has nine Aframax tankers on the orderbook. These include three LNG dual-fuel versions for Finnish company Lundqvist Rederierna, due for delivery January 2022.
The technology for dual-fuel vessels is now relatively widespread, whereas a decade ago it was mainly confined to those shipyards involved in the LNG sector. A scan of the orderbook reveals there are now 263 vessels over 10,000 dwt contracted as dual-fuel under construction in 22 shipyards, comprising, China (13 yards), South Korea (five yards), Japan (two yards), Singapore (one yard), the US (one yard) and Russia (one yard).
The main trend in the tanker sale and purchase arena is the sale of elderly VLCC tankers to Chinese interests. Between 1 January 2021 and the end of March 2021, 25 VLCCs changed ownership. This is five more than in the same period in 2020, but the remarkable factor is the number of VLCCs sold to undisclosed Chinese interests. Eight second-hand VLCCs have been sold to Chinese interests. In the same period in 2020, Chinese interests did not purchase any VLCCs in the second-hand market.
The common thread running through those VLCCs purchased by Chinese interests, according to VesselsValue’s data, is that they all have a fifth special survey due. Eneos Breeze (built 2003) was sold for US$22.8M and has a fifth special survey due in November 2021. The 2002-built Eagle Vermont has a fifth special survey due in September 2022.
Marion was sold for US$24.45M and has a fifth special survey due in June 2023. The intriguingly named Sino Macro was sold for US$20.5M and has a fifth special survey due in August 2022. Tsurumi (built 2003) and Zin Trader (built 2000) have fifth special surveys due September 2021 and July 2023, respectively.
This change in strategy is relatively recent and can be traced back to the purchase of a pair of Ridgebury Tankers in May 2020, although only a few 20-year-old VLCCs were purchased in 2020 – nothing like the volume seen at the start of 2021.
What could be the reason for this sudden Chinese interest in elderly VLCCs? One possible explanation is that the sudden fall in the crude oil price and the doubling of tankers in storage in Q2 2020 revealed a weakness in the availability of large tankers available at reasonable rates to take advantage of downturns in the crude oil price. By building up a domestic fleet of relatively low-cost VLCCs in the trough part of the cycle, a readily available supply of floating storage is available for the next time the crude oil price goes into contango.