The Product Tanker Market andPhase-Out Implications

byErik.Ranheim@INTERTANKO.com

Manager Research and Projects

4th Annual Combined Chemical & Product Tankers Conference London, 5 December 2007

‘

International Association of Independent Tanker Owners

Trade association established in Oslo in 1970 Spokesman, information service, meeting place

Membership280 Members40+ countries

2,800+ tankers230 million dwt

75% of independent tanker fleet300 Associate Members

INTERTANKO

Product tanker market and phase out

• Product tanker demand• Phase-out review• Phase-out consequences

Market trends

Tanker segments

Average tankers

Advanced tankers/operators

Low quality tankers

Bad market

Alang beachNewbuildings

Product tanker trade

'000 m tonnes

Source: BP Review

400

450

500

550

600

650

700

1999 2000 2001 2002 2003 2004 2005 2006

2004 7.2% increase 2005 9.6% increase2006 14.1% increase

Product tanker trade

'00 m tonnes

Source: Fearnleys

2004 5.3% increase2005 8.9% increase2006 5.0% increase2007 4.7% increase2008 3.8% increase

80

100

120

140

160

180

200

220

240

260

280

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005 P07

Miles

Tonnes

Tonne-miles

Product import to the US, Japan and Europe

mbd

Source: IEA/PAJ/EIA

BiodieselMore mpg

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1999 2000 2001 2002 2003 2004 2005 2006 2007

Europe US Japan

New Refinery distillation capacity projects by region 2007-12

mbd

Source: Source: Petroleum Economist/INTERTANKO

Firm capacity expansion 9.3 mbd + 2.5 mbd planned0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

US/Canada L America Africa Europe/Eurasia Middle East Asia Pacific

Expansion 2.0 mbd

Planned 2.5 mbd

New 6.8 mbd

New Refinery distillation capacity projects by region 2007-12

mbd

Source: Petroleum Economist/INTERTANKO

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2008 2009 2010 2011 2012 Planned

0.0

0.5

1.0

1.5

2.0

2.5

3.0Expansion

New capacity

Oil demand incease - 1.4%

Source:Petroleum Economist

The world is moving away from HFOOil consumption by product - % share

Source: INTERTANKO/BP Review

% share mbd

12%

17%

22%

27%

32%

37%

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

25

37

49

61

73

85

Middle/heavy distillates

Fuel oil

Total

Refineries are moving away from HFO

• ……..company’s early commitment in the mid-1990s to making cleaner fuels, and by being proactive about finding the technology needed to achieve this.

Why switching to distillates? Why switching to distillates?

A simple solution :

1. Significant global reduction of emissions• SOx, - 60 - 80%, • PM, - 80 - 90%, • NOx, - 15%, • No heavy metals, • Less soot

2. A more healthy environment for crew and dockworkers

3. No onboard waste4. Reduces overall fuel consumption

(and CO2 emission))

5. Better and easier control or monitoring of ships

Cleaner, Simpler and more Efficient ships

Why switching to distillates? Why switching to distillates?

• ..continue:

6. Fewer engine breakdowns and potential pollution accidents

7. Less pollution when spilled8. Provides opportunity for the

development of more efficient engines (with less emissions)

9. Applies to all ships and all current engines 10. No safety problem in connection

with switching fuels

Cleaner, Simpler and more Efficient ships

Why not scrubbers?Why not scrubbers?

• Still under testing (2 ship limited scale)

• Large • Expensive• Difficult (impossible?) to install• CO2 emission (buffering effect)• leaves hazardous waste• waste disposal – no-one wants it• Tonnes of seawater need to be processed/added

We are involved in transportation – not waste treatment

Phase-out

Phase-out history

• After Exxon Valdez, on 18 August 1990, the US President signed into law the US Oil Pollution Act of 1990 (OPA 90). This was the first regulation to mandate double hull design for tankers with a building contract after 30 June 1990 and with a delivery after 31 December 1992.

• First IMO phase-out initiated by the US OPA 90 - ratified by the IMO March1992 - enforced as from July 1993.

• Accelerated IMO phase-out initiated by Europe as a result of the ERIKA accident outside France - ratified by the IMO April 2000 - enforced as from September 2001.

• Further acceleration of IMO phase-out initiated by Europe as a result of the PRESTIGE accident outside Spain - ratified by the IMO December 2003, enforced as from April 2005 - enforced by Europe as from October 2003.

• The European Union’s Regulation (1726/2003) on single hull tankers took effect on 21st October 2003.

• Revised Annex II was implemented 1 January 2007 NOT phase-out.• Both ERIKA and PRESTIGE carried Heavy Fuel Oils that can pollute up to

ten times more than crude oil.  IMO therefore adopted a new regulation – Regulation 13H of Annex I of MARPOL 73/78 – banning the carriage of heavy grade oil as cargo in single hull oil tankers as from 5 April 2005.

Tanker recycling by receiver country

No.No.

0

5

10

15

20

25

30

84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Others/NN

Bangladesh

Pakistan

India

Taiwan

Korea

China

Accelerated phase outAccelerated phase out

Tanker recycling 10,000- 79,999 dwt

m dwtm dwtAccelerated phase outAccelerated phase out

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2002 2003 2004 2005 2006 2007

Phase-out of small tankers as from 2008Tankers 600 - 4,999 dwt by hull - 3,429 tankers – 8 m dwt

No.No.

0

200

400

600

800

1000

Pre 50s 1950s 1960s 1970s 1980s 1990s 2000s Order

No info

SH

DS/DB

DH

Tankers 600 - 4,999 dwt by type - 3,429 tankers

No.No.

