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A Selection of Market Issues A Selection of Market Issues INTERTANKO DUBAI TANKER EVENTINTERTANKO DUBAI TANKER EVENT
March 29, 2004
2
What will the future look like?What will the future look like?
3
Dubai 14 years laterDubai 14 years later
4
Understanding & Adapting to ChangeUnderstanding & Adapting to Change
‘It is not the strongest of the species, nor the smartest of the species that survive, but those most adaptive to change.’ Charles Darwin
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Most Significant Market IssuesMost Significant Market Issues
6
Selected Market IssuesSelected Market Issues
• Oil Market• World Oil Demand – Major Economies• OPEC• China Demand• FSU Supply• Oil Stocks
• Tanker Industry• Tight Supply/Demand Situation• Industry Consolidation & Sophistication
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World Oil ConsumptionWorld Oil Consumption
50
55
60
65
70
75
80
1975 1978 1981 1984 1987 1990 1993 1996 1999 2002
MM
BD
SOURCE: IEA & Cambridge Energy Research Associates
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World Oil ConsumptionWorld Oil Consumption
50
55
60
65
70
75
80
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
MM
BD
SOURCE: IEA & EIA
1982 Outlook
1990 Outlook
1995 Outlook
Actual
1991 Outlook
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OPEC Oil ProductionOPEC Oil Production
15
17
19
21
23
25
27
29
31
33
1975 1978 1981 1984 1987 1990 1993 1996 1999 2002
MM
BD
SOURCE: IEA & Cambridge Energy Research Associates
10
OPEC Oil ProductionOPEC Oil Production
15
17
19
21
23
25
27
29
31
33
35
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
MM
BD
SOURCE: IEA & EIA
1982 Outlook
1990 Outlook
1995 Outlook
Actual
1991 Outlook
11
OPEC Production vs VLCC DemandOPEC Production vs VLCC Demand
0
5
10
15
20
25
30
35
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
OP
EC
PR
OD
UC
TIO
N (
MM
BD
)
0
20
40
60
80
100
120
140
160
180
200
VL
CC
DE
MA
ND
(M
DW
T)
SOURCES: IEA - OPEC Production MARSOFT – VLCC Demand
OPEC PRODUCTION
VLCC DEMAND
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Tight VLCC Supply/Demand BalanceTight VLCC Supply/Demand Balance
0
20
40
60
80
100
120
140
160
180
200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
MD
WT
SOURCE: MARSOFT
SUPPLY
DEMAND
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Low Oil StocksLow Oil Stocks
SOURCE: EIA
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VLCC Supply/Demand vs EarningsVLCC Supply/Demand vs Earnings
0
20
40
60
80
100
120
140
160
180
200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
VL
CC
FL
EE
T M
DW
T
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
VL
CC
DA
ILY
EA
RN
ING
S
SOURCE: MARSOFT
SUPPLY
VLCC Daily Earnings
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VLCC Utilization vs VLCC EarningsVLCC Utilization vs VLCC Earnings
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
VL
CC
FL
EE
T M
DW
T
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
VL
CC
DA
ILY
EA
RN
ING
S
SOURCES: IEA - OPEC Production MARSOFT – Daily Earnings
VLCC Utilization
VLCC Daily Earnings
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Oil Companies Exit ShippingOil Companies Exit Shipping
0
10
20
30
40
50
1980 1990 2000
% of World Tanker Fleet Owned by Oil Companies
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Greater Reliance on Spot ChartersGreater Reliance on Spot Charters
0
10
20
30
40
50
1970s 2000
% of Oil Company Cargoes Transported on a Spot Basis
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Transport Cost Less ImportantTransport Cost Less Important
0%
50%
100%
Pre 1970's Today
TransportCost
OtherCosts
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Oil Companies Exit ShippingOil Companies Exit Shipping
• Original Rationale• Core Competency - Owning & Operating Ships • Control Operating Cost• Reliability• Control Supply & Distribution
