2015 Tanker Market Outlook - MC Athens

Tanker Market Outlook
2015-2019
All About Supply
February 2015
McQuilling Services, LLC.

Slide 1
McQuilling
McQuilling Services is the marine transportation consulting and advisory group of McQuilling
Partners, Inc. The primary focus of McQuilling Services is to provide clients commercial consulting
services related to global seaborne transportation and related disciplines in the supply chain. The
approach of the Company is to develop products and services based on specific client
requirements, data, and the systematic employment of quantitative methods, bringing individually
crafted solutions to client’s needs. The Company employs a collaborative business model
combining experienced internal resources with exceptional industry partners to produce a team of
directed experts. This model creates a targeted, content-rich knowledge and experience base to
serve clients’ needs cost effectively.
McQuilling Partners is a privately-owned marine services company, providing transportation

services to clients in the shipping, commodity and financial services industries. McQuilling
Partners is a respected tanker specialist globally and is one of a select few firms that sit on both
the International and the Asian Baltic Exchange Tanker Route panels. McQuilling Partners
facilitates the physical transportation of liquid and dry bulk commodities annually through the
provision of brokerage services and provides coverage in the wet freight derivatives market for all
the traded routes. The firm has assisted numerous clients in the sale or purchase of marine
assets, and advised them on their directed research and consulting requirements. Today,
McQuilling is a privately held firm numbering over 160 people, specializing in the marine
transportation of commodities for a global client base. Representing broad commercial experience
in the international shipping markets, McQuilling provides professional, reliable and personalized
service to clients from offices located in New York, Houston, Caracas, Lima, Mexico City, Rio de
Janeiro, Athens, Dubai, Mumbai, New Delhi and Singapore.

Slide 2
McQuilling
“When you can measure what you are speaking

about, and express it in numbers, you know
something about it, when you cannot express it in
numbers, your knowledge is of a meager and
unsatisfactory kind; it may be the beginning of
knowledge, but you have scarcely, in your thoughts
advanced to the stage of science.”
Lord William Thomson Kelvin - 1824-1907
McQuilling Services, LLC. Kelvin Wave Angle – 19.47 degrees

Slide 3
Agenda
Global Economic Context, Oil Supply & Demand,

Tanker Demand Tonnage Demand, Demand Projection
Additions, Deletions, Trading Inventory &

Tanker Supply Adjustments, Net Fleet Growth
Past Forecast Performance, Current Market,

Outlook Implication of Tonnage Supply & Demand Influence,
Future Expectations, Asset Markets, Summary

Slide 4
Tanker Demand
Global Economic Context
Growth in World Economies
World GDP Growth 1992-2001
► The global growth projection for
Percent Growth
Developed Economies 2015 is 3.5%, up from 3.3% in
10.0 Emerging Economies
World GDP Growth
2014, aided by reduced energy
prices
8.0
► Growth continues above trend into
2016 at 3.7%
6.0
► The US economic recovery is
3.5
3.7 gaining momentum and the drivers
4.0 of global growth are returning to
the developed economies
2.0 ► The Euro-area begins quantitative
easing to rekindle investment &
0.0
growth, Japan grows at less than
1% in 2015/2016
-2.0
(3.4) ► Emerging economies, especially
LATAM, see another challenging
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: International Monetary Fund

year
Slide 5
Tanker Demand
Global Economic Outlook 2015+
Source: International Monetary Fund

Slide 6
Tanker Demand
Geopolitical Context
Demand Uncertainty = Market Volatility
Ukraine
Outcome of escalating turmoil
and Russian actions remain
Levant
unclear and should keep a risk
Greece/EU Negotiations Continuing hostilities with
premium in energy prices, gas
Political Uncertainty May uncertain resolution
supply to Europe, possible
Lead to Unknown Financial
sanctions on Russian oil
Impact on Region
US Syrian Conflict
Political gridlock, oil export Continued potential to
legislation, pipeline Libya escalate throughout region
North Korea
permitting, rail legislation, Internal strife between Iraq “Quiet” at present but
natural gas exports government & ISIS hostilities destabilizing unpredictable regime
separatists hindering country, with increasing behavior
crude production and uncertainty outcome
exports Iran
Conciliatory mood
presently but nuclear talks
Venezuela breakdown could lead to
Brazil
Government / opposition straits of Hormuz
Struggling economy,
political tensions, blockage: AG imports &
corruption allegations,
Economic strife with low exports
new administration,
oil prices
project delays
West Africa
Indian Ocean / East Africa
Expanding piracy threat,
Temporizing piracy threat but
Internal strife in oil
potential for resurgence –
producing regions – Ebola
vessel utilization
outbreak

Slide 7
Tanker Demand
Oil Supply & Demand
Global Shale Basins
Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States

Slide 8
Tanker Demand
Oil Supply & Demand
Top Countries with Technically Recoverable Shale Oil/Gas Resources
► “Shale gas and

tight oil are
commercially
produced in just
four countries
currently – the
US, Canada
China and
Argentina” (EIA)
Source: US Energy Information Administration, US Geological Survey, ARI, other published studies, June 2013
Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States

