The source of the information contained in this section "Market and Industry Overview" covering the shipping industry and tanker market is from independent market research carried out by McQuilling but should not be relied upon in making, or refraining from making, any investment decision.
The Company believes that the information provided in this Prospectus from external sources, including that by McQuilling is from credible sources. This information, however, was not independently verified by the Company, its Board members, the Joint Lead Managers and Joint Bookrunners or any of their respective advisers, so there is no guarantee by them of the accuracy or completeness of this information.
The Company appointed McQuilling in 2015G to conduct a study and prepare a report on the shipping industry and tanker market. McQuilling was founded in 1972G and is based in New York, USA. McQuilling is an independent consulting firm specialising in the shipping industry.
Unless expressly stated otherwise, the report prepared by McQuilling is the source of the information relating to the tanker market in this Section 6. The study was conducted and the report was prepared by McQuilling in February 2015G and, therefore, it does not reflect market developments since the start of the reporting year. However, the Company believes that the information set out in this Section 6 has not changed significantly from such date and therefore, on balance, it still reflects the fundamentals of the tanker market as at the date of this Prospectus.
McQuilling has provided and not withdrawn its written consent for the use of its findings in this Prospectus. Neither McQuilling nor its employees or any of their relatives or affiliates has any shareholding or interest of any kind in the Company or any of its affiliates or related parties.
All percentages in the information in this section are rounded to the nearest whole number.
The information in the other parts of this Section 6 comes from publicly available sources in respect of the shipping industry and the tanker market. This includes a report titled "Review of Maritime Transport", Reports by the UNCTAD Secretariat, Geneva, Switzerland, 2014G which is available on the website of UNCTAD (www.unctad.org), a report titled "Cross Currents" by the International Monetary Fund (IMF), January, 2015G which is available on the IMF's website (www.imf.org). In addition, information set out in the website of the US Energy Information Administration (www.eia.gov) and the IMO – International Maritime Organization (www.imo.org) was also used, amongst other sources.
Tanker Market Fundamentals
Tankers are ships designed to transport liquids in bulk, by way of the seaborne movement of cargo.
They transport a wide variety of liquid cargoes such as crude oil and petroleum products, chemicals and vegetable oil. Historically, both in terms of the value and volume of cargo, the transportation of crude oil, petroleum and petroleum products has been one of the most important and recognizable types of sea-born trades. Oil and gas products contributed 30 per cent to the total global seaborne trade in 2013G, as illustrated in Figure 6-1. The volume of oil and gas cargo transported has increased 1.6 per cent per year on a compound annual growth basis since 1970G.
World Seaborne Trade, Selected Years in Millions of Tons Loaded: 1970–2013G
Year Oil & Gas Main Bulks* Other Dry Cargo Total (all cargos)
1970 55% 17% 28% 10,654,450
1980 51% 16% 33% 15,149,360
1990 44% 25% 32% 16,392,720
2000 36% 22% 42% 24,474,560
2005 34% 24% 42% 29,075,810
2006 35% 24% 41% 31,493,829
2007 34% 24% 41% 32,858,912
2008 33% 25% 42% 33,657,737
2009 34% 27% 40% 32,137,762
2010 33% 28% 39% 34,390,765
2011 32% 28% 40% 35,927,787
2012 31% 30% 39% 37,615,730
2013G 30% 31% 40% 39,051,320
Number in the table may not add due to rounding
Seaborne liquid chemicals transport included in the column labelled "Oil & Gas"
* Iron ore, grains, coal, bauxite/alumina and phosphate; ~ Billion Tons
Source: "Review of Maritime Transport", Reports by the UNCTAD Secretariat, Geneva, Switzerland, 2014G
Energy consumption and demand for marine transportation are both related to world economic growth. Economic activity requires and drives higher energy consumption. In terms of the global energy mix, a primary source of energy is crude oil and petroleum products, which increase in line with an expanding global economy. This correlation is strongest in developing countries where energy use increases in tandem with industrial development.
