The economics of Oil & Gas Sea TransportationABSTRACT
Dr K.G.GkonisResearch DepartmentBarry Rogliano Salles
Presentation layout
�Oil & Gas sea transportation in a global context
�Main aspects and idiosyncrasies
� The economics of energy shipping� The economics of energy shipping
� Reflections on latest and upcoming developments
Taking a global view
� The economics of the SHIPPING industry are closely associated with GLOBAL economic developments
5,0%
10,0%
15,0%
World GDP Growth vs Trade
World GDP
World Trade
Seaborne Trade
developments
� …even more so when we are talking about ENERGYcargoes(add the GEOPOLITICS of energy dimension)
-15,0%
-10,0%
-5,0%
0,0%
2008 2009 2010 2011 2012*
* prospects
Taking a global view
Shipping rates are not irrelevant to global economic indicators
100
110
120
950
1000
1050
1100
US
D/b
bl
an overall noticeable correlation, but tanker
market systemics (e.g. ships supply-demand)
can have a disturbing effect
BDTI WTI spot
price
60
70
80
90
600
650
700
750
800
850
900
Main aspects and idiosyncrasies of Oil & Gas shipping
ENERGY cargoes (Crude Oil, Products & LPG, Steam Coal, LNG)
Oil and Liquefied Natural Gas shipping: similar, yet so different as two extremes
� Some similarities
� Both liquid cargoes transported with tankers� Both liquid cargoes transported with tankers� Both with international “energy- critical” trade patterns
� Many differences
� Oil: traditional and established / LNG: developing, the future� Oil: perfectly competitive and fluid / LNG: rigid structure� Oil: many players / LNG: few layers , “closed” club� Oil: not expensive to transport / LNG: the most expensive bulk
shipping segment
� The energy trades dominate (more than 50%) bulk shipping (the international shipping industry is responsible for the carriage of about 90% of world trade)
� The cost of carrying small cargoes is much higher than the cost of large cargoes: economies of scale dominate shipping economics
The economics of energy shipping
Oil tankers LNG carriers
Source: hofstra.edu
Oil tankers LNG carriers
� The mechanisms
The economics of energy shipping
the Newbuilding market
the Sale & the
• Steel prices• Shipyards
industry• Scrapping
industry
• the money markets (shipping finance)
the Sale & Purchase
market
the Freight market
the Demolition
marketThe Shipping
Business
• World economy (growth, recession, regional patterns)•Energy industry (oil production, refining, regional demand, other sources)
•“Crises” (geopolitical, military)•Charterers behaviour
•Operating costs, voyage costs � BUNKER PRICES
other segments
Reflections on latest and upcoming developments
In the CRUDE OIL SHIPPING market
CRUDE OIL PRODUCTION* (‘000 CRUDE OIL PRODUCTION* (‘000 bblsbbls / / dayday))
N.America
Europe & Eurasia
M. East
* based on BP data for 2010
S.& C.America
M. East
AfricaAsia - Pacific
REFINERY CAPACITIES* (‘000 REFINERY CAPACITIES* (‘000 bblsbbls / / dayday))
N.America Europe & Eurasia
* based on BP data for 2010
Africa
S.& C.America
M. East
Asia - Pacific
700
800
900
1000
1100
1200
120
140
160
180
(m. USD)(USD/tonne)
(USD/ldt)
Low newbuilding prices offer investment opportunities in crude oil tankers
VLCC newbuilding prices failed to catch an upward trend during the last year (shaded area), and instead experienced a consistent downwards
200
300
400
500
600
700
60
80
100
120
01/2
008
07/2
008
01/2
009
07/2
009
01/2
010
07/2
010
01/2
011
07/2
011
VLCC newbuilding price (320,000 Dwt) (LH axis)
Tanker demolition price (Pakistan/India) (RH axis)
Steel price (Hot Rolled Coil) (RH axis)
12
/20
11
a consistent downwards path.
This was otherwise the case for the other tanker sizes as well
ALREADY DELIVERED TO BE DELIVERED
TANKER DELIVERIES PER SHIPYARD
...and one should also keep in mind what is happening in the shipyards
S. Korea holds 49% of all tanker orders , China33%, Japan 8% .
Comparing deliveries since 2008 to the since 2008 to the pending orderbook, an expansion in volume is witnessed only for a couple of shipyards.