Slide 9
Tanker Demand
Oil Supply & Demand
North American Shale Basins
► Robust geological data,

developed transport
infrastructure, slow &
steady investment into
fracking technology and
the resulting lower US
$/barrel extraction cost
served as an effective
accelerant to increased
Source: US Department of Energy, October 2014 production in the US
Slide 10
Tanker Demand
Oil Supply & Demand
US Hydrocarbons Production | Oil
► The highest previous annual

average U.S. production level
was 9.6 million b/d in 1970
► The forecast for total US crude

oil production increases from
8.53 million b/d in 2014 to 9.61
million b/d in 2019
► 2019 is the forecasted peak

production, but this magnitude
and timing is highly dependent
on the oil price environment
Source: Energy Information Administration

Slide 11
Tanker Demand
Oil Supply & Demand
US Hydrocarbons Production – Tight Oil & Shale Gas
Source: US Energy Information Administration

Slide 12
Tanker Demand
Oil Supply & Demand
North American Transport Logistics | Pipelines
Source: Refiner Link March 2013

Slide 13
Tanker Demand
Oil Supply & Demand
North American Transport Logistics | Pipelines
Planned North American Pipeline Expansion
The largest planned North American coast-bound pipeline expansions total 3.7
million b/d by 2018:
 East: 1.76 million b/d
 West: 1.12 million b/d
 South: 830,000 b/d
Planned North American Rail Expansion
Existing Planned
Canada 300,000 b/d 700,000 b/d by 4Q 2015
United States 1.5 million b/d 2.6 million b/d by 2020
PADD I: Expected to average up to 380,000 b/d in 2015 US $12-15/barrel

PADD V: Expected to average 200,000 b/d in 2015 US $9-11/barrel
Source: Refiner Link March 2013

Slide 14
Tanker Demand
Oil Supply & Demand
North American Transportation Logistics | Rail
► As a result of numerous rail

accidents, new legislation
proposed for equipment standards
and operating restrictions
published in July 2014: potential to
slow crude-by-rail deliveries
► Transport capacity bottlenecks in
pipelines and rail; flaring limits in
North Dakota as of January 2015
► “Flash” production profile of
shale oil wells – issue of
production sustainability
► Pushback from landowners,
towns, environmentalists
► Lack of skilled labor becoming
a constraint
Source: US Energy Information Administration, News reports

Slide 15
Tanker Demand
Oil Supply & Demand
Effects of US Shale Play – US Crude Exports
Current Allowable Crude Exports
► The export of California heavy oil (20 API or less) up to an average of

25,000 b/d
► Exports to Canada as long as the oil is refined or consumed within
Canada ~ 95% of all US crude exports in 2014 went to Canada
► Exports to Canada of oil sourced from Alaska's North Slope and
transported over the Trans-Alaska Pipeline up to an average of 50,000 b/d
► Exports of oil sourced from the Cook Inlet in Alaska
► Exports of oil from the Strategic Petroleum Reserve if an equivalent
amount of refined product is exchanged in return
► Exports of foreign crude oil if documentation is provided that shows it has
not been comingled with domestic oil during its transit through the United
States

Slide 16
Tanker Demand
Oil Supply & Demand
Effects of US Shale Play – US Exports
Recent Events & “Guidance” on Lightly Processed Condensate
► On December 30, 2014, the US Department of Commerce, Bureau of

Industry and Security ("BIS"), issued long awaited guidance related to the
export of crude oil and crude oil condensate.
► The new guidance describes which factors are looked at to decide
whether liquids have been processed and can be regarded as a product,
► Among other factors, a change in API gravity and a liquid’s hydrocarbon
composition must occur - simple separators and heat treaters are not
sufficient to qualify as crude distillation
► We do not see these guidelines, however, as an easing of the export ban,
rather drawing a clearer line of what is and is not permitted
► On the other hand, it is now very likely that the BIS will continue to
process applications, after they were put on hold last summer. Hence, we
expect a gradual, but slow increase of stabilized condensate exports over
the next year
Source: JBC Energy & NortonRoseFulbright

Slide 17
Tanker Demand
Oil Supply & Demand
Effects of US Shale Play – US Crude Exports (excludes processed
condensates) 2014

Slide 18
Tanker Demand
Oil Supply & Demand
Effects of US Shale Play – US Crude Exports via Marine to Canada
► The majority of US crude oil

exports to Canada have
traditionally been delivered by
non-marine logistics such as
pipeline or rail
► As US crude oil export volumes
have increased, marine
transport has played a bigger
role
► In 2010, 16% of US crude oil
exports to Canada were
waterborne – in 2013 that
figure reached 38%
► About 94,000 b/d US crude oil
exported to Canada via marine
in 2014 – employment for 3-4
Source: Energy Information Administration Aframax tankers
Slide 19
Tanker Demand
Oil Supply & Demand
Effects of US Shale Play – US Exports
US Production Potential
Million Barrels/Day Condensate
Forecast ► Up to 300,000 b/d of processed
10
Exports condensate exports could
9 API 50+
export from the US by the end
8 API 45-50
of 2015 – likely destination: Far
API 40-45
7 East
API 40-50 sweet
6
API 35-40 sweet ► If (when) US crude exports
5 API 35-40 sour occur, their price differential to
4 API 27-35 med-sour international crudes will likely
API 27-35 sour decline, and the latter may
3
California become attractive to East
2
API <27 sweet Coast refiners again
1 API <27 sour
► We see the recent US guidance
0
2011 2012 2013 2014 2015 as further delaying the approval
Source: Energy Information Administration of US crude (non-condensate)
exports
► US EIA data suggests about 15,000 b/d processed condensate
exported during 2H 2014 – about one Aframax
Slide 20
Tanker Demand
Oil Supply & Demand
Effects of US Shale Play – Heavy Versus Light
► PADD 3: Majority of
the refining capacity -
configured to run
heavier crude
qualities, primarily
from Venezuela,
Mexico and Saudi
Arabia
► PADD 1: East Coast
refiners have been
traditionally configured
to run lighter crude,
but are a small piece
Source: Energy Information Administration of the total capacity
► Canadian production becoming increasingly important in the US with

