01-05-2017

US crude exports, lightering set to boost tanker earnings, says Teekay CEO

crude

Global shipping company Teekay is eyeing having more dirty ships in its pools and expects larger crude volumes to be exported from the US, which will support freight rates, company President and CEO Kenneth Hvid said.

Teekay is a leading shipping company with active presence in the tanker, offshore and gas carrier segments.

“In tankers, what matters is to make meaningful combinations and not [new] big investments,” Hvid said on the sidelines of the Sea Asia conference in Singapore.

However, it is not necessary to directly purchase tankers, he said.

“There is no need to own more [ships]. We are in a good system and can extract more value from larger pools,” Hvid said. The pools will become bigger if more ships are put on the Teekay platforms, he added.

Freight rates for Aframaxes are under downward pressure in East Asia because of relatively weaker demand to move cargoes of fuel oil into China from the ASEAN region, brokers across Asia said. After obtaining government permission, China’s small independent refineries, also called teapots, have made a tactical shift towards processing more crude.

Owners are struggling with daily earnings of less than $9,000/day on the key Indonesia-South Korea route for Aframaxes, according to broker estimates.

“There is a cyclical downturn at the moment but it may last less time than earlier,” he said.

Hvid said trade flows are changing but it is too early to analyze how they will develop.

However, if shale crude production increases in the US and there are larger volumes for export, it will translate into more demand for dirty tankers. “Already, crude from Alaska has been exported to Asia,” Hvid said.

Teekay’s ships are deployed in the lightering and storage business in and out of US ports and volumes have been robust in the last quarter, he said.

More changes in trade flows are expected in the next few years and overall demand will also depend on demand fundamentals, which in turn will be influenced by OPEC’s policies on crude output, he said.

GAS AND OFFSHORE

The opportunities for further consolidation are fewer in the gas carrier segment, where Teekay is already a market leader with long term contracts.

In the gas sector, the duration of such contracts has fallen by more than half. Time charter contracts for LNG cargoes were once for 20-25 years; currently there is an instance of a contract for seven years, he said.

“The long-term contracts are good for our portfolio,” he said.

In the offshore sector, Hvid said the industry was volatile and there was a need for joint investments in FPSOs, or Floating, Production, Storage and Offloading.

“FPSOs involve big investments of a billion or two apiece and so there is a need to co-invest and spread out,” he said, adding it was better to have a 50% share in 20 units than 100% in 10 units.

Earlier, while addressing the same conference, Hvid recalled Teekay’s relationship with ExxonMobil and how it encouraged the company to move into the gas carrier segment.

Such multi-billion dollar investments would not have been possible without the Teekay group having public listed companies, he said.

The company’s assets have grown to $16 billion from $1 billion since 2000, he said, favoring public listing of shipping companies.

“Such growth would not have been possible if Teekay was a private operator,” he noted.

Public listing gives better access to bank lending and a diversified group of capital providers, he said.

After the global economic recession a decade ago, even commercial banks are more focused on their bigger and financially healthy customers, he added.

Source: Platts 

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