MJLF ResearchTanker Supply and Demand

MJLF ResearchTanker Supply and Demand

Intertanko

March 17th, 2014TANKER MARKET UPDATE

MJLF ResearchTanker Supply and Demand

1. Global Macro Picture

2. Dirty Tanker Markets

3. Clean Tanker Markets

4. Jones Act Markets

MJLF ResearchTanker Supply and Demand

• Total global GDP is forecast to trend upwards through 2014.

• Emerging economies require more oil as their GDP grows than advanced economies.

• Advanced economies are maintaining oil demand despite expectations of tapering.

Macro GDP Estimate

Source: IMF

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

-1

0

1

2

3

4

5

6

7

8

GDP Historical and Forecast

Emerging Advanced World

% Incr

ease

MJLF ResearchTanker Supply and Demand

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 201670

75

80

85

90

95

100

Annual Global Demand

Million b

bls

/d

• Daily demand was at 92.1 mn bbls/d in January of 2014.

• Total Global Demand is forecast to rise through 2016 to above 95 mn bbls/d, many of these additional barrels will move on tankers.

• Peak demand is expected at approximately 100 mn bbls/d.

Total Global DemandProjected

Source: IEA

MJLF ResearchTanker Supply and Demand

MJLF ResearchTanker Supply and Demand

Dirty Product

Tanker Markets

MJLF ResearchTanker Supply and Demand

MJLF ResearchTanker Supply and Demand

• US crude oil production is shifting markets and creating new trade patterns.

• Chinese demand is the main driver of the VLCC markets, however, OECD demand has been stronger than expected in 2014.

• Seasonality of rates returned in 2013 after weak markets in 2012, with all segments seeing a substantial rate spike at the end of the calendar year.

Dirty Product Market Highlights

MJLF ResearchTanker Supply and Demand

MJLF ResearchTanker Supply and Demand

Time Charter Rate Trends

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,0001 Year

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000

30,0003 Years

MJLF ResearchTanker Supply and Demand

MJLF ResearchTanker Supply and Demand

Fleet Size and Orderbook

Ship Type Fleet Size Orderbook %

VLCC 631 88 14.1

Suezmax 494 47 9.5

Aframax 898 105 11.7

Panamax 416 22 5.3

MR 1395 300 21.5

Jones Act MRs 33 11 33

Source: Clarksons

MJLF ResearchTanker Supply and Demand

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20160

10

20

30

40

50

60

70

VLCC Fleet Age Profile

Year Built

Num

ber

of

Ship

s

Projected

Projected Fleet Size

2014 – 6522015 – 6572016 – 667

Current VLCC Fleet Size

2013 Final - 631

Source: Lloyds

MJLF ResearchTanker Supply and Demand

VLCC Average Earnings

Source: Clarksons, Wells Fargo Securities, LLC

Wee

k 1

Wee

k 3

Wee

k 5

Wee

k 7

Wee

k 9

Wee

k 11

Wee

k 13

Wee

k 15

Wee

k 17

Wee

k 19

Wee

k 21

Wee

k 23

Wee

k 25

Wee

k 27

Wee

k 29

Wee

k 31

Wee

k 33

Wee

k 35

Wee

k 37

Wee

k 39

Wee

k 41

Wee

k 43

Wee

k 45

Wee

k 47

Wee

k 49

Wee

k 51

Wee

k 53

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$0

$20,000

$40,000

$60,000

$80,000

$100,0002010 2011 2012 2013 2014

$/D

ay

$/D

ay

MJLF ResearchTanker Supply and Demand

… But slow steaming is artificially capping the supply of ships.

• During the late season rate spike for VLCCs in 2013, few owners expressed willingness to abandon slow steaming.

• If there is a prolonged rate hike, charterers may demand a return to higher speeds.

Speed Days bbls Capacity Daily EquivalentLaden 12.5 21.9Ballast 10 27.4

Speed Days bbls Capacity Daily EquivalentLaden 14.5 18.87Ballast 14 19.55

25.7% Increase in fleet capacity at full speed

Slow Steaming

Normal Speed

375232,000,000

471482,000,000

MJLF ResearchTanker Supply and Demand

• Fleet growth for larger tankers is expected to be modest in the years ahead as orders have been slower in the crude sector.

• The rate volatility seen late in 2013 and in 2014 indicates a healthier supply/demand balance is returning, but the fleet remains very large by historical standards.Source:

Baltic

D J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J -

20,000

40,000

60,000

80,000

100,000

120,000

140,000

VLCC Ras Tanura to Chiba

Five Year Range 2013 2014 Average

TC

E $

/Day

MJLF ResearchTanker Supply and Demand

Projected Fleet Size

2014 – 4462015 – 4562016 – 456

Current Suezmax Fleet Size

2013 Final - 430

Source: Lloyds

199419951996199719981999200020012002200320042005200620072008200920102011201220132014201520160

5

10

15

20

25

30

35

40

45

50

Suezmax Fleet Age Profile

Year Built

Num

ber

of

Ship

s

Projected

MJLF ResearchTanker Supply and Demand

MJLF ResearchTanker Supply and Demand

• Earnings in the first quarter of 2014 were impacted by global refinery turnarounds which are averaging 2.8mn bbls/d from Dec 2013 to April 2014. HOWEVER, overall runs are forecast to grow by 1.1 mn bbls/d (year on year) for the remainder of 2014

• Modest fleet growth in all dirty tanker market segments is positive for owners.