heavy sour crude oil from Canada providing the raw material for the deep
conversion refineries in the US, mainly in PADD 3
Slide 21
Tanker Demand
Oil Supply & Demand
US Imports of Canadian Crude US Imports from Canada
2019 – 3.36 million b/d
Sep-14 - 2.0 million b/d
US Imports from Saudi Arabia

Slide 22
Tanker Demand
Oil Supply & Demand
World Oil Supply & Demand | 2010-2019
Source: International Energy Agency

Slide 23
Tanker Demand
Tonnage Demand
Defined
► At a global level, marine

transportation demand is highly
correlated to world trade which is
EXPLORATION DRILLING PRODUCTION directly related to the world economy:
Demand for crude oil and petroleum
products grows with an expanding
STORAGE MARINE STORAGE
global economy
TRANSPORT
► Marine transportation demand for

tankers is a derived demand, it arises
REFINING MARINE
TRANSPORT
TERMINALLING /
DISTRIBUTION
from the energy consumption
requirements of regional economies
► Petroleum product marine transportation demand arises from matching

consumption with refined product production in refining regions and crude
oil marine transportation demand for tankers arises from matching
refinery raw materials requirements with crude oil production

Slide 24
Tanker Demand
Tonnage Demand
Derivation - Historical
Bilateral Country ► Multiple sets of third party data are
Trade (tons) acquired for bilateral country trade,
Distances (nm) issues with format, accuracy,
Adjustments compatibility
Bilateral Country Maritime ► Trade data is transformed,

Trade (ton-miles) validated, distilled according to
McQuilling
assumptions and within limits
Regional 15x15 ► Non-marine
Matrix
Adjustments ► Excluded marine
Regional Trade ► Split countries
(ton-miles)
► Proprietary voyage data is used to
Fixture Fractions allocate demand across vessel
classes
Regional Trade By Vessel Class ► Result is regional demand by vessel
(ton-miles)
class for the period under study

Slide 25
Tanker Demand
Tonnage Demand
McQuilling Transport Regions
Source: McQuilling Services

Slide 26
Tanker Demand
Tonnage Demand
Total Tanker Demand | 2000-2014 (Ton-Miles)
► After a sustained period of

relatively constant tanker ton-mile
demand growth from 2002
through 2010 (excepting the
crisis-induced dip in 2009, total
tanker demand peaked in 2010 at
just over 11 trillion ton-miles
► In 2011, total demand declined

driven by slower growth in the
clean sectors and an overall
decline in DPP sectors
► Total demand in 2014 contracted

by 1.7% from 2013 levels to 10.5
trillion ton-miles

Slide 27
Tanker Demand
Tonnage Demand
Total Tanker Demand Composition | 2014 (Ton-Miles)
► The VLCC sector accounts for the majority
of tanker demand, at 58% of the total
demand for dirty tanker tonnage in 2014
(49% overall)
► Suezmax demand represented about a

quarter of dirty demand in 2014
► Clean product transport demand is a small

fraction of total demand at 15%
► The MR2 size product carrier is the

workhorse of the clean tanker fleet,
representing 58% of the total transport
demand for refined products in 2014
► The long range vessels LR1 and LR2

classes, each represent about 18% of
transport demand, a share that continues to
increase
Slide 28
Tanker Demand
Tonnage Demand
VLCC Total Demand | 2000-2014 (Ton-Miles)
► The VLCC sector represents a

concentrated demand profile for
tonnage, with the top 10 trades
accounting for over 90% of total
VLCC demand
► Total VLCC demand in 2014
amounted to about 5.2 trillion
ton-miles, down about 1% from
2013, but still well below the
peak in 2008 of over 6 trillion
ton-miles

Slide 29
Tanker Demand
Tonnage Demand
VLCC Top Ten Trades | 2000-2014 (Ton-Miles)
► AG>East trade is the primary
demand component for the VLCC
sector and this trade continues to
grow
► While the decreasing demand for
crude oil transported from the AG to
the US is apparent from the figure, it
remains nonetheless a substantial
demand driver for VLCCs
► West African crude supply to the
East is the third primary component
of VLCC demand
► The emerging market for
Caribbean-sourced volumes
transported to the Far East is
adding to the Atlantic basin>East
trade
Slide 30
Tanker Demand
Suezmax Total Demand – 2000-2014 (Ton-Miles)
► Demand for Suezmax

tonnage is distributed over far
more trades, with the top ten
trades representing only 53%
of total demand as compared
to 93% for VLCCs
► Total Suezmax tanker
demand rose steadily from
2002 to 2012 and has
declined through 2014
► Suezmax demand declined in
2014 about 1%