• Current Rationale• Core Competency – Commercial & Risk Mgt• Operating Costs are Less Significant• Allocate Capital to Higher Yield Investments• Reliability - Quality Independent & Nat. Companies• Flexible Supply & Distribution Practices
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Move Toward Standard Ship SizesMove Toward Standard Ship Sizes
0%
10%
20%
30%
40%
50%
60%
70%
% OF VLCCS BY SIZE RANGE
1998 2003
200-239 MDWT 240-279 MDWT 280-279 MDWT 320+ MDWT
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Industry TrendsIndustry Trends
• Commercial Pooling & Joint Ventures
• COAs & Profit Sharing Agreements
• Faster Information Processing
• Faster Market Changes
• Sophisticated Corporate Organizations• Larger Fleets• Emphasis on Intellectual Assets• Information Technology• Innovative Financing Structures• Less Personal
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Oil Market HeadingOil Market Heading
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World Oil Consumption ForecastWorld Oil Consumption Forecast
0
20
40
60
80
100
120
2001 2005 2010 2015 2020
MM
BD
SOURCES: EIA Annual Energy Outlook 2004
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Oil Consumption GrowthOil Consumption GrowthCompared to 2003 BaseCompared to 2003 Base
20052010
20152020
0
2
4
6
8
10
12
14
16
MM
BD
Other Asia
China
North America
SOURCE: EIA Annual Energy Outlook 2004
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Consumption Outpaces ProductionConsumption Outpaces Production((North America, China, Other Asia)North America, China, Other Asia)2003 Base2003 Base
20052010
20152020
0
2
4
6
8
10
12
14
16
MM
BD Consumption
Production
SOURCE: EIA Annual Energy Outlook 2004
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The China FactorThe China Factor
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
4% 6% 8%OIL CONSUMPTION GROWTH RATES
INC
RE
ME
NT
AL
DA
ILY
EA
RN
ING
S
VLCC AFRAMAX MR
SOURCES: MARSOFT & Vela
Annualized Incremental Tanker Daily Earnings for 3 Oil Demand Growth Scenarios (2005 – 2008)
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FSU Production ForecastFSU Production Forecast
Caspian Sea
Russia
0
2
4
6
8
10
12
14
16
18
2001 2005 2010 2015 2020
MM
BD
SOURCES: EIA Annual Energy Outlook 2004
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Bosporus/Turkish StraitsBosporus/Turkish Straits
• New Regulations• Night Transit Ban: Ship LOA > 200 meters• 48 Hour Notification• One-way Traffic Regulation• Delays of 3.5 days
• Operating Close to Capacity
• Congestion• Delays of 10 to 21 days
SOURCE: EIA & Richardson Lawrie Associates
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Caspian Pipeline ConsortiumCaspian Pipeline Consortium
SOURCE: EIA
Today: 560 mbdFuture: 1,340 mbd
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Baku-Tbilisi-Ceyhan Pipeline 1 mmbdBaku-Tbilisi-Ceyhan Pipeline 1 mmbd
SOURCE: EIA
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AMBO Pipeline 750 mbdAMBO Pipeline 750 mbd
SOURCE: EIA
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Turkish Bypass Pipeline 1.2 mmbdTurkish Bypass Pipeline 1.2 mmbdPlanning StagePlanning Stage
SOURCE: EIA
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SummarySummary
• Forecasts – “educated guesses”• Benefit is understanding clues for change and
possible outcomes
• Tanker rates linked to OPEC production • Tight Supply/Demand
• VLCC utilization levels > 90%• Compounded by low oil stocks• High volatility
• China key demand driver• FSU key oil producer
• Short-term facility constraints
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ConclusionsConclusions
• More complex and uncertain world
• Changes are happening much more quickly
• Successful organizations need capability to adapt• Flexible• Manage intellectual assets & knowledge• Information technology• Emphasis on learning
• Effectively adapting to market changes is more important than the market itself• Strong or weak markets do not last forever
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