A new market for VLCC Tankers Springs to Life

Although positive news in the tanker market are hard to come by, in the face of acute oversupply, things can always improve. In its latest weekly report, shipbroker Gibson noted that “at the start of August, Kuwait dispatched the first shipment of crude to the recently completed 200,000 b/d refinery at Nghi Song, Vietnam. Located 200 kilometres south of Hanoi, the new refinery and petrochemical plant received its first 270,000 tonne cargo discharged through an SBM pipeline from the VLCC Millennium which arrived on 22nd August. Construction of this new plant commenced in July 2013 at a cost of $9.2 billion with the intention of importing 10 million tonnes of Kuwaiti crude annually”.

According to the shipbroker, “the plant, a joint venture between Kuwait Petroleum International (KPI), Idemitsu Kosan and PetroVietnam will produce LPG, gasoline, diesel, benzene, kerosene and jet fuel mainly for domestic consumption and will account for approximately 40 percent of Vietnam’s demand starting distribution in 2018. Currently Vietnam’s first refinery, Dung Quat which commenced operation in February 2009, meets only 30 percent of the country’s product demand”.

“Vietnam is considered to be a key area for crude oil demand growth as domestic production from offshore fields is stalling. Thompson Reuters reported that Vietnam’s production peaked in the early 2000s at around 400,000 b/d but has since suffered for several reasons including disputed ownership of several offshore blocks in the South China Sea. Many of these offshore fields are small deepwater blocks which in the current oil price environment are too costly to justify production. However, Vietnam’s domestic demand continues to grow as the population increases, over 90 million people and 6 percent annual economic growth will stimulate demand both for crude and products. As a consequence, Vietnam will have need to import increasing quantities of crude to sustain the population’s demand and maintain economic growth. A second cargo loaded in Kuwait on the VL Prosperity left on 12th August destined for Nghi Song and is presently off the Vietnamese coast. Thompson Reuters reported that a third VLCC was scheduled for an August loading and that a similar programme for September was envisaged”, Gibson said.

The London-based shipbroker added that “in the great scheme of things, Vietnamese imports are insignificant compared with Asia’s top importers China and India. While these cargoes will send Vietnam’s crude imports soaring to record highs, it has to be remembered that they are starting from a low base to begin with. These additional barrels will soak up more VLCC tonnage on an additional route for a sector presently under pressure to absorb fleet supply. However, it remains to be seen what impact the new refinery will have on product imports into the region”.

Meanwhile, in the crude market this past week, in the Middle East, Gibson said that “we could have just cut and pasted last week’s VLCC report. We are likely to be saying the same next week as well, as rates range bound at ws 36 to the East. Suezmax tonnage has also seen moderate activity, but supply continues to outstrip demand and rates have softened to ws 67.5 East and remain sub ws 30 West. We do expect to see further tonnage ballasting to the West. Aframax Owners were not able to improve on last week’s levels and with tonnage building rates have slightly slipped to 80,000mt by ws 90 to Singapore”, the shipbroker concluded.