Slide 31
Tanker Demand
Suezmax Top Ten Trades– 2000-2014 (Ton-Miles)
► West African crude to North America
has declined dramatically in the face
of the US shale oil onslaught
► West African crude is finding its way
to both Southern and Northern
Europe in greater quantities and to
South East Asia as deliveries to North
America decline
► An increase in Caribbean crude and
residuals to the East since about
2008 is ongoing
► Since about 2006, increasing
Suezmax activity from the Arab Gulf
to North America as VLCC volumes
are declining and these sectors
compete for business

Slide 32
Tanker Demand
Aframax Total Demand – 2000-2014 (Ton-Miles)
► Aframax demand is slightly

more concentrated than
Suezmax demand with the top
ten trades comprising 56% of
total Aframax demand in 2014
► Total Aframax demand grew
steadily during the period from
2001 through 2010
► Since 2010 a declining demand
trend has been fed by increases
in Middle East refining, US
shale-induced trade changes
and declining North Sea
production
► Aframax demand in 2014 fell
10% from 2013 levels

Slide 33
Tanker Demand
Aframax Top Ten Trades– 2000-2014 (Ton-Miles)
► Middle East trades to the East have

declined as regional refining
absorbs crude but India is stepping
into the breach
► Declining importance of the
benchmark Caribbean/US trade with
increased US & Canada domestic
production
► Declining inter-Europe trades as
North Sea supply declines and
refining capacity shuttered

Slide 34
Tanker Demand
Panamax Total Demand | 2000-2014
► Top trades represent about
two-thirds of total Panamax
demand
► Panamax trades represent a
minor portion of total dirty
tanker demand at about 300
billion ton-miles in 2014 and
can be considered a collection
of regional, niche markets
► Total demand in this sector has
been declining steadily since
2009 where it peaked at about
450 billion ton-miles
► Demand declined 12% in 2014

Slide 35
Tanker Demand
Panamax Top Ten Demand | 2000-2014 – Ton Miles
► Continuing base trade from

Europe to the US underpins
demand in this sector
► Shrinking volumes on the
Caribbean>US trade are a
casualty of the US shale oil
production increases
► Growing North America West
Coast exports from Canada to the
US and to the Far East and Indian
sub-continent since 2006

Slide 36
Tanker Demand
Tonnage Demand
Atlantic Basin>East Trades | 2000-2014

Slide 37
Tanker Demand
Tonnage Demand
Atlantic Basin>East Trades | Chinese Strategic Petroleum Reserve
► Phase 1 of Chinese SPR

Phase 1 Phase 2 Phase 3 program completed in 2008 for
103 million barrels across 4
storage facilities
► Current capacity estimated at
about 200 million barrels across 8
storage facilities
► SPR stocks end-2014 estimated
at ~ 100 million barrels
► SPR stock build of 40-45 million
barrels in 2015 and 2016
► Continued stock build of ~ 50
million barrels/year required to
reach 2020 target (110,000-
137,000 b/d)
Source: Bernstein Research, Citi Research ► Tanker demand of 305 VLCCs or
McQuilling Services, LLC. 5-10 Suezmax vessels Slide 38
Tanker Demand
Tonnage Demand
WestTrades | | 2000-2014
► Since about 2008, a step change
in consumption of AG crudes in
the Americas has occurred
► Reductions of about 300 BTM
from 1,300 BTM are influenced
2.2 million b/d
by increased consumption of
lighter domestic crudes in the US
1.7 million b/d
► Importantly, heavy sour Canadian
crudes from alternative
production sources are providing
the blending component
necessary to balance the US
refining system
► Further reductions in AG crude
consumption are possible and
likely

Slide 39
Tanker Demand
Tonnage Demand
West Trades | 2000-2014
McQuilling Services, LLC. Source: McQuilling Services

Slide 40
Tanker Demand
Refined Products Total Transport Demand | 2014
► Since 2010, there has been a

substantial deceleration of
demand growth for refined
products transport
► This timing coincides with the
upswing of the US products
export increases
► One conclusion is that US Gulf-
sourced product has driven
average trade lengths down, so
while volumes are still increasing,
ton-miles are increasing at a
much slower pace
► Demand in the clean sector rose
1.2% in 2014 over 2013 levels

Slide 41
Tanker Demand
Refined Products Total Transport Demand | 2014
► The MR2 segment is the workhorse of

the product carrier fleet representing
over half of the total demand for clean
products transport
► The larger product carriers each
represented a 17% share of this market
► The MR1 segment is insignificant in
terms of its impact on total demand at
8% - demand exists in primarily regional
niche markets
► Demand for clean products transport
can vary substantially over short
periods of time, reacting to weather,
product supply disruptions and surplus
as well as trade switching between
Source: McQuilling Services sectors

Slide 42
Tanker Demand
LR2 Total Demand | 2000-2014
► The 17% of total product
carrier demand that is served
by the LR2 trading fleet is
relatively consolidated with
85% of total demand across
10 trades
► From a peak in 2005 of about
300 billion ton-miles, trade has
trended down through 2011
with reduced AG>East
demand
► Since 2011 an increasing
trend in overall LR2 transport
demand with increasing
Middle East exports even
though 2014 saw a 4.5%
Source: McQuilling Services decline from 2013 levels

