The tanker orderbook continues to shrink, but recent orders point to the direction of acceptable post-transition fuels
The already diminished tanker orderbook has been rocked by the decision of South Korea’s Hyundai Heavy Industries Holdings’ (HHIH) that its two affiliates, Hyundai Heavy Industries (HHI) and Hyundai Samho Heavy Industries must cancel orders for 10 VLCCs
The clear out of the VLCC contracts, seven at HHI and three at Hyundai Samho, came after an unnamed counterparty failed to honour contract payments. HHIH has not named the counterparty involved, but South Korean business media report it is an Oceania-based entity.
The tearing up of the contracts is a significant step at yard and orderbook level. HHI has 20 VLCCs on order and Hyundai Samho has 15 VLCCs listed; the shedding of the contracts reduces the forward cover, a measurement that plays a crucial role in attracting and maintaining investors. At a global level, according to VesselsValue, at end-January 2021, there were only 84 VLCCs on the orderbook, equal to less than 10% of the current fleet and there are no VLCCs on order beyond 2023.
The decision to remove the 10 VLCCS from the orderbook would not have been taken lightly by senior management at HHIH, which is the holding company of Korea Shipbuilding & Offshore Engineering (KSOE), now the holding company for a range of Hyundai marine-related companies, including HHI and Hyundai Samho. It had been announced that an IPO is planned in 2021 for HHI, which has been valued at WON5Trn (US$4.48Bn). A 20% stake in HHI was to be sold off to raise WON1Trn (c. US$900M), but the loss of 10 VLCCs from the forward orderbook will probably mean equity analysts and bookrunners will reduce the overall valuation.
What does this mean for tanker owners? The loss of 10 VLCC contracts will free up slots that had been reserved, but given the slender VLCC orderbook, there is hardly a fight for slots at the moment. It could mean that HHI, regarded as a first-tier VLCC builder, may consider offers below the already low US$88.4M price (with scrubbers) that was announced when the contract with the unnamed counterparty was publicised.
“It is doubtful prices could go much lower”
VLCC pricing was already keen. Two 300,000 VLCCs were ordered in mid-December by Hyundai Glovis from Hyundai Samho for US$179.2M, according to BRL Weekly Newbuilding. Commenting on the order, BRL said: “This underlines continuing low pricing which is having the effect of inducing many orders. It is doubtful prices could go much lower and deliveries are keenly scheduled for January and March 2022. All plus points for potential customers. The duo will operate long-term CoA’s for Hyundai Oilbank.”
The VLCCs ordered at Hyundai Samho in December 2020 were two of six such vessels ordered between the start of December 2020 and the end of January 2021. Hyundai Samho also received contracts for four VLCCs from Kyriakou family-controlled Athenian Sea Carriers. Fellow Greek owner and operator Latsco (controlled by the Latsis family) ordered two VLCC at HHI.
Otherwise, the haul of large tanker contracts was meagre. Apart from the six VLCCs, one Suezmax tanker was ordered at Samsung by Unisea Shipping. This is believed to be scrubber-equipped and an addition to the pair of Suezmax tankers ordered for a reported US$52.2M each by the Adam Lemos-controlled company in November 2020.
In addition, an Aframax tanker order was placed during the period by George Melissanidis-controlled Aegean Shipping at COSCO Shipping Heavy Industries in China. Like the Suezmax tanker contract, this appears to the exercising of an option when a pair of Aframax tankers were ordered earlier.
It is not known if these have been ordered as what Clarkson Research Services (CRS) classes as ‘Eco’ tankers (electronic injection main engine) but this is highly likely. According to CRS statistics, 26% of the current crude oil tanker fleet is Eco and 27% are fitted with scrubbers. Approximately one third of the crude oil tanker orderbook is scrubber fitted.
CRS notes that although only 0.6% of the current tanker fleet is LNG capable, over 14% of the crude oil tanker orderbook is LNG capable. LNG dual-fuel is seen by many as the transition fuel from only being able to operate on heavy fuel oil and one reason for the lack of new tanker contracting is the uncertainty of which fuel option to choose.
A strong indication of the post-LNG transition direction for large tankers was given by two orders announced in January 2021. Perhaps far sooner than many in the tanker industry expected, the first tanker with the option to be powered by ammonia is now under construction at New Times Shipbuilding, with options for two further vessels.
Avin International of Greece, a Vardinogiannis family company, has contracted the first ammonia-fuel ready tanker. The vessel complies with the ABS Ammonia Ready Level 1 requirements*, indicating it is designed to be converted to run on ammonia in the future. All the ships in the project will also meet ABS LNG Fuel Ready Level 1 requirements.
“It is a challenging time for shipowners looking to invest in modern vessels able to support fleet decarbonisation objectives throughout their life span,” said ABS senior vice president, Global Engineering and Technology Patrick Ryan. “ABS’ alternative fuel-ready suite of guidance and qualification programmes is designed to give owners the flexibility they need and help prepare for a future in which alternative fuels such as ammonia take a bigger role.”
“The first tanker with the option to be powered by ammonia is now under construction at New Times Shipbuilding”
He continued: “Ammonia is a promising zero-carbon fuel that can help meet IMO’s greenhouse gas emissions reduction target for 2050. It offers shipowners and operators a zero-carbon tank-to-wake emissions profile, but is not without challenges, not the least of which is the greater prescriptive requirements for containment and equipment than most of the other alternative fuels under consideration.”
Avin International technical manager Michael Androulakakis said: “The shipowners, seeking early decarbonisation of their fleet which LNG fuel operations alone are not enough to fully achieve, have additionally invested in making the vessels ready for ammonia fuel. This currently appears to be one of the most widely available and most promising carbon neutral fuels for the future.”
Adding to the ammonia argument is larger tanker heavyweight Euronav, which has bought two LNG-ready dual-fuel Suezmax tanker newbuilding contracts at Daehan, with a view to converting to ammonia power at a later date. Euronav is working closely with the shipyard to also have a structural notation to be ammonia ready. This provides the option to switch to other fuels at a later stage.
Euronav chief executive Hugo De Stoop said: “The current disruptions to the freight market have provided this opportunity and our strong balance sheet allowed us to act quickly on it. This is in line with our strategy of acquiring good assets at attractive points in the cycle.”
That a tanker industry ’influencer’ like Euronav has come out in favour of ammonia will boost the fuel’s credentials as part of the suite of fuels owners can use in the drive toward lower carbon emissions.
*Ammonia Fuel Ready Level 1 indicates the vessel conforms to the requirements outlined in the ABS Guide for Gas and Other Low-Flashpoint Fuel Ready Vessels. This is part of a suite of industry guidance on alternative fuels developed by ABS, including support for the development of ammonia as a marine fuel.