Tanker Insights – New Tanker Orders on the Rise - Teekay

May 5, 2017

Recent uptick in VLCC ordering is more fleet renewal than investment-driven

Tanker newbuilding prices have fallen to lows last seen in 2004, which is encouraging some owners to place orders for delivery from late 2018 to 2019. However, the recent uptick in newbuild ordering has largely been limited to VLCCs. Year to date, there have been 18 VLCCs ordered, compared to 14 for all of 2016. It appears that established shipowners are driving the uptick in newbuild ordering based on positive medium-term tanker demand fundamentals, namely strong oil demand growth, an expected recovery in OPEC production volumes from 2018 onwards and the need to replace an aging fleet that will be subject to increasing regulation in the coming years. In addition, it appears that many yards are specifically targeting VLCC contracts over the smaller size ranges given the higher profitability they can achieve with the larger vessels compared to the mid-sized segments.

As the chart above notes, the current VLCC orderbook is just over half of the size of the VLCC fleet that is aged 15 years or older. As we have noted in previous reports, vessels older than 15 years are often discriminated against by traders and charterers in favour of more fuel-efficient tonnage. In addition, strict environmental regulations in the coming years, such as the need to install a ballast water treatment system and a move to low sulphur fuel, could encourage owners to scrap vessels rather than retrofit or upgrade. The net result is a requirement for newbuilding orders to be placed now in order to accommodate fleet renewal, rather than fleet growth, once scrapping picks up between now and 2020. With Owners and yards focusing on VLCCs, the mid-size sectors are garnering less attention and ordering for Aframaxes and Suezmaxes has been virtually non-existent. Should owners remain restrained in ordering, we expect fleet growth to remain limited, thereby driving up fleet utilization.