Euronav continues on downward spiral- hopeful of upturn

Nov 03 2018

Euronav suffered a third quarter 2018 net loss of $58.7 mill, compared with a net loss of $28 mill for 3Q17.

Proportionate EBITDA for the same period was $50.9 mill, compared with $46.2 mill for 3Q17.

The company highlighted that for the fourth quarter thus far, seasonal improvements were pushing rates VLCC rates ahead of expectations. The return of OPEC production was also bringing increased cargoes with demand resilient in the face of higher oil prices and vessel supply.

The Iranian supply chain dislocation will also provide a sustained boost to the tanker market, the company said. It also confirmed that the integration of the Gener8 fleet was now complete.

Paddy Rodgers, CEO of Euronav said: “The direction of travel for the large tanker market has changed from going sideways to up. Demand for and supply of crude has continued to improve as OPEC production has increased and the dislocation from Iranian sanctions has boosted and will continue to boost commercial tanker operators. Whilst the VLCC delivery schedule will remain high over the next 12 months, active recycling activity has kept net fleet growth negative so far year to date.

An accretive expansion of over 40% of our fleet size via the Gener8 merger has positioned Euronav with one of the most modern, efficient large tanker fleets accompanied by the strongest balance sheet including $677 mill of liquidity. This leaves us ideally levered to an upgrade on improving tanker cycle fundamentals through 2019 but also further anticipated positive developments from regulatory changes to shipping markets from the application of IMO 2020,” he said.

Euronav also flew in the face of several other tanker companies by expressing concern over the use of scrubbers. The company said that it had three areas of concern when assessing scrubber installation on its fleet and is continuing to thoroughly investigate each of them.

The upfront capital investment is around $5 mill per VLCC with very low returns possible.

Scrubber promoters have used MGO as a proxy for the price of compliant fuel. Some refiners, including Sinochem, have recently confirmed that they will sell clean compliant fuel at a price likely to be half the difference between dirty HFO and MGO.

So the investment case now has half the returns being promoted and it is still 14 months before implementation and nothing suggests this price gap will not further narrow in that time.

Open-loop scrubbers (OLS) use seawater brought on board to remove sulfur from exhaust gases, but the wastewater produced contains a toxic cocktail of sulfuric acid constituents, polycyclic aromatic hydrocarbons and heavy metals, which are pumped into the open ocean, essentially transferring pollution from air to sea.

Promoters of this technology argue that the open oceans dilute waste water, rendering it harmless. But the solution to pollution is not dilution. Like plastic contamination over the years, we don’t know what the cumulative effect of this waste water will be or how it will interact with existing seaborne pollutants, particularly in congested sea-lanes like the English Channel, Malacca Straits or Baltic Sea.

Finally, breaches of current emissions standards are on the rise in their existing environmental control zones (ECA). So far flag states appear ill-equipped to ensure regulatory compliance. Installing a scrubber enables regulatory compliance with the continued use of non-compliant high sulfur fuel. But weak regulatory oversight means non-compliance in the open sea, whether through breakdown or malfeasance, cannot be effectively controlled.

However, Euronav said that it wholeheartedly embraced the IMO 2020 regulations and wishes to adopt the directive properly, universally and without delay. Refiners and oil producers have increasingly made clear that sufficient compliant fuel will be available. Scrubbers are therefore a loop hole which makes enforcement of the sulfur ban extremely complex, difficult to enforce and likely to facilitate non-compliance.

As for the outlook, a seasonal increase in cargo flow has kick started an improving tanker market, which should continue to build through 2019. Demand has remained resilient despite a higher oil price. Tonne/miles continue to grow via US crude exports. The underlying supply of cargoes has grown as OPEC/Russian production cuts have been reversed.

Encouragingly, recycling activity has persisted and contracting restraint has been evidenced with no VLCC orders since May and only four Suezmax orders in total year to date. Further fleet rebalancing is required before this supportive background can be fully translated into improved freight rates on a sustainable basis.

So far in 4Q18, the Euronav VLCC fleet operated in the Tankers International Pool has earned about $26,962 per day and 56% of the available days have been fixed. Euronav’s Suezmax fleet trading on the spot market has earned about $19,171 per day on average with 53% of the available days fixed.


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