Wednesday, February 21, 2024
 
 

Low oil prices can’t sink tanker market

The product carriers are moving products, which are being produced in the Middle East where there has been a big expansion refining capacity

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ATHENS – Despite slumping oil prices, the tanker market has been very healthy, a leading energy expert told New Europe at a maritime forum.

“The low oil price has actually helped considerably the tanker market because the volumes moved have certainly increased,” London-based energy consultant Leo Drollas told New Europe on the sidelines of the Third Mare Forum Maritime Transportation of Energy 2016 in Athens.

“In 2015, globally they went up. Demand went up by 1.5 million barrels a day and this has been a very big increase compared with previous years. This year will be less. This is demand. But the amount of oil moved on the long haul is greater because the demand was coming from China and the Far East which sometimes they take long-haul oil from West Africa all around the Cape – the VLCCs (Very Large Crude Carrier) – from the Middle East, of course,” he said.

Drollas noted that the movement of oil has been much greater than demand so that’s the reason why the tanker market has been very healthy.

Moreover, the product carriers are moving products, which are being produced in the Middle East where there has been a big expansion refining capacity. “They are moving products around. For example, jet fuel from the Middle East to Europe. So we have these hauls increasing proportionally more than the demand for oil,” he said.

Meanwhile, liquefied natural gas (LNG) has been weak. Gas demand in Europe last year was down and it was the same in 2014, Drollas said, adding that Europe is burning more coal than natural gas. Also, Japan, which is another big purchaser of LNG, is moving some electricity production back into nuclear. Following the tsunami and the Fukushima nuclear disaster, Japan imported large volumes of LNG for electricity production. “They are moving slowly back to nuclear, which is reducing the demand for natural gas, hence the LNG movement,” Drollas said.

He noted that LNG is obviously the future. “If you have LNG terminals you can move the liquefied gas anywhere in the world. Eventually the LNG market will develop like oil. It will become similar, lots of producers, liquefying, sending it around the world so it will be like the oil market and the tanker market but that will take some time,” he said, explaining that there are still consumers and producers locked into these bilateral agreements to take LNG. Also, shipping is tied into these contracts because it’s very expensive shipping LNG. “But there are a lot more ship owners building LNG carriers for spot trade because they are not linking into the bilateral contracts, buying and selling LNG so that is a good move and over time – it will take 10-15-20 years maybe – it will come to resemble the oil market,” Drollas said. Regarding gas prices, he said that like oil there will be international competitiveness among all these producers.

Drollas predicts that for the next three or four years, oil prices will remain around $50 per barrel. “But it depends on Saudi policy,” he said. “It’s not entirely up to the market.”

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Co-founder / Director of Energy & Climate Policy and Security at NE Global Media

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