• VLCCs and Suezmaxes will continue to experience dynamic rates in 2014, but average earnings will be only modestly higher than in 2013.

Dirty Product Trends

MJLF ResearchTanker Supply and Demand

• The completion of the Panama Canal expansion is currently scheduled for end 2015 (stated)

• The expansion will allow partially loaded Suezmax tankers to transit the Canal (110,000t-120,000t) and, thus, could potentially pose a threat to the VLCC sector.

MJLF ResearchTanker Supply and Demand

MJLF ResearchTanker Supply and Demand

Clean Product

Tanker Market

MJLF ResearchTanker Supply and Demand

• Rising US Gulf distillate exports to Latin America and Europe – US Refiners continue to add marginal capacity.

• Growth in Asian and Middle East refining supercenters will lead to closures of smaller, inefficient refineries world wide.

• Between 750-900,000 bbls per day of refinery capacity are slated for strategic review, ie closure, in Europe.

Clean Product Market Highlights

MJLF ResearchTanker Supply and Demand

199419951996199719981999200020012002200320042005200620072008200920102011201220132014201520160

20

40

60

80

100

120

140

160

MR Fleet Age Profile

Year Built

Num

ber

of

Ship

s

Projected Fleet Size

2014 – 14682015 – 15772016 – 1602

Current MR Fleet Size

2013 Final - 1395

Projected

MJLF ResearchTanker Supply and Demand

Wee

k 1

Wee

k 3

Wee

k 5

Wee

k 7

Wee

k 9

Wee

k 11

Wee

k 13

Wee

k 15

Wee

k 17

Wee

k 19

Wee

k 21

Wee

k 23

Wee

k 25

Wee

k 27

Wee

k 29

Wee

k 31

Wee

k 33

Wee

k 35

Wee

k 37

Wee

k 39

Wee

k 41

Wee

k 43

Wee

k 45

Wee

k 47

Wee

k 49

Wee

k 51

Wee

k 53

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$0

$5,000

$10,000

$15,000

$20,000

$25,000

2010 2011 2012 2013

$/D

ay

$/Day

MR Average Earnings

Source: Clarksons, Wells Fargo Securities, LLC

MJLF ResearchTanker Supply and Demand

• Earnings were close to five year highs in 2013, but earnings have reverted closer to the average.

• The US Gulf to Europe trade has seen earnings above the Europe to US Atlantic Coast run, which historically did not happen.

• LR1s and LR2s have started loading in the US Gulf.

D J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J -

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Trans Atlantic Round Trip

Five Year Range 2013 2014 Average

TC

E $

/Day

MJLF ResearchTanker Supply and Demand

• Panama Canal Expansion and the increase in the number of crude splitters (producing a large amount of naphtha) could increase the number of cargoes from the US Gulf to the Far East on LR1/LR2s.

• The fleet growth in the MR and LR2 segments is projected to be fairly large from 2016 onwards, which may limit the upside to rate increases.

• Abnormally cold weather in the US North East led to unexpected support for Europe to US Atlantic Coast rates early in 2014 as distillates were sourced from Europe.

Clean Product Trends

MJLF ResearchTanker Supply and Demand

MJLF ResearchTanker Supply and Demand

MJLF ResearchTanker Supply and Demand

Jones Act

Tanker Markets

MJLF ResearchTanker Supply and Demand

• US Crude Production

Jan-

00

May-0

0

Sep-

00

Jan-

01

May-0

1

Sep-

01

Jan-

02

May-0

2

Sep-

02

Jan-

03

May-0

3

Sep-

03

Jan-

04

May-0

4

Sep-

04

Jan-

05

May-0

5

Sep-

05

Jan-

06

May-0

6

Sep-

06

Jan-

07

May-0

7

Sep-

07

Jan-

08

May-0

8

Sep-

08

Jan-

09

May-0

9

Sep-

09

Jan-

10

May-1

0

Sep-

10

Jan-

11

May-1

1

Sep-

11

Jan-

12

May-1

2

Sep-

12

Jan-

13

May-1

3

Sep-

13

Jan-

14

May-1

4

Sep-

140

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Crude Production

Domestic ProductionSource: EIA

MJLF ResearchTanker Supply and Demand

• USWC Rail Development• If all rail Terminals

are built, 800 KB/d of capacity will be added exceeding regional refining throughput

• Total USWC refining capacity is estimated at 2.8 MMB/d, w/ 1.75 MMB/d of capacity in California

• As a result intra Pacific Northwest-California barge and tanker trade are forecasted to expand

MJLF ResearchTanker Supply and Demand

• Texas Production + Pipe-In Capacity (Seaway + Cushing Market Link): 4.1 MMB/d

• Pipe-Out Capacity: (HoHo + Permian Express + Centurion): 835 KB/d

2013 2020E0

250500750

10001250150017502000225025002750

Texas Shale Production (KB/d 2013 v 2020)

Eagle Ford Permian Shales Barnett Granite Wash

MJLF ResearchTanker Supply and Demand

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QUESTIONS?