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Bunker prices to shift ship owners' attention towards more "eco-friendly" tankers

Monday, 20 February 2012 | 00:00
"Green vessels", "environmentally-friendly", "eco-ships"; all those terms are more and more frequently introduced in the everyday business of shipping. With pressure to the shipping industry from international organizations and institutions rising and demanding a cleaner "modus operandi", ship owners may well have to shift their attention, as has already been the case, towards more environmentally friendly vessels. In fact, many are already contemplating the increase of such vessels in their fleet mix.
One financial incentive towards this new direction has been the major increase of bunker fuels, which are a major part of the daily expenses of any shipping company. In its latest report, London-based shipbroker Gibson said that "today’s weak tanker market means bunker prices play an even greater role, as the rising cost of bunker fuel undermines the shipowners ability to break-even, let alone cover actual costs. Following escalating tensions between Iran and the West and concerns surrounding the supply of crude from the region, front month Brent futures prices rose to a 6 month high this week (above $120/bbl), whilst WTI moved above $100/bbl. The climb also meant bunker prices in main bunkering centres worldwide climbed to their highest level since 2008" said Gibson.
In its report, it mentioned that by Thursday of the past week, the price of Fujairah high sulphur fuel oil (HSFO) reached $741/tonne, more than $100/tonne higher than during the corresponding period last year. "Soaring bunker prices have added further pressure on shipowners costs, highlighting the advantages of more fuel efficient ships. This week, John Fredriksen outlined plans to invest hundreds of millions of dollars in new tankers for Frontline 2012, which could eventually include an order for fuel efficient VLCCs. Frontline suggests that at current bunker prices the savings could be as much as $10,000/day, following improvements in engine efficiency and the subsequent bunker consumption. This implies a ‘saving’ of some 15 tonnes/day. Although this statement may raise a few eyebrows, a more detailed analysis shows that savings could potentially be even higher" mentioned Gibson.
It went on to say that latest "reports suggest that highly efficient VLCCs (due to be delivered soon) can super slow steam, with bunker consumption around 30 tonnes/day less than conventional modern tonnage. Based on the assumption of bunker prices remaining high ($700/tonne plus), this could translate to savings of some $20,000/day. At current levels this would make a significant difference on shipowners’ profitability. However, such promising sounding prospects are likely to be treated with a hint of caution as this is a relatively new area for shipowners. Many industry participants will be studying the performance of these eco ships over the coming months. However, eco ships come up at a higher start up price relative to conventional modern tankers. Nonetheless, if newbuilding prices continue to fall and fuel costs continue to rise, an increase in new efficient VLCC orders is likely to prevail, especially as the tanker industry increasingly comes under even more environmental pressure" concluded Gibson.
Meanwhile, in the tanker markets during the past week, Paris-based BRS (Barry Rogliano Salles) commented on the VLCC market that "while oil prices have reached a top (Opec basket price getting close to $120/bbl), it is clear that bunker costs will be a headache for owners and slow steaming a mere part-solution to their problems. From the Middle East Gulf, if sanctions against Iran keep widening, global demand for VLCC tonnage is not affected and is maintained at a good pace. With March nominations now well in place and a notable influence of the new VLCC pool ‘Nova’, owners have managed to strengthen their strategy and increased rates by 5 points for voyages to the East (WS55). At such levels, and basis a laden speed of 13 knots, daily returns are fetching $20,000. Voyages to the West remain scarce with rates only marginally progressing around mid WS30’s to Europe and daily returns still hardly positive (basis slow speed). Activity in the western hemisphere seems to resume with a fair equilibrium between the Caribbean, Europe and West Africa. Rates achieved still provide better returns than from the MEG and voyages from West Africa keep attracting ships ballasting from the East" said the shipbroker.
On the Suezmax front "the West Africa Suezmax market was quite active last week. One can even say that it was under some pressure for a couple of days. The result of such pressure was nothing but a few points gained on the Wafr/UKCM route especially. A quieter North Sea and Med market increased the number of available ships competing ex West Africa, helping charterers to keep the pressure under control. By the end of the week a rate of WS80 for Wafr/Europe route gave a return of about $22,000/day basis slow speed. As said, the Med and Black Sea markets were far from active, even if owners managed to bring rates up to WS90 thanks to a punctually shorter list after a few deals done for voyages to the Far East. Voyages from the Black Sea at WS90 still represent healthy returns of about $25,000 per day" said BRS.
Finally, in the Aframax markets this week "a steader activity has finally improved the rates for cross-Med and Black Sea/Med voyages. Highest fixtures are reported around WS90 (+7.5 pts and about $8,000/day) from Ceyhan or Black Sea, which is a minor increase considering the larger volume treated. With IP Week coming, we expect markets to slow down and rates not to firm further. The Northern markets saw more enquiries compared to last week. Both cross-North Sea and Baltic activity picked up slightly but an abundance of ships made it impossible for owners to push rates up. Currently 80,000t cross-North Sea pays about WS85, while 100,000t ex Baltic scores a stable WS80 and daily returns hardly close to $10,000. Exceptionally, the Caribbean market reached a top (for how long?) with local voyages ending the week at WS140 equivalent to about $25,000/day!" concluded the shipbroker.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
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