September 18

2020
HOUSTON / NEW YORK / LONDON / ATHENS / SINGAPORE / GUANGZHOU / PERTH
2 015
5 May 2013
POTEN TANKER OPINION
Food For Thought
Implications of the new BP scenarios for the tanker market
On Monday, 14 September, BP published its annual energy
outlook for 2020. In this outlook, BP outlines three alternative
energy scenarios looking ahead to 2050. BP stresses that they
are not trying to give precise predictions 30 years out. Doing
that would guarantee failure. Instead, the scenario’s, called
Business-as-Usual, Rapid and Net Zero, help BP “understand
the many uncertainties ahead – in the near and longer term –
by considering a range of possible pathways the energy
transition may take over the next 30 years. The three
scenarios have very different outcomes, but even in Business-
as-Usual, the least disruptive of the three, where
governments don’t take drastic action to address climate
change, global oil demand will remain around 100 million
barrels per day for the next 20 years, before it starts to
gradually decline (see chart). The other two scenarios show a
much more rapid decline in oil demand. If any of these
scenarios were to play out, the implications for the tanker
market would be very dramatic.
There are a number of factors that are key to all of BP’s
scenarios: (1) the growing role of renewables; (2) increasing
focus on electric vehicles, shared mobility and autonomous
vehicles; (3) a declining role for oil and gas. In addition, BP
sees the energy mix becoming more diverse, driven by
customer choice rather than resource availability. This will be Source: BP
a problem for producer cartels like OPEC. In the future, with
demand for their product falling, OPEC countries will need to The product tanker market could benefit from another development. BP
start competing based on price. This may turn members expects that the world will have significant surplus refining capacity, with the
against each other. According to BP, energy markets will most modern and sophisticated refiners located in the Middle East and Asia.
become more localized. The “old” energy sources like coal They expect that refiners in Europe and North America will close as they
and oil can be easily and cheaply shipped over long distances. cannot compete. This could lead to an increase in long-haul product trades
In contrast, the supply of renewables like solar and wind is from Asia to Europe and North America, raising demand for LR1, LR2 and
highly localized as the generated electricity cannot be possibly even larger (LR3) product tankers.
efficiently transported. Despite a few bright spots in the BP scenarios, the overall outlook for the
At first glance, the picture looks bleak for the crude oil tanker tanker market as we know it is rather dim. On top of the reduction in demand,
industry: lower oil demand, concentrated in Asia will reduce there is also the issue of decarbonizing the shipping industry. The
the need for tanker transportation. If oil producers start to International Maritime Organization (IMO) has committed to reduce
compete for customers based on price, the pressure on tanker greenhouse gas emissions from the shipping industry (per ship) by 70% by
owners to keep transportation cost down will only increase. 2050, compared to 2008. This means that while demand for its services is
reducing over time, the tanker industry has to invest in new vessels with
There are a few glimmers of hope for tanker owners in the BP cleaner propulsion technology at the same time. We expect that to be highly
outlook. Firstly, they expect that U.S. shale will rebound from challenging, unless the industry changes how it conducts its business. If the
Covid-19 and take market share from OPEC until the early charterers are open to medium-to long-term charters that reimburse
2030s, when shale oil peaks. More crude from Guyana and shipowners for their costs with a reasonable margin, the industry could
Brazil will support non-OPEC production. More crude survive and maintain a reasonable supply/demand balance. The spot market
produced in the Atlantic Basin with demand growth continued would become a much smaller portion of the overall market, like the 1970s.
to be concentrated in the Pacific bodes well for ton-mile
demand. No doubt, people will debate the likelihood of these possible outcomes, but
the BP scenarios have definitely given the industry food for thought.
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