Big Demand for New Tankers

Shipping operators and investors are pouring billions of dollars into building new oceangoing tankers to transport diesel, gasoline and aviation fuel—scrambling to keep up with North America’s energy boom. The shipbuilding demand is a result of new drilling and extraction technology in the U.S. and Canada that has unlocked vast new reservoirs of crude oil and natural gas. The newly tapped American oil has lowered costs for refiners, allowing them to better compete with their overseas rivals, ratcheting up exports and fueling demand for new tankers.  The U.S. exports and refinery expansions around the world are transforming product-tanker shipping demand.

New York-based Scorpio Tankers Inc.TNG inYour ValueYour Change Short position has grown from a little-known firm of around a dozen ships in 2010 into one of the world’s biggest products-tanker operators, with about 50 vessels. Scorpio has an order-book of 65 new ships, worth between $3.5 billion and $4 billion, expected to be delivered by the beginning of 2016.

In July, U.S. refiners exported a record 3.8 million barrels of products a day, according to the latest monthly data from the Energy Information Administration. That’s up nearly two thirds from 2010 exports. This translates into demand growth for product tankers of 7% in terms of capacity on average annually over the next three years. In comparison, demand for crude-oil tankers will likely decline by 1.5% over the same period, partly on the expectation that U.S. imports of crude will continue to fall.

It isn’t just U.S. refining exports driving tanker demand. Across the globe, growth in refining capacity is likely to rise to 2.1% a year over the next 10 years, up from 1.1% a year in the past decade, according to industry estimates.  That has already boosted the global fleet of refined-product tankers in recent years, according to global maritime advisers Drewry. New ship orders shot up from 68 vessels in 2010, to 116 in 2012. With 80 ships already ordered in the first nine months of the year, 2013 orders should top that.

The combined tonnage of new orders rose to 5.8 million in 2012 from 3.3 million in 2010. Meanwhile, industry officials estimate private-equity players have pumped around $5 billion into financing product tankers over the past three to four years.

Maersk Tankers, a unit of Danish shipping giant AP Moller-Maersk, plans to invest around $400 million for up to 10 product tankers, while trying to sell a number of crude oil tankers, people familiar with the situation said.

Blackstone Group LP and Greek shipping firm Eletson Holdings teamed up this month to form Eletson Gas, a new shipping company said to be worth around $700 million that will transport liquefied petroleum gas, or LPG, a refined product used in cooking and heating. Blackstone will provide the capital to build new ships or acquire used ones.  (WSJ, 10/31/2013)