However, as Poten & Partners highlighted in a recent Tanker Opinion, Northwest Europe is still very relevant to the tanker sector.
Back in 1970, the combined oil demand of European Union members represented 27.9% of global oil demand. This market share has been gradually declining since.
In contrast, last year, the EU only represented 13.3% of global oil demand.
Absolute EU oil demand peaked in 1979 at 15.6 mill barrels per day. Oil demand plunged in the 1980s after the global economic recession, which was triggered by a rapid increase in oil prices after the second oil crisis.
Oil demand fell to 12.6 mill barrels per day in 1983, before gradually recovering to 15.1 mill in 2006. The financial crisis of 2008 triggered another drop in oil demand, which fell back to 1983 levels. It has improved since, but we don’t expect EU oil demand to recover to the levels of 10 years ago, Poten said.
Most of the EU countries have mature economies that have become significantly less energy intensive over the years. Global energy intensity (defined as total energy consumption per unit of GDP) has been declining since the 1990s. The EU now has the world’s lowest energy intensity.
Continued focus on energy efficiency and renewables, combined with a limited population growth means that oil is unlikely to make a significant come back in Europe.
In terms of tanker demand, however, Europe remains relevant. European refiners still churn out 12 mill barrels of products and most of the crude oil that feeds these facilities has to be imported.
While oil demand and refinery runs have gradually declined over the last 10 years, so has regional oil production. North Sea oil output peaked in 2000 at just over 6.4 mill barrels per day. Last year, it had declined to about 3 mill.
In the past, Northwest Europe (the UK/Continent area) imported significant volumes of crude oil from the Middle East on VLCCs. However, over the years, the use of VLCCs has reduced. Out of a total of 327 average monthly VLCC voyages in 2018, less than 10 were destined for Northwest Europe.
Suezmaxes are used more frequently. In 2018, a little over 20% of all global Suezmax voyages were destined for Northwest Europe. Almost all these voyages came from the Atlantic Basin. Out of the 90 average monthly Suezmax voyages in 2018, 36 originated in the North Sea, 24 in West Africa and 16 in the Mediterranean. Most of the remaining voyages came from the Americas.
Aframaxes continue to play a dominant role in European imports, moving crude from the North Sea, the Baltic, as well as the Mediterranean and the US. In 2018, an average of 163 Aframaxes called in Northwest Europe and 119 (74%) of these voyages originated in the UK-Cont/Baltic region. Another 23 Aframax voyages per month came from the Mediterranean and 20 from the Americas.
Since the ban on exports was lifted in December, 2015, the US has become a significant supplier of crude oil to Europe, initially using mainly Aframaxes and Suezmaxes.
However, recently, US exporters have started to use VLCCs to move cargoes into Europe. As US Gulf port and terminal infrastructure continues to improve, we expect that more VLCCs will be used to move US tight oil to refiners in Europe, in particular after IMO 2020 becomes effective, Poten said.
In short, Europe will continue to support tanker demand for smaller and medium sized vessels and, since it has the infrastructure to accommodate them, economics could favour using more VLCCs for transatlantic voyages.