Slide 43
Tanker Demand
LR2 Top Ten Demand | 2000-2014 – Ton-Miles
► Dominated by the naphtha trade

from the Middle East to the Far East,
primarily Japan
► Since about 2003 a decline in
exports of clean cargoes was
observed to 2012 as regional
demand approached refining
capacity and internal consumption
replaced exports
► As refining capacity comes on line in
the region and exports resume, we
see this trade increasing on LR2s
► Trans-canal trade has increased
substantially since about 2007
(Europe/Far East-Asia)

Slide 44
Tanker Demand
LR1 Total Demand | 2000-2014
► Trade consolidation is less than
the LR2 sector with two-thirds of
LR1 demand concentrated on
the top ten trades
► Total LR1 demand has
experienced an upward growth
trajectory since at least 2000
► 2014 demand experienced a
downward adjustment of about
4.8%

Slide 45
Tanker Demand
LR1 Top Ten Demand | 2000-2014 – Ton Miles
► The naphtha trade from the Middle
East to the Far East dominates the
LR1 segment
► We believe this sector has
benefitted from the reduced
demand for naphtha transport from
the Middle East at the expense of
the LR2 sector through about 2012
► Since 2012 it has been reliquishing
some of these gains back to the
LR2 class
► The increasing trans-canal trade is
noted from about 2007, similar to
the LR2 sector
► The growing appetite of the East
Africa region is highlighted

Slide 46
Tanker Demand
MR2 Total Demand | 2000-2014
► Over half of total product
carrier demand is transported
on MR2 tankers
► The MR2 sector experienced
a 16% compound annual
growth rate in ton-mile
demand for the period 2003-
2010
► A slow down of growth from
2010 in the MR2 sector overall
is readily apparent
► In 2014, the MR2 sector
experienced a 5.2% increase
in ton-mile demand growth

Slide 47
Tanker Demand
MR2 Top Ten Demand | 2000-2014
► US Gulf product exports

dominate the top 10 MR2 trades
► Growth in East Africa demand
noted since early 2000s but
slowing recently
► Stable base trade from Europe
to North America
► Growth in regional trades in the
Far East to South East Asia

Slide 48
Tanker Demand
MR2 Top Ten Fixtures | 2000-2014
MR2 9.5%
8.0%
6.9%
50.9% 4.7%
4.3%
4.1%
3.3%
3.0%
2.7%
2.7%
North America East/Gulf Coast->Caribbean, EC Mex, Ve, Col
Northern Europe->North America East/Gulf Coast
Middle East->Middle East
South Europe/North Africa->South Europe/North Africa
Far East->South East Asia
North America East/Gulf Coast->Northern Europe
North America East/Gulf Coast->WC South America
North America East/Gulf Coast->EC South America
North America East/Gulf Coast->North America East/Gulf Coast
Northern Europe->Northern Europe
Other

Slide 49
Tanker Demand
MR1 Total Demand | 2000-2014
► MR1 demand is shown to be
relatively consolidated at 75%,
somewhere between LR2 and
LR1 tonnage
► The MR1 sector represents a
collection of regional trades that
collectively represent the total
demand for this tonnage
► In total, this sector represents a
small part of overall refined
products transport demand at
8% of the total
► Since 2009, from a peak of 280
billion ton-miles, demand has
declined dramatically
► 2014 marked a 1% decline in
total trade in this sector
Slide 50
Tanker Demand
MR1 Top Ten Demand | 2000-2014 – Ton Miles
► The primary trades in this sector

are found in Europe where the
tonnage is used to balance local
supply and demand for refined
products in Northern Europe and
the Mediterranean
► In the 2009-2012 timeframe,
demand across the top trades
declined precipitously
► Increased regional trade in
Europe as refining is consolidated
has increased ton-miles in on
these trades

Slide 51
Tanker Demand
US Gulf Exports | 2000-2014
► On the back of increased light

sweet crude oil production, the US
has grown product exports from
the US Gulf dramatically since
about 2005
► Large volumes move on a
relatively short trade to the
Caribbean and the North Coast of
South America
► Substantial growth into regions
has occurred since about 2008,
especially Northern Europe and
West Africa
► Since 2010 South America has
become a significant destination of
US Gulf clean product exports

Slide 52
Tanker Demand
McQuilling Demand Projection | 2015 – 2019 | Ton Mile Growth
VLCC MR2 ► Calculated demand

trajectories for each
vessel class across
225 trades based
on regression
analysis of
historical data
► Expert
assessments of
projected
production and
consumption of
Source: McQuilling Services crude, products
► Final assessments by vessel class and trade using quantitative

results and experiential input; trade results rolled up to aggregate
demand projections by vessel class

Slide 53
Tanker Demand
Demand Projection | 2015 – 2019 | Ton-Mile Growth
► Nominal growth in VLCC sector,

less than 1% annually
► 1-3% annual growth in the
Suezmax sector
► Declining demand in Aframax and
Panamax sectors
► Average clean sector growth of
3% annually
► MR2 demand growth expected to
grow between 3-5% annually
though 2019

