Knightsbridge, Nordic American OK for short term, LNG to lead tanker market

Implications: Pipeline Editor Christopher E. Smith reported in the June 23 issue of the Oil & Gas Journal that the tanker market during the half year ending March rose 14.1%. Clarkson Research Services Ltd gave the reasons behind these movements and forecast the future direction of the market. Included are Very Large Crude Carriers (VLCCs), Suezmax, Aframax and product carriers. Average daily rates were $34,771/day. VLCC earnings were up 93.3%. Suezmax earnings rose 44%. Aframax earnings rose 17.7% but product carriers declined. A sudden exodus of single-hulled carriers strengthened the market. Ship values continued to increase with five-year old VLCCs reaching $140 million, up from $130 million in September 2007. However underlying demand will remain sluggish. The VLCC fleet will grow by 4.4% in 2008.The LNG tanker market is ready to accelerate, reflecting new terminal construction.

Analysis:  By far the most critical factor will be the volumes of crude oil available for shipment in future years. If black oil continues its decline, fewer VLCCs will be required and this will be the first market segment to suffer. Both Knightsbridge and Nordic American are poised for continued good earnings in 2008. But weakness could develop in 2009. Black oil volumes are critical for the health of the tanker market as a whole and Persian Gulf volumes are important for the VLCC (Knightsbridge) market. Knightsbridge, with a small fleet (5) of late 1990s VLCCs has been successful over the years keeping the fleet employed but times were difficult for some months after their original contract with Royal Dutch Shell expired. Nordic American operates a fleet 12 Suezmax vessels with two more under construction for delivery in 2009 and 2010. By far the most dynamic segment of the tanker market is construction of LNG tankers. At present the fleet includes over 200 ships with another 150 under construction for delivery between 2008 and 2011. A new category of LNG carriers called the Q-flex tankers were introduced in late 2007. Overseas Shipholding Group took delivery in October of 2007 of the M.V. Al Gattara built by Hyundai in South Korea. This was the first of eight vessels all with a capacity to transport 200,000 cubic meters of cargo in five insulated compartments. The eight vessels will be diesel powered with on board reliquefaction plants to return boil off to the cargo compartments. These vessels are expected to set new standards for efficient transportation of LNG cargos.