Tanker flows - what matters

Sep 14 2018

In the tanker market, there are many factors not directly related to shipping but which could still have a major impact on shaping up both crude and product tanker flows, the US shale oil revolution being a prime example.

The resulting surge in US crude production not only enabled a spectacular growth in short and long haul crude tanker trade but also supported the ongoing strength in seaborne exports of US clean products.


Large scale pipeline infrastructure projects is another good example. For instance in Russia, a successful completion of the first stage of the East Siberia Pacific Ocean (ESPO) pipeline, including the link into mainland China, limited Russian crude export flow from the Baltic and Black Sea ports while boosting demand for Aframax tonnage in the Far East.


Once the second stage of the ESPO line is completed, due in 2020, this will translate into even more barrels being exported from the Russian port of Kozmino, located in the Sea of Japan.


In contrast, a looming pipeline crunch in the US from the Permian basin to the US Gulf threatens to slow the growth in US crude exports in the short term. However, several pipeline projects are scheduled for completion in late 2019/early 2020; which, once online, are likely to offer a big boost to crude tanker trades out of the US.


Changes in regional refining capacity is also a critical factor that should never be ignored. In the Middle East, Saudi Aramco aims to start its new 400,000 barrels per day Jizan refinery later this year, while in Kuwait a new 615,000 barrels per day Al-Zour plant is due to come on stream in 2020.


Once these projects are fully operational, product exports are expected to increase substantially, as they did back in 2015/16 when number of new regional refineries came online. This, however, also poses a threat to the Middle East crude exports, if barrels are diverted from export markets into domestic refineries. Will this be the case? Gibson asked.


Refining capacity in Asia continues to grow, supporting incremental demand for crude both from the Middle East and from further afield. We also are seeing a trend of national oil companies (NOCs) looking at refining projects in other countries, trying to secure the market for their crude.


Last week, Reuters reported that Saudi Aramco plans to deliver the first crude oil cargo to its joint-refinery project (RAPID) with Petronas in Malaysia next month. RAPID will include a 300,000 barrels per day refinery and a petrochemical complex, with refinery operations set to begin next year. According to the newswire, Aramco will supply 50% of the refinery’s crude oil, with the option of increasing it to 70%.


As the Middle East oil companies build their presence in the downstream sector overseas, this suggests that the negative impact on regional crude exports, following new refinery start-ups could be limited.


In contrast, the future trade dynamics are likely to be very different in West Africa, following the start-up of Nigeria’s giant 650,000 barrels per day Dangote oil refinery. This refinery is officially planned to start operations in 2020, however, a recent Reuters report said that the project could be delayed until 2022.


Once the refinery comes on stream, it will have double negative implications for the tanker market. Crude exports will likely come under downward pressure and as Nigeria is a large importer of products, this trade is also likely to decline.


Of all the factors described above, the new refinery in West Africa represents perhaps the biggest threat to tanker trade.


Nonetheless, as US crude exports are expected to continue to grow in the medium term, this will help to mitigate the threat to dirty trades, and possibly offset it completely.


West African product flows are still likely to change dramatically. However, Gibson concluded, if the Dangote Oil refinery proves to be a success, could we also witness see a change in direction of the trade, with the surplus of Nigerian products being exported both regionally and across the Atlantic?


In the US/China tit-for-tat trade war, oil products have been targeted with 0.5 mill tonnes worth of seaborne trade tariffed from 23rd August with a further 0.7 mill tonnes in the line of fire of the $200 bill US list.


The Chinese $16 bill list came into force on the same day, which was modified compared to the original publication, with the removal of crude oil an important development, BIMCO’s Peter Sand said in a presentation in London this week. 


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