Slide 54
Tanker Demand
Rising Stars – DPP (2015 – 2019)
10% 10%
8% 8%
6% 6%
4% 4%
2% 2%
0% 0%
VLCC (Carib/India) SUEZ (WAF/India) AFRA (Far East/Far PANA
East) (NAWC/NAWC)
CAGR Market Share (Right Axis)

Slide 55
Tanker Demand
Rising Stars – CPP (2015 – 2019)
20% 20%
18% 18%
16% 16%
14% 14%
12% 12%
10% 10%
8% 8%
6% 6%
4% 4%
2% 2%
0% 0%
LR2 (Far East/N. LR1 (India/NAWC) MR2 (Far MR1 (ECSA/WCSA)
Europe) East/Australia)
Source: McQuilling Services CAGR Market Share (Right Axis)

Slide 56
Agenda




Slide 57
Tanker Supply
Additions & Deletions
Contracting | 2004 - 2014
► There were orders for 201 vessels in 2014, down dramatically from
392 in 2013

Slide 58
Tanker Supply
Deliveries | 2004 - 2016
► The overall delivery profile of the tanker fleet has been declining
since 2009

Slide 59
Tanker Supply
Deliveries | 2014
► There were 113 deliveries from
shipyards in 2014, 11 less than
we forecast
► We over-estimated the number
of MR2 tankers that would
deliver in 2014 by nine – 44
vessels actually delivered

Slide 60
Tanker Supply
Orderbook* | 2015 - 2019
Adjusted Grossed-Up
* Not including
approximately 180
MR2 IMO 1/2 vessel
orders
► The orderbook across all classes stands at 456 vessels at the

beginning of 2015, about 12% of the existing fleet
Slide 61
Tanker Supply
Deletions
Exits | 2014
► Seventy-two vessels exited the
tanker fleet in 2014, 20% more
than our estimate of 60
► Twenty-four Aframax tankers
ceased trading, this exceeded
our estimate of 10 for 2014 and
led to an overall negative net
fleet growth for Aframaxes in
2014
► We expected 13 MR2 product
carriers to leave the fleet – only
five exited in 2014

Slide 62
Tanker Supply
Deletions
Exits | 2015-2019
► Various exit profiles may apply

to the trading fleet, depending
on a number of factors
► Minimal fleet growth
corresponds to a pre-15 year
exit profile (before the 3rd special
survey); maximum growth to a
pre-5th special survey (25 years)
► An average fleet growth
assumption uses pre-4th special
survey as the exit point, or, in
the case of VLCCs, a
conversion requirement of about
15 vessels per year

Slide 63
Tanker Supply
Trading Inventory & Adjustments
Derivation
VLCC 2015 No. of Vessels
Starting Gross Inventory 631 ► Third party data is purchased,

Plus Additions 31 validated and enhanced with
Less Deletions 15 proprietary information
Equals Net Inventory Change 16
Ending Gross Inventory 647 ► Accuracy is an issue,
especially newbuilding orders
Average Inventory 639
► Additions include coated ships
Availability Reductions: trading dirty; deletions include
Lost Time (weather & speed 2.5%) 16 exits to demolition and
Maintenance & Repair (2.5%) 16 conversion
Waiting Time (4.5%) 29
► Inventory reductions include
Dislocation (10%) 62
floating storage, port delays,
Floating Storage 25
coated ships trading dirty
Capacity Reduction 22
Availability Reduction 172
Vessels Applied to Demand 467

Slide 64
Tanker Supply
Adjustments: Reductions in Tanker Supply
UTILIZED UNUTILIZED
► Full cargo on board in transit at ► Ballasting underway, no cargo on board;
optimum speed or vessel in port ► Scheduled or unscheduled maintenance;
loading or discharging consuming ► Weather delays and slow steaming delays not
laytime or on demurrage part of regular laden transit time or ballast time;
► Awaiting laydays;
► Less than full cargoes;
► Out of position
Voyage Timeline:
Theoretical Full Utilization – 100%
UNDER CARGO Laden, at BALLAST

sea or in port
Actual utilization Capacity Reduction (10-21%)

achieved in practice
UNAVAILABLE:
Maintenance & Repair (2-3%)
Lost Time (2-3%)
Waiting Time (3-6%)
Dislocation (5-10%)
Unutilized
Slide 65
Tanker Supply
Additions, Deletions, Trading Fleet | 2001-2025

Slide 66
Tanker Supply

Slide 67
Tanker Supply

Slide 68
Tanker Supply

Slide 69
Tanker Supply
Net Fleet Growth
2010-2019

Slide 70
Agenda




Slide 71
Outlook
Past Forecast Performance
2014 McQuilling Forecast Performance

Slide 72
Outlook
Past Forecast Performance
McQuilling Forecast Performance | 2002 - 2014
► Our overall forecast performance for

2014 was within 12% of actual
market freight rates across the 13
trades that were monitored in the
2014 Outlook
► This metric is a measure of the
average of the total variation on a
trade-by-trade basis, regardless of
whether we overcast or undercast the
market on each trade
► It is a measure of how close we
came, on average, to the actual spot
market rates observed on each trade.
This result ranks eighth out of 17
forecast cycles that we have
conducted

Slide 73
Outlook
Influence of Supply & Demand
Quantitative Forecast Component | Capacity Index
VLCC MR2

