A surge of orders from other sectors is putting the squeeze on large tanker building slots. Owners are seeking to mitigate any shortage by purchasing VLCC tonnage off the blocks
During the period April 2021 and May 2021, the tanker market saw 42 newbuilding contracts placed for tankers of all sizes. The bulk of the newbuilding contracts (16 contracts) were for MR2 tankers. In the larger categories, Euronav is undergoing a fleet replacement programme, which has seen elderly VLCCs and Suezmax tankers sold off and ever higher lower-carbon specification tankers ordered as replacements.
The Euronav newbuildings on order include two LNG-ready VLCCs due for delivery from Hyundai Samho in Q4 2022 and Q1 2023, costing US$186M en-bloc, and including US$4.2M in additions and upgrades to the standard specifications. Euronav has the option to contract a third VLCC with the same specifications that would be delivered in Q2 2023. Euronav also has two ammonia-power-prepared Suezmax tankers under construction at Deahan.
ADNOC Logistics & Services (ADNOC L&S), the shipping arm of Abu Dhabi National Oil Company (ADNOC), also placed an order for one VLCC from Daewoo for delivery in 2023. The reported price was US$97M and includes an LNG dual-fuel engine. ADNOC is also undergoing a fleet renewal/expansion programme following the launch of United Arab Emirate’s (UAE) flagship crude oil, Murban, as a futures contract on the new InterContinental Exchange Futures Abu Dhabi (IFAD) commodities exchange. By making Murban a freely traded crude, similar to Brent or WTI, customers have better price transparency, flexibility to hedge and manage risks and increased access to Murban crude oil.
ICE Murban Futures are physically delivered contracts, with one futures contract equating to 1,000 bbls of Murban crude oil, delivered from the ADNOC Terminal located in Fujairah, on the East coast of the UAE. ADNOC’s production capacity of Murban crude oil is over 2M bpd and it currently accounts for around 50% of the UAE’s total production capacity. There are plans in place to increase the production of Murban crude oil to more than 2.5M bpd by 2030, in line with ADNOC’s goal of growing its production capacity to 5M bpd. ADNOC sees providing clients with CIF services is crucial to the expansion of the Murban crude oil customer base. The VLCC newbuilding will be delivered from Daewoo in September 2023.
In support of the Murban crude oil expansion initiative, ADNOC purchased a VLCC resale, CS Shandong Ventures, renamed Murban, which joined the ADNOC L&S fleet in Q2 2021. This joins Hunter Atla, purchased from the Hunter Group in April 2021. These latest acquisitions mean that ADNOC L&S has now added a total crude oil cargo capacity of 16M barrels this year. In total, there are four VLCCs on order, and four live VLCCs in the ADNOC L&S fleet.
“There is an ability to cut CO2 emissions to zero when technology, logistics and the regulatory framework allows”
ADNOC L&S chief executive officer, Capt Abdulkareem Al Masabi, said: “The acquisition of these VLCCs further consolidates our highly competitive offering, which covers the full spectrum of the oil and gas value chain. Following our strategic vessel acquisitions in 2020-2021, and combined with our integrated logistics and marine solutions, we are confident that our customers will gain a significant edge in terms of time and cost savings for their upstream and downstream operations, including ADNOC Group entities.”
Saving costs was probably in the minds of Frontline’s famously tight-knit C-suite when the company made a typically bold John Fredriksen move to scoop up six VLCC resales off-the-block in May 2021. John Fredriksen is often seen as a lead indicator of the tanker market and in this strategic move, the rising prices for large tankers, coupled with increased competition from the Ultra Large Container Ship (ULCS) sector, saw him make the decisive move for six latest-generation eco-type VLCC newbuilding contracts. The six VLCCs are currently under construction at the Hyundai Heavy Industries shipyard in South Korea and are being acquired for an aggregate purchase price of US$565.8M, including an estimated US$25.7M in additions and upgrades to the standard specifications.
The original contractor of the six VLCCs has not been named, but VesselsValue data reveals there is only one company with six VLCCs on order at Hyundai Heavy Industries and that is Evangelos Pistiolis’ controlled shipping company Central Mare. At least four of these were contracted at around US$90M, which suggests an on-paper gain of around US$4M before the increase in specification.
According to Frontline, the six VLCCs are designed to operate on different fuels, including biofuel, have the potential to be converted or retrofitted to consume fuel such as LNG or ammonia and consequently there is an ability to cut CO2 emissions to zero when technology, logistics and the regulatory framework allows for it. The newbuildings will also be fitted with exhaust gas scrubber technology, high-end anti-fouling systems, digital energy performance solutions and will be compliant with specific ExxonMobil lightering requirements to allow for maximum trading flexibility.
Five vessels are due to be delivered during 2022 and the last vessel in Q1 2023. The payment profile for this transaction means the largest portion of the instalments on each vessel will be made on delivery of each vessel. Frontline will meet the financing of this acquisition with existing borrowing facilities and will establish long-term financing closer to delivery of the vessels. Frontline Management’s interim chief executive Lars Barstad said: “This transaction is consistent with our core company goals to increase exposure to the VLCC market without adding to existing vessel supply. It further cements Frontline’s position in respect of owning a modern, high-quality, fuel-efficient fleet.”
He continued: “The delivery schedule for these vessels is particularly attractive, in a timing window regarded closed for new orders. With this acquisition Frontline is tangibly moving on our journey towards lower carbon emissions.”
Leaving the VLCC fleet in the April/May 2021 period was the 2000-built, 38,968 ldt New Diamond, which was sold for recycling in Pakistan by New Shipping Ltd of Greece. This is only the fifth VLCC sale for recycling reported in 2021. In September 2020, New Diamond was under charter to India’s state-owned Indian Oil Corporation, carrying 270,000 tonnes (approximately 2 million barrels) of oil when it caught fire 37 nautical miles east off the coast of Sri Lanka in the Indian Ocean. One Filipino crew member died in a boiler explosion; another Philippines national, the ship’s third engineer, was injured and airlifted off the ship.
The removal of one VLCC from the fleet will have little impact on the growth in supply. The VLCC orderbook is now 9.5% of the existing 259.3M dwt capacity. A further 5.6M dwt is due to be added in the remainder of 2021, and 12.4M dwt in 2022. The overall tanker fleet is growing at 1.2% so far in 2021, compared to 3.0% for 2020 as a whole.