*Catastrophic Crack Margins*
COVID-19 may have caused a tremor in the refining industry that will be seen for years to come. Simple refinery economics means profit is made in the differences on input (crude) and outputs (refined distillates). With global demand in refined products slumping in recent months their demand still isn’t growing enough to turn a healthy profit. The industry will see a 69% decrease in profits this year compared to 2018. This is significant news for the shipping market as refineries are key players in the global economy for crude and its distilled products. Both Clean and Dirty tankers have felt this refinery struggle in past months. On the paper side TC12; a Naphtha carrying route (A product created from refineries and used in the process of refining) has seen a dramatic slump in activity resulting in WS from pre-corona levels of WS143.71, spiking to floating storage highs of WS462.22 and now hitting lows of WS54.72.
*More Chinese Traffic*
Continuing from last week’s report on Chinese port congestion, we are still seeing traffic jams. On paper, VLCC routes such as TD3C are seeing a much-needed bounce back from the bottom, with Worldscale values slowly climbing back up from its lows of WS35 to now breaking above the WS40 mark. This is in line with multiple vessels still being stuck waiting to discharge at port with no definite date. Notably the 2 month back-log of vessels still waiting to discharge at the Chinese Pengerang Refinery which usually processes 300,00bpd but has been offline since a tragic accident in March. This uncertainty in VLCC itineraries is helping to thin out the tonnage list, giving owners a boost in rates. This increased activity due to lessened vessel supply should help to sustain a further rise in rates and confidence in VLCC markets going forward.
*How Clean Can A Tanker Be?*
With IMO 2020 stating that bunker fuel should have no more than 0.5wt% sulphur content, there is a clear push to make tankers more environmentally friendly. Whether this be using installed scrubbers on vessels or VLSFO (Very Low Sulphur Fuel Oil). However, there might be another way, using LNG. Its estimated that both LPG and LNG will rise in demand in the coming years, so why not start to use it as a fuel to power the vessels carrying it? Currently there are 3 LNG powered VLCCs on order from some big players; rumoured to be Shell, Total and S ONE Capital. High crude prices make LNG powered ships more competitive but with current prices around the $40 mark and an uncertain future with OPEC+ production cuts and potentially a stricter carbon footprint goal, will LNG powered vessels be the new norm or a failed project?