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Industry Opinions

 

Liquefied Petroleum Gold
April 11, 2014
While the large crude oil tankers slip into what seems like a second quarter slumber, buzz continues to build around the liquefied petroleum gas (LPG) sector. Press headlines tout the recent success of LPG shipowners, many of whom are finally able to relish the fruits of their labor. Freight rates on the sector’s the largest vessels, Very Large Gas Carriers (VLGCs) are in uncharted territory, topping $100 per metric ton this week on the benchmark Arabian Gulf to Japan trade. As the supply for LPG continues to grow with increased natural gas and crude oil production, incremental seaborne transportation requirements will mount. As with other shipping markets, oversupply concerns are omnipresent, but, for now, the near-term future for LPG shipowners appears to be graced by the Midas touch.
 
Moonlighting in the Sunshine State
April 04, 2014
A recent, This Week In Petroleum, published by the US Department of Energy’s Energy Information Agency (EIA) suggested that a shift in Florida’s gasoline supplies could be underway. Florida is essentially entirely dependent on gasoline imports from neighboring states or other countries, the majority of which require marine transportation. The EIA suggested that due to a shortage in Jones Act tonnage and high transportation costs, incremental gasoline cargoes would likely be increasingly sourced from foreign markets. Although it is true that spot market freight rates for tankers under the Jones Act are at all-time highs, the cost of transportation for units moving gasoline from places like Houston, Pascagoula, Mississippi and Convent, Louisiana to Florida has been well-established through term charters for quite some time. Additionally, the volatility in foreign-flag freight rates breaks any semblance of sustained arbitrage. Nestled between the trading and storage hubs of Houston and New York, Florida serves as a balancing point for foreign and domestic freight rates, driving seemingly disparate markets toward parity.
 
Quoth the Raven: Exxon Valdez
March 28, 2014
This week marks the 25th anniversary of the infamous Exxon Valdez oil spill, an accident that would forever shape the marine industry. While the oil industry at large is no stranger to public scrutiny, misinformation and/or media hype, it could be argued that the tanker industry has it particularly tough. In fact, it could be concluded after the Exxon Valdez had an impact disproportionate to the actual magnitude of the spill. Thankfully, the improvements in procedures, vetting standards and operational safety, many of which were initiated by the Exxon Valdez spill, ensure that nearly all of the 50 some-odd million barrels transported by sea daily are delivered without incident.
 
Spring Chickens and More to Hatch
March 21, 2014
The spate of newbuilding activity across different tanker sectors could be evidence that a lemming-like approach to supply analysis is well underway. Besides the obvious consequence of oversupply, short-term market players seem to propagate the myth that vessels older than 15 years will be forced into an early grave. It is important to remember that the intended useful life of a tanker is 25 years and explicit age restriction policies have never been widely adopted by the oil companies. Historically, older vessels have tended to survive, even when utilization has suffered during periods of slack demand. It is no secret that the tanker fleet is poised for significant expansion over the next few years. Even if freight rates suffer as a result, vessel removals will likely take significantly longer to materialize.
 
Do You Need to Clean Up Your Act?
March 14, 2014
One critical decision a shipowner faces when ordering an Aframax is whether or not to coat the vessel’s tanks to allow for clean refined product carriage. In the few years leading up to the market peak in 2008, anticipation and excitement for long-haul refined products trades gained momentum. New refineries to be built in the Middle East would forever change the commercial landscape of the tanker market. Refined product ton-miles would grow to the detriment of the crude oil trade. The onset of the financial crisis forced companies looking at investment in, or expansion of, refineries to pump the brakes on such ideas. With worldwide petroleum demand in question, the sense of urgency for refining projects quickly dissipated. Eventually, worldwide fuel demand growth was restored, but many of the proposed refining projects were not. With an ever-changing outlook, the long-haul product market continues to be shrouded with uncertainty. The question remains not when, but if, large scale export refineries will ultimately turn on their boilers.
 
Ukraine in the Membrane
March 07, 2014
The recent developments in Ukraine serve as a stark reminder that crude oil and natural gas supply security for captive consumers are only as sure as their provider’s next false move. Russia and Saudi Arabia regularly interchange positions as the world’s largest oil producer, depending on OPEC production quotas, heightening market sensitivity to sabre-rattling of any sort. As tensions in Ukraine, Crimea and Russia mount, it is not yet clear the full extent to which the conflict will impact natural gas and oil supplies. To be sure, however, if trade barriers solidify, the ramifications for the oil and tanker markets will likely be significant.
 
Venezuela: Squandering a Gold Mine
February 28, 2014
While it is difficult to assess the degree to which daily life in Venezuela has deteriorated since president-elect Nicolas Maduro has taken the reins, general consensus indicates that the situation will likely get worse before it gets better. Anecdotes of consumer good shortages widely pepper the international press and sound alarms for international companies with exposure to Venezuela. As recently as 2000, Venezuela was producing upwards of 3.5 million barrels per day of crude oil. However, the nationalist agenda, oil worker strikes and crumbling financial conditions led to a decade of infrastructure neglect which has ultimately cost the country 1 million barrels per day of production – or, at current prices, nearly $980,100,000 per day in revenue. Today, the United States imports roughly 800,000 barrels per day of crude oil from Venezuela, but the current state of domestic Venezuelan affairs could impact its refining system increasing Venezuela’s reliance on the United States.
 
Is the Dragon Draggin’?
February 21, 2014
For most of the past decade, China has been the saving grace for the tanker, and other, shipping markets. While economic malaise pervaded in the West, China’s economic dragon appeared difficult to tame. Recently released data suggest that China’s incremental demand growth for transportation fuels may not be as robust as some originally anticipated. It is important to understand that this does not suggest a contraction in Chinese demand, but rather a moderation in its consumption growth rate. In general, the outlook at this point still appears rosy, but the recent moderation should be heeded as a warning sign for shipowners, especially those going all-in on the China bet.
 
Leaving Some with a BITR Taste
February 14, 2014
The market landscape for crude oil and refined product trades has an inherent element of shifting sand, presenting an organization like the Baltic Exchange with certain challenges. The Baltic Exchange is a centuries-old institution that, among other services, oversees a collective of member shipbrokers who contribute daily freight rate assessments for the wet and dry bulk shipping markets. The freight rates that are collected by the Baltic Exchange are in turn used by both charterers and shipowners, as well as other market participants, as a reliable metric of freight pricing for internal and external financial calculations. Although the birth and death of trade lanes is a natural market evolution, such developments pose questions of relevancy to the Baltic Exchange’s data collection efforts. While the decision to discontinue a certain set of assessments due to perceived obsolescence is objectively simple, it could have broader implications for commercial market participants that have freight contracts dependent on these rates.
 
No Longer Just A Pipe Dream
February 07, 2014
Despite a recently released environmental impact study with a more favorable than expected outcome for would-be shippers, it remains unclear whether the controversial Keystone XL Pipeline expansion will receive final approval from the US State Department. It was logically concluded that regardless of pipeline approval, Canadian tar sand oil will continue to be produced and ultimately move to the US Gulf through means of transportation. While much ado continues to surround the Keystone XL Pipeline in particular, great strides to alleviate crude oil supply congestion at Cushing, OK are starting to take shape. In fact, the southern parts of the Keystone system, the Gulf Coast Pipeline, commenced operation last week in this effort.
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