Oil Tankers Facing 5 Years of Pain Before Rebound, Frontline’s Troeim Says
Oil tankers may be unprofitable for five more years before a glut that caused a 95 percent slump in returns since 2008 is eroded, according to Tor Olav Troeim, a director at Frontline Ltd., the biggest supertanker operator.
Returns on supertankers that reached $177,036 a day in July 2008 were last at $8,900, according to the London-based Baltic Exchange, which publishes daily rates for more than 50 maritime routes. Frontline, based in Hamilton, Bermuda, needs $30,100 a day to break even on its supertankers, according to a presentation to investors in February.
“We have to go through a lot of pain before we’re back into profitable territory,” Troeim, who is as an alternate director at Frontline and is on the board of several other shipping companies, told a conference in Oslo today. “We have just started on a down-cycle that will be brutal.”
The surge in rates in 2007 and 2008 spurred owners to order more ships, on the eve of the worst global recession since World War II. Those vessels are now leaving shipyards, meaning the tanker fleet will expand 7.4 percent this year, compared with a 3.1 percent gain in demand, according to the research unit of Clarkson Plc, the world’s biggest shipbroker.
Oil-tanker owners have responded to the slump in rates by cutting their speeds from an average of 10.8 knots in July 2008 to 8.8 knots now, according to ship-tracking data compiled by Bloomberg. There are more than 600 tankers anchored globally, up from about 350 three years ago, the data show.
The glut will take time to erode because only 10 percent of the fleet is above 15 years old, reducing the speed of demolitions, Troeim said in an interview after his speech. By contrast, a quarter of the dry bulk fleet hauling coal and iron ore is above 20 years old, he said. The slump in dry bulk shipping may be over in three years, Troeim said.
The Baltic Dry Index, a measure of commodity shipping costs, slumped 65 percent in the last 12 months, according to the Baltic Exchange.
Troeim’s outlook for oil tankers contrasts with that of Peter Evensen, chief executive officer of Hamilton, Bermuda- Teekay Corp. (TK), which operates vessels hauling oil and liquefied natural gas. He’s forecasting a rebound in rates for aframaxes, capable of carrying about 600,000 barrels of oil, next year.
“I’m optimistic,” Evensen told the conference. “We’ve gone through the low and we’re coming out of it.”
Shares of Frontline fell 6.3 percent to 105.4 kroner in Oslo trading, extending this year’s decline to 30 percent and valuing the company at 8.2 billion kroner ($1.5 billion).
The market can get “a lot more consolidated than it is now,” Troeim said. “Normally consolidation works when people have problems and that’s what we’re having these days.”
LNG shipping should fare better because demand is expanding faster than ship supply, he said.
“There is 9 percent coming in the next three years and we have a growth rate of 12-15 percent, so effectively the whole market is eaten up by one year of demand,” he said.
To contact the reporters on this story: Marianne Stigset in Oslo at firstname.lastname@example.org.