Slide 74
Outlook
Current Market
Crude Tankers | 2014
► The first three quarters of 2013 saw generally declining rates across
dirty sectors
► All dirty sectors benefitted from a stronger-than usual 4Q 2014 which
when combined with lower bunker prices, yielded much higher TCEs
than 2013

Slide 75
Outlook
Current Market
Product Tankers | 2014
► Product tanker sector performance was mixed in 2014, depending on

vessel class: the LRs and the MR1 class softened through the first half
and then regained to close about where they started the year
► MR2 trades generally declined through the year, then reversed losses
with a very strong 4Q 2014 driven by increased demand in the second
half
Slide 76
Outlook
Future Expectations
Crude Tankers – 2015 Worldscale
VLCC - Generally speaking, we expect Suezmax - We project Suezmax Aframax / Panamax – Since rates in the
2015 rates to remain strong supported by demand will increase by 9% from 2015 America’s Aframax trade are highly
steady demand and floating storage to 2019, while supply will only increase responsive to supply and demand,
plays, followed by a modest weakening by 7.4% through 2019. As the supply tempered supply growth will be an
in 2016 as the VLCC inventory grows. and demand balance tightens, we project important element in supporting rates
rates will increase. through the forecast period.
Revenues for the East trades will
continue to experience the strength that As US condensate exports start to hit Panamax performance will closely reflect
began in 4Q 2014. AG exports to North global markets, the West Africa to North the Aframax sector through 2019.
America will remain weak as Canadian America trade will likely reappear. We
exports of heavy crudes challenge. expect to see improved rates across
TD5, TD6 and TD20 through 2015.

Slide 77
Outlook
Future Expectations
Products Tankers – 2015 Worldscale
LR1/LR2 - Demand for LR2s for the TC1 MR2 - The MR2 class will sustain the MR1 - In general, the MR1 class will see
trade is expected to increase modestly highest level of demand in the CPP demand decrease over the next five
over the forecast period as economic sector through the forecast period, but years as the MR2 class poaches market
recovery measures are implemented in also the greatest supply growth. share further. The supply and demand
Japan. A recovery in demand has balance will loosen throughout the
transpired over the past four years as Earnings will remain strong in 2015,
forecast period as the MR1 fleet grows
Middle East exports have begun to taper off from 2016 through 2019 as this
faster than perceived demand, which will
increase and we expect this trend to tanker faces competition from the LR1
depress rates on a variety of MR1
continue at a moderate pace. class and remains under the shadow of a
trades. A similar threat from IMO I and II
tonnage supply overhang. Exacerbating
chemical carriers exists for MR1s
this supply influence is a large orderbook
for MR IMO II chemical carriers – 100+
to deliver in 2015.
Slide 78
Outlook
Future Expectations
Time Charter Equivalent – TCE (US$/Day)
2014 Actual 2015 Forecast 2016-2019 Forecast

Brent 99 65 83
HSFO 573 361 463

Slide 79
Outlook
Future Expectations
2015 YTD (February) | Worldscale & TCE

Slide 80
Outlook
Future Expectations
Asset Markets Expectations | Methodology
ACTUAL
Asset Price - US$ Million LR2 - 5 YR OLD
BROKER
► Multi-component forecast
80
MODEL model including regression,
70
INCOME
income and McQuilling
FORECAST
Partners S&P forecasts
60
► Regression modeling
50
identifies statistically
40 significant correlations
between asset prices and
30
independent variables
20
► Income model discounts
10 future monthly cash flows
(EBITDA) using a weighted
0
average cost of capital
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: McQuilling Services (WACC)

► Experiential adjustment
incorporating S&P desk
perspective
Slide 81
Outlook
Future Expectations
Asset Markets Expectations | Dirty Tankers | NB, 10-Year Old | DPP
US $ million US $ million
Mar-15 2015*
110 8% Mar-15 2015* 110
100 105 100
90 98 90
80 80
6% 70
70
69
60 65 4% 60 16%
50 55 50 55
53 5% 18%
40 48
40 42
40 42 9%
30 30 36
32 20%
29
20 20 23
19
10 10
0 0
VLCC SUEZ AFRA PANA VLCC SUEZ AFRA PANA
VLCC SUEZ AFRA PANA VLCC SUEZ AFRA PANA

160 160
140 140
120 120
100 100
80 80
60 60
40 40
20 20
0 0
02 04 06 08 10 12 14 16 18 02 04 06 08 10 12 14 16 18

Slide 82
Outlook
Future Expectations
Asset Markets Expectations | Dirty Tankers | NB, 10-Year Old | CPP
US $ million US $ million
70 Mar-15 2015* 70 Mar-15 2015*
60 -2% 60
4%
56 55
50 50
48 4%
46
40 40
-6%
37 38 3%
30 30 33
31
26 27 9%
20 20
16 18
10 10
0 0
LR2 LR1 MR2 LR2 LR1 MR2
-10 -10
LR2 LR1 MR2

LR2 LR1 MR2
100 100
90 90
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
02 04 06 08 10 12 14 16 18 02 04 06 08 10 12 14 16 18

Slide 83
Outlook
Future Expectations
Investment Analysis – Hold to Maturity (Estimated Demo at 22 years old)
Dirty Clean
IRR % IRR %
50% 25%
NB 5 YR 10 YR NB 5 YR 10 YR
40% 20%
30% 15%
20% 10%
10% 5%
0% 0%
VLCC SUEZ AFRA PANA LR2 LR1 MR2

