The latest Gibson Market Report focused on the age profile of the VLCC fleet and the prospects for trading life beyond 15 years of age.
Analysis of the Suezmax fleet shows a similar picture, with eighty-nine units over15 years of age (18% of the current fleet) the preferred upper employment limit set by most charterers.
However, many of the older units are able to trade in the shuttle markets, where age is not so much of an obstacle. In fact, sixty percent of the current Suezmax shuttle fleet is over 15 years old.
Older conventional tankers continue to find employment East of Suez, typically loading Middle East cargoes for India or Singapore.
Between 2014-2015, huge investment in new Suezmax tonnage has taken the orderbook profile as a percentage of the existing fleet to 24%; the highest of all the tanker newbuilding sectors.
Almost all of these are scheduled to be delivered over the next 24 months. But how are these newbuilds going to be absorbed as there appears to be little chance of any withdrawals from the fleet?
Last May we wrote in our weekly that “supply appears in check, although robust earnings are likely to lead to a slowdown in demolition activity and that the increase in the Suezmax trading fleet is still expected to be limited”.
We were correct at the time, but the 49 orders placed since last May now paint a different picture. It appears that geopolitical events have a huge influence on the Suezmax market, more so than other sectors of the tanker market and the short term prospects appear to be very much under treat.
The loss of West African barrels to the US (TD5) over recent years (although recently enjoying a renaissance) has been substituted with WAF-UKC (TD20) as the crisis in Libyan production continues. This situation is likely to continue for the foreseeable future, but we should assume that Libya will one day return to precrisis levels in the same way as Iraqi production has returned.
Iraqi production since 2006 has also supported Suezmax demand, with the largest jump in output from 3.3 million b/d (2014) to 4.0 million b/d recorded last year (including Kurdish exports through Ceyhan).
However, there is a view that Iraqi production has reached a plateau and may even decline in the short term. The loss of revenues from the low oil price
has limited the government’s ability to pay oil companies, who in turn are not investing in Iraq’s infrastructure which is needed to expand crude exports.
The recent supply disruptions in Nigeria represent another threat to the Suezmax market and again some industry experts are forecasting the nation’s oil output to drop sharply over the next decade.
Wood Mackenzie, the energy consultancy
, has cut its output forecast for Nigeria by more than a fifth, to 1.5 million b/d on average over the next decade (because of uncertainty over promised reforms to the cash-strapped state oil company) and is not related to the militant activity which is currently disrupting exports.
Production here has reached a 20 year low following recent acts of sabotage. Lost Nigerian output destined for India discharge may in future have to be sourced from the Middle East which could support the Suezmax market.
However, other areas where growth in cargo volumes was forecast have not materialised as expected such as Kozmino and the Caribbean
and have taken their toll on Suezmax demand.
The Suezmax market could face some tough challenges over the next few years; not just from the threat of the newbuildings.