40
50
60
70
80
90
4
5
6
7
8
9
No
of
ship
s
Dw
t To
nn
ag
eM
illi
on
sTanker flags (2010 & 2011 Deliveries)
Then decide on other issues
Most flags attracted less tankers in 2011, but this should be expected given the reduction by more than 20% of
0
10
20
30
40
0
1
2
3
4
No
of
ship
s
Dw
t To
nn
ag
e
Dwt 2010 (LH axis) Dwt 2011 (LH axis)
Ships 2010 (RH axis) Ships 2011 (RH axis)
more than 20% of deliveries (all tanker categories).
Greek flag (11th from 7th place, with 65% less tonnage and 77% fewer tankers).
What happened in Year 2011 after all
80 000
100 000
120 000
Tanker Annual Average TCE Earnings
VLCC 260,000 T MEG/KOREA SUEZMAX 130,000 T WAF/US AFRAMAX 100,000 T BALT-UK/CONT
US$/day
13,7
11,8
7,7
11,3
3,3
8,1
11,1
16,2
20,6
7,2
21,4
27,6
16,9
15,2
Aframax 80k dwt
EMED/WMED
Aframax 100k dwt
BALT/CONT
Suezmax 130k dwt
CROSS-MED
Suezmax 130k dwt
Average Daily
TCE earnings
2010 - 2011
0
20 000
40 000
60 000
2007 2008 2009 2010 2011
8,0
-5,0
8,7
3,1
-7,5
6,4
13,1
-2,5
11,1
31,2
16,6
21,4
-10 0 10 20 30 40
AVERAGE 2010 AVERAGE 1st sem.2011
AVERAGE 2nd sem.2011 AVERAGE 2011
'000s
USD/day
Suezmax 130k dwt
WAFR/US
VLCC 275k dwt
MEG/CONT
VLCC 260k dwt
MEG/KOREA
What happened in Year 2011 after all
120
140
160
180
(m. USD)
TANKERS NEWBUILDING PRICES
(Monthly)
0
20
40
60
80
100
01/9
3
09/9
3
05/9
4
01/9
5
09/9
5
05/9
6
01/9
7
09/9
7
05/9
8
01/9
9
09/9
9
05/0
0
01/0
1
09/0
1
05/0
2
01/0
3
09/0
3
05/0
4
01/0
5
09/0
5
05/0
6
01/0
7
09/0
7
05/0
8
01/0
9
09/0
9
05/1
0
01/1
1
09/1
1
51,000 Dwt 115,000 Dwt 157,000 Dwt 320,000 Dwt
Reflections on latest and upcoming developments
In the LNG SHIPPING market
The LNG chain
Source: Shell
LNG economic aspects
• A 150,000 cu.m. LNG carrier transports:~ 62,000 tons LNG or ~ 0.09 bcm of natural gas
300
325
350
LNG CARRIERS AVERAGE NEWBUILDING PRICES
138-147,000 cbm
(million US$)
100
125
150
175
200
225
250
275
LNG PRICES
LNG prices usually expressed in US dollars per millionBTU (USD/mmBTU).
No international price for LNG. Gas “hubs” of both LNGand pipeline gas:
•United States (Henry Hub)
•The United Kingdom (NBP)•The United Kingdom (NBP)
•Europe (Zeebrugge in Belgium)
Long-term: gas prices driven by gas supply options, economic growth and political issues
Short term: depend on storage and flexibility
�Opportunities for price arbitrage and eventualconvergence of price between various markets
Recent developments
� Japan earthquake – tsunami catastrophe: nuclear off, LNG annual imports increased by 12.2% (to 78.5 m.tons in 2011)
� US shale gas discoveries� West –East gas price differentials: below 4 USD/mmBTU to above
14 USD/mmBTU
a few years ago
Price arbitrage now
The Greek element
357
250
300
350
400N
o o
f sh
ipsGREEK PRESENCE IN GLOBAL FLEET
GREEK
OWNERSHIP
ALL
12
28
66
0
50
100
150
200
DELIVERED ON ORDER
No
of
ship
s
3% of
TOTAL 42% of
TOTAL