By Chunzi Xu and Alex Longley (Bloomberg) —
The center of gravity of the global oil refining complex is shifting sharply to the east – and this is leading to a boom in the business of building ships to transport fuel around the world.
No fewer than 38 mid-size tankers have been ordered this year, marking one of the busiest quarters since 2013, according to ship broker Braemar. The number of ships with international serial numbers – another measure of orders – stands at 28 this year and is nearing the total of 31 for all of 2022, according to shipbroker Simpson Spence Young.
Inefficient refineries in the US and Europe have been shut down after the Covid-19 pandemic eroded demand for gasoline, diesel and aviation fuel, while new complexes were built in Asia and the Middle East. The subsequent rebound in demand is causing fuel buyers to seek supplies from these new producers, drawing larger volumes of the product onto the water.
The trend has pushed up prices for the existing fleet, making shipping more profitable and accelerating the construction of new ships.
“The key structural shift in the refining landscape that will support demand for refined products in the medium and long term is the geographic shift between new refiners and bulk users,” said Alexandra Alatari, senior analyst at Braemar.
The total amount of fuel that can be found at sea is currently more than 200 million barrels, up from 177 million barrels two years ago in storage or simply stuck in traffic, according to data from Kpler Inc.
Buyers on the US east coast are already accepting more fuel shipments from the Middle East and Asia as exports from Europe dry up. Australia, where some domestic refineries have been closed, is pulling more cargo from North and Southeast Asia, and India is exporting more product to Latin America. In the coming years, refiners on the U.S. Gulf Coast are poised to ship more to West Africa and Europe, said John Auers, managing director of refined fuels analytics at consultancy RBN Energy.
Russia’s invasion of Ukraine has amplified the phenomenon and increased shipping costs heaving in recent months as sanctions continue to restructure global trade flows. Tankers in the Atlantic are making about US$40,000 a day, the highest for this time of year since at least 2013. Products are spending more time on long-haul route vessels while waiting to be transhipped to others Ships and floating storage.
The increased ship orders defy rising prices. Newbuilding costs have risen to about $45 million per ship, up 14% year-on-year and the highest since 2008, data from shipbrokers shows.
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 oblige them to commission so-called eco-tankers, which run on both fuel and methanol can. As energy prices soared last year, some of those doubts dispelled, and many of the new orders are for conventionally powered vessels, said Claire Grierson, Simpson Spence Young’s director of tanker research.
Even with the new orders, which could add about 60 vessels by 2025, vessel availability will still remain below long-term average levels, Braemar’s Alatari said.
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