-180

20

220

420

620

820

1,020

Pre 50s 1950s 1960s 1970s 1980s 1990s 2000s Order

Tanker

Products

Chem/Oil

Bunker

Bitumen

Asphalt

Tanker deliveries, phase-out, demolition 5,000 - 9,999 dwt – 1095 tankers, 385 SH

NumberNumber

• Fragmented, many geographical segments• Cabotage trade• Phase-out overhang, 118 tankers

-210

-160

-110

-60

-10

40

90

140

-02 03 04 05 06 07 08 09 10 11 12 13 14 15

Newbuilding tobalanceMax phase out

Demolition

Delveries

Surplus tonnage

Assume balanced market end 2006.2.5% increase in demand

Overhang, should have been phased out before 2007

Tanker deliveries, phase-out, demolition and 10,000 - 24,999 dwt

NumberNumber

• Fleet - 5.2 m dwt, 419 tankers• Phase-out – 0.6 m dwt, 187 tankers• Orderbook - 3.1 m dwt, 39 tankers• Phase-out overhang 70 – removed 2008 – 2001

-80

-60

-40

-20

0

20

40

60

80

100

-02 03 04 05 06 07 08 09 10 11 12 13 14 15

Newbuilding tobalance

Max phase out

Demolition

Delveries

Surplus tonnage

Assume balanced market end 2006.2.5% increase in demand

year

Overhang

Tanker deliveries, phase-out, demolition and 25,000 - 34,999 dwt

NumberNumber

• Fleet – 18.4 m dwt, 776 tankers• Phase-out – 3.7 m dwt, 124 tankers• Orderbook - 2.3 m dwt, 123 tankers• Phase-out overhang - 3.9 m dwt, 70 – assumed removed 2008 – 2011

-75-65-55-45-35-25-15-55

15253545556575

-02 03 04 05 06 07 08 09 10 11 12 13 14 15

Newbuilding tobalance

Max phase out

Demolition

Delveries

Surplustonnage

year

Overhang

Tanker deliveries, phase-out, demolition and 35,000 - 52,999 dwt

NumberNumber

• Fleet – 53.0 m dwt, 1,225 tankers• Phase-out – 7.0 m dwt, 168 tankers• Orderbook – 24.8 m dwt, 533 tankers• Phase-out overhang - 0.7 m dwt, 9 – removed 2008 – 2010

-60

-20

20

60

100

140

180

220

260

300

340

-02 03 04 05 06 07 08 09 10 11 12 13 14 15

Newbuildingto balance

Max phaseout

Demolition

Delveries

Surplustonnage

Assume balanced market end 2006. Assumed 'demand increase 3.5%

Year

Tanker deliveries, phase-out, demolition, 53,000 dwt - 79,999 dwt

NumberNumber

• Fleet – 27.3 m dwt, 399 tankers• Phase-out – 6.1 m dwt, 95 tankers• Orderbook – 8.4 m dwt, 166 tankers• Only handful on order 53,000 dwt – 73,000 dwt

-42

-32

-22

-12

-2

8

18

28

38

48

-02 03 04 05 06 07 08 09 10 11 12 13 14 15

Newbuildingto balance

Max phaseout

Demolition

Delveries

Surplustonnage

Assume balanced market end 2006. Assumed 'demand increase 3.5%

Tanker deliveries, max. phase -out, demolition and 5,000 - 79,999 dwt

NumberNumber

• Fleet – 111.8 m dwt, 3,914 tankers• Phase-out – 22.3 m dwt, 957 tankers• Orderbook – 38.7 m dwt, 1,131 tankers

-12

-7

-2

3

8

13

-02 03 04 05 06 07 08 09 10 11 12 13 14 15

Newbuilding tobalance

Max phase out

Deletions

Delveries

Min phase out

Surplus tonnage

year

Removals in addition to phase out

Assume , balanced market end 2006 and increase in demand of 3.5%.

Tanker deliveries, min. phase-out, demolition and 5,000 - 79,999 dwt

M dwtM dwt

• Fleet – 111.8 m dwt, 3,914 tankers• Phase-out – 22.3 m dwt, 957 tankers• Orderbook – 38.7 m dwt, 1,131 tankers

-10

-5

0

5

10

15

-02 03 04 05 06 07 08 09 10 11 12 13 14 15

Newbuilding tobalance

Max phase out

Deletions

Delveries

Surplus tonnage

Min phase out

year

Removals in addition to phase out

Position of administrations

SH trading beyond 2010?

– Australia No– China No– EU

No– Mexico No– Romania No

– Bahamas Yes– Barbados Yes– Liberia Yes– Marshall Isl. Yes– Panama Flag Yes– Japan Yes– Singapore Yes– India Yes– Hong Kong * Yes

*20 years

Flag/Port States positions Trading until the age of 25 years

– United States N/A

Hulls

Tankers 5,000 - 79,999 dwt by hull

0%

20%

40%

60%

80%

100%

5-9,999 10-24,999 25-34,999 35-52,999 53-79,999

Unknown

DH

DS-DB

SH

45% 40% 78% 86% 78%

Tankers 5,000 - 79,999 dwt phase-out - orders - fleet

m dwtm dwt

of which overdueof which overdue3.7 m dwt3.7 m dwt

0

23

46

69

92

115

SH - 22 m dwt - 21% Orders - 30 m dwt - 30% Fleet - 112 m dwt - 100%

53 - 79,999 dwt

35 - 52,999 dwt

25 - 34,999 dwt

10 - 24,999 dwt

5 - 9,999 dwt

47%13%

22%

31%

Conclusion

Conclusion

• Structural changes in the product tanker market • Phase-out on schedule with no major problems

• Phase-out minor market impact

• 2010 situation still unclear