Marine transportation demand arises from the energy consumption requirements of regional economies combined with geographically disparate sources of supply. This drives the demand for tankers which are used for transportation of crude petroleum and petroleum products from source regions to consuming regions. Figure 6-1 below illustrates the gross domestic product ("GDP") growth rate across select countries between 2014G and 2016G:
Global GDP Growth Rates 2014G–2016G (Per Cent Purchasing Power Parity Basis)
-3.0 -1.0 1.0 3.0 5.0 7.0 9.0
China India Brazil Mexico Russia Germany Canada Japan U.S. U.K. France Italy Spain
2014 2015 2016
Advanced Economies Emerging Economies
Source: International Monetary Fund, World Economic Outlook, January 2015G Saudi Oil and Transportation Market
Saudi Oil Market
The Saudi Arabian Oil Company (Saudi Aramco) is the state-owned oil company of the Kingdom of Saudi Arabia (KSA). It manages the world's largest proven conventional crude oil and condensate reserves of approximately 265.8 billion barrels as at 2013G, representing approximately 18 per cent of the world's 2013G proven crude oil reserves, and approximately 293.7 trillion cubic feet of natural gas reserves, or approximately 4 per cent of the world's 2013G proven natural gas reserves.7
In 2014G, Saudi Aramco produced 9.7 million barrels per day of crude oil through its main oil facilities in Abqaiq, Haradh, Khurais, Khursaniyah, Nuayyim, Qatif and Shaybah. Of this, Saudi Aramco exported on average 7.1 million barrels daily or approximately 73 per cent of its production.8 Asia was the main importer of Saudi crude oil (67 per cent) followed by North America (18 per cent) and Europe (13 per cent).9
Saudi Oil Transportation Market
The Saudi Arabian oil transportation market is therefore closely linked to Saudi Aramco's oil production and exports. According to McQuilling's report, approximately 70 to 90 per cent of Saudi Aramco's export volumes are sold on a FOB basis. For the remaining export volumes sold on a Cost, Insurance and Freight basis, Bahri has been the primary provider of shipping services to Saudi Aramco.
Oil Tanker Demand
Demand for oil tankers is a function of several factors, including world oil demand and supply (which affects the amount of crude oil and refined products transported in tankers), and the relative locations
7 Source: OPEC's Annual Statistics Bulletin 2014G
8 Source: JODI World Database, November 2014G
9 Source: JBC Energy
of oil production, refining and consumption centres (which affects the distance over which the oil or refined products are transported). Figure 6-2 illustrates the major crude oil and petroleum product exporting and importing regions in the world.
Crude & Products Inter-Regional Movements, 2013G (Million Barrels per Day)
Source: BP Statistical Review of World Energy, 2014G
Figure 6-2 below illustrates the inter-regional movements of crude oil and related products in 2013G:
Crude & Products Inter-Regional Movements, 2013G (Thousand Barrels per Day) TO:
FROM: North
America
South &
Central America
Europe Russia &
FSU
Middle
East Africa India
Far East- Asia- Australia
Exports
North America 4,887 1,163 939 2 78 136 140 537 7,881
South &
Central America
1,707 - 368 2 2 6 632 993 3,710
Europe 729 193 - 104 258 598 13 507 2,400
Russia/FSU 525 15 5,989 - 273 36 42 2,168 9,048
Middle East 2,145 133 2,074 9 - 334 2,509 12,399 19,603
Africa 967 382 2,965 3 25 - 642 1,846 6,830
India 63 93 173 1 364 177 - 367 1,236
Far East-Asia-
Australia 154 156 129 11 76 128 117 4,994 5,765
Imports 11,176 2,134 12,637 130 1,076 1,416 4,094 23,811 56,473
Source: BP Statistical Review of World Energy, 2014G
Tanker demand is measured by the tons of cargo carried multiplied by the distance of the voyage in miles. Tanker demand is characterised by a variety of parameters. These include the type of cargo
required to be transported and the ships capable of doing so; the parcel size of the cargo which is a function of the trade and is driven either by custom or any constraints at the loading or discharging port; the frequency of the demand for delivery of the cargo; and the various locations worldwide at which the cargoes are to be loaded and discharged which will in turn influence the number and variety of trade routes. These parameters are also a function of time which means that tanker operators need to focus on fleet deployment optimization to extract maximum efficiency.
In recent times, that dramatic increase in US light/sweet shale oil production and Canadian heavy/sour alternative-sourced crude production has reduced North American imports substantially.
Types of Tanker Vessels
Tankers are categorised depending on their deadweight tonnage ("DWT") and their cargo carrying capacity. Tanker demand can be categorised into six primary sectors based on the type of tanker which are:
VLCC Tanker
Suezmax Tanker
Aframax Tanker
Panamax Tanker
Medium Range Tanker
Handy Tanker