The center of gravity of the global oil refining complex is shifting sharply eastward, and this is spurring a boom in the business of building ships to transport fuel around the world.
Up to 38 mid-range tankers have been ordered this year, one of the busiest quarters since 2013, according to shipbroker Braemar. The number of ships assigned international serial numbers, another indicator of orders, is 28 this year, approaching a total of 31 for all of 2022, according to shipbroker Simpson Spence Young.
Inefficient refineries in the US and Europe closed after the Covid-19 pandemic crushed demand for petrol, diesel and jet fuel, while new complexes are being built in Asia and the Middle East. The subsequent pick-up in demand has fuel buyers seeking supplies from these new producers, drawing greater amounts of product into the water.
The trend has increased the rates the existing fleet can charge, making shipping more profitable and speeding up the construction of new ships.
“The main structural change in the refinery landscape that will support refined product shipping demand in the medium to long term is the geographic dislocation between new refiners and major consumers,” said Alexandra Alatari, senior analyst at braemar
US East Coast buyers are already picking up more fuel shipments from the Middle East and Asia as exports from Europe dry up. Australia, which saw some domestic refineries close, is pulling more cargoes from North and Southeast Asia, and India is exporting more products to Latin America. In the coming years, US Gulf Coast refiners are poised to ship more to West Africa and Europe, said John Auers, managing director of refined fuels analysis at consultancy RBN Energy.
Russia’s invasion of Ukraine has reinforced the phenomenon, sending shipping rates soaring in recent months as sanctions further rearrange global trade flows. Atlantic tankers make about $40,000 a day, the highest this time of year since at least 2013. Products spend more time on ships for long-haul routes, while waiting for transfer to other vessels and in floating storage.
Increased ship orders defy rising prices. The cost of newbuildings has risen to about $45 million per ship, up 14 percent from a year earlier and the highest since 2008, shipbroker data show.
The boom also reflects pent-up demand after many shipowners held back orders in recent years as they waited to see whether national and international regulations would force them to hire so-called green tankers that can run on fuels such as methanol. When energy prices soared last year, some of those doubts dissipated, and many of the new orders are for conventional fuel vessels, said Claire Grierson, head of tanker research by Simpson Spence Young.
Even with the new orders, which may add about 60 vessels by 2025, vessel availability will still remain below long-term average levels, Braemar’s Alatari said.
Photo Credit – iStock.com/Sharamand