Slide 84
Summary
Global economic output is entering a period of above-trend growth (3.5% in 2015,
3.7% in 2016), expected to persist through the forecast period, led by developed
countries, especially the US.
Global demand for VLCCs will expand only slightly, about 1% per year, as developed
nations’ energy intensity declines. Above trend demand growth is expected in
emerging economies notably Asia/Far East and the Indian sub-continent.
VLCC net supply growth will be low in 2015 (+16 vessels) with the number of
vessels available for demand further reduced by supply factors such as floating
storage contracts driven by contango oil pricing. As vessels speed up in response to
higher freight rates and lower fuel prices, vessels available for demand will increase.
Supply further increases next year with more deliveries from shipyards (45 versus 31)
scheduled in 2016 and storage contracts expiring.
Stronger freight rates in 2015 are expected across crude/residual fuel trades with
improving fundamentals and strong sentiment continuing from the end of last year.
Rates should soften in 2016 on net fleet growth but continue to trend higher during the
forecast period. Lower fuel prices in combination with stronger rates will significantly
improve TCE earnings for owners in 2015 (VLCC: US$59k/Day - AG/East)

Slide 85
Summary
Refined products transport demand grew explosively during 2003 through 2010
then slowed dramatically, coincident with the rapid ramp-up of shale-driven US Gulf
products exports. Demand growth is expected going forward, albeit at lower rates (3-
5% per year).
Product tanker supply has seen several years of strong net fleet growth with a large
orderbook persisting. This continues through 2017 and will pressure rates in this
sector through the forecast period.
An increase in freight rates in 2015 is expected across product trades on the back of
strong sentiment continuing from the end of last year, but rates will likely trade
sideways through the forecast period. Lower fuel prices will improve TCE earnings for
owners in 2015 (MR2: US$20k/Day - Atlantic triangulation).
Asset prices will increase in 2015 (newbuilding VLCC: US$ 99 millionUS$105

million | MR2: US$36.1 million  US$ 38 million) with increasing freight costs. Second
hand prices are also expected to increase with the best investments currently vessels
5-10 years old.
Uncertainty of oil price direction in 2015 translates directly into tanker demand
uncertainty. North American shale oil production has driven significant changes in the
trade matrices for crude oil transport and for refined products transport in recent times.
Slide 86
Ocean House | 1035 Stewart Avenue | Garden City, New York 11530
Tel: +1.516.227.5700 | Fax: +1.516.745.6198 | Email: services.us@mcquilling.com
► Management consulting
► Business development
► Ship finance advisory
► Marine logistics analysis
► Market research
► Information technology applications
► Ship construction & repair advisory
► Personnel training
www.mcquilling.com
Thank You!
Slide 87

2015 Tanker Market Outlook - MC Athens

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

2015 Tanker Market Outlook - MC Athens

Uploaded by

Copyright:

Available Formats

Tanker Market Outlook

McQuilling Services, LLC.

McQuilling Partners is a privately-owned marine services company, providing transportation

McQuilling Services, LLC.

“When you can measure what you are speaking

Lord William Thomson Kelvin - 1824-1907

McQuilling Services, LLC. Kelvin Wave Angle – 19.47 degrees

Global Economic Context, Oil Supply & Demand,

Additions, Deletions, Trading Inventory &

Past Forecast Performance, Current Market,

McQuilling Services, LLC.

Source: International Monetary Fund

Source: International Monetary Fund

McQuilling Services, LLC.

McQuilling Services, LLC.

McQuilling Services, LLC.

► “Shale gas and

McQuilling Services, LLC.

► Robust geological data,

► The highest previous annual

► The forecast for total US crude

► 2019 is the forecasted peak

Source: Energy Information Administration

McQuilling Services, LLC.

Source: US Energy Information Administration

McQuilling Services, LLC.

Source: Refiner Link March 2013

McQuilling Services, LLC.

Planned North American Rail Expansion

PADD I: Expected to average up to 380,000 b/d in 2015 US $12-15/barrel

McQuilling Services, LLC.

► As a result of numerous rail

McQuilling Services, LLC.

► The export of California heavy oil (20 API or less) up to an average of

McQuilling Services, LLC.

► On December 30, 2014, the US Department of Commerce, Bureau of

McQuilling Services, LLC.

Source: Energy Information Administration

McQuilling Services, LLC.

► The majority of US crude oil

► Canadian production becoming increasingly important in the US with

2019 – 3.36 million b/d

Sep-14 - 2.0 million b/d

US Imports from Saudi Arabia

Source: Energy Information Administration

Source: International Energy Agency

McQuilling Services, LLC.

► At a global level, marine

► Marine transportation demand for

► Petroleum product marine transportation demand arises from matching

McQuilling Services, LLC.

Bilateral Country Maritime ► Trade data is transformed,

McQuilling Services, LLC.

Source: McQuilling Services

McQuilling Services, LLC.

► After a sustained period of

► In 2011, total demand declined

► Total demand in 2014 contracted

Source: McQuilling Services

McQuilling Services, LLC.

► Suezmax demand represented about a

► Clean product transport demand is a small

► The MR2 size product carrier is the

► The long range vessels LR1 and LR2