The International Oil and Tanker Market

Intertanko North American Panel Meeting

March 21, 2016
 Presentation Overview
Page 2

Medium Term Oil & Tanker Market Outlook

Floating Storage A tanker wildcard

The Force Awakens The impact of U.S. crude oil exports

Iran is back! What are the implications?

The Expanded Panama Canal Game changer or non-event?

Medium Term Oil & Tanker Market Outlook
The American Shale Oil Boom
Page 4

Source: EIA

Source: EIA
The Dramatic Decline In U.S. Seaborne
Crude Oil Imports
Page 5

Source: EIA
Asia Continues To Be The Engine Of
Global Oil Demand Growth
Page 6

Global Oil Demand Growth, by Region, 2001 - 21

Source: IEA

Source: IEA
OECD Americas Will Drive Non-OPEC
Supply Growth
Page 7

IEA Medium-Term Oil Market Report 2016

Global Oil Markets May Not
Rebalance Until 2017
Page 8

Global Oil Balance Base Case (2004 2021)

IEA Medium-Term Oil Market Report 2016

 Global Ton Mile Oil Demand Growth Is
Decelerating
Page 9
Trade in Mb/d Trade in Ton Miles (Bln)
Import Region 2015 2021 Change 2015 2021 Change
OECD Americas 3.9 3.5 -0.4 1,251 1,139 -112.1
OECD Europe 9.6 8.8 -0.8 2,070 1,927 -142.5
OECD Asia/Oceania 5.8 4.6 -1.2 1,741 1,395 -346.7
China 6.6 8.4 +1.8 2,196 2,711 +514.2
Other Asia 7.1 8.4 +1.3 1,005 1,183 +178.3
33.0 33.7 +0.7 8,264 8,355 +91.1
2.1% 1.1%

Source: IEA
 Growing Global Refining Capacity
Supports Crude And Product Trade
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Global refining capacity is forecast to increase Change in Refining Capacity 2016-2021

by 7.7 Mb/d to 104.9 Mb/d in 2021
Over 90% of net expansions come from non-OECD

Capacity in the Middle East will increase by 2.3

Mb/d
Focused on product exports

China will remain a large contributor to growth

adding 2.2 Mb/d
Focused on satisfying domestic demand
Source: IEA
China has become a net product exporter in 2015
Change in Regional Demand and Refining Capacity
(2015-2021)
OECD countries will only add a net 0.6 mb/d
over the period:
OECD Americas: +0.8 Mb/d
OECD Europe: -0.04 Mb/d
OECD Asia Oceania: -0.3 Mb/d

Global refinery margins will come under

renewed pressure as a result of the growing
surplus after strong gasoline demand growth
pushed margins up in recent quarters Source: IEA
 Regional Oil Product Balances 2015 - 2021
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Regional Refinery Developments: Capacity and Runs (Mb/d) Gasoil / Kerosene (Kb/d)

Gasoline / Naphtha (Kb/d) Fuel Oil (Kb/d)

 Some Medium to Long Term Demand Drivers
Are Supportive Vessel Supply A Concern
Page 12
Market share fight between OPEC and non-OPEC has been good for the tanker market
U.S. shale oil producers could become the worlds swing suppliers

The lifting of the U.S. crude oil export ban could be a game-changer in the medium to long-term
However, expectations for a boost in the short-term are muted

Return of Iran to the world markets will further boost OPEC oil exports
Overall impact on tanker market depends on export destinations and the utilization of Irans controlled fleet

The crude oil and product tanker markets could face rate pressure when oil markets start destocking in
2017/2018

Longer term (2018-2020 and beyond), there could be opportunities for long-haul crude oil exports from
Canada if export pipelines come on-stream

Contracting has increased and deliveries will likely lead to more fleet growth from second half 2016
onwards

The product tanker market is supported by global economic expansion and the trend towards building
large export oriented refineries which leads to more long-haul refined product movements
Stock Building A Tanker Wildcard
How And When Will The Current Oil
Surplus Be Resolved?
Page 14

Oil Demand

?
OPEC Non-OPEC

WILDCARD: INVENTORIES
 Crude Oil Production Has Been Expanding
Worldwide
Page 15

OPEC

Non-OPEC
 Oversupply of Crude Oil Has Increased
Crude Oil Stocks Worldwide
Page 16
OECD

Among analysts, there is consensus that the oil market was

oversupplied in 2015 and early 2016. Forecasts range from
0.7 mb/d to 1.9 mb/d

Contango inspired floating storage is not (yet) occurring in

large volumes
There is still (some) land-based storage available
Contango is not wide enough to make it profitable

However, there are logistical bottlenecks at key terminals.

Inventory levels are testing storage capacity limits. This
causes significant delays in certain discharge regions,
creating de-facto floating storage
The Force Awakens The Impact Of U.S.
Crude Oil Exports
 Lifting The U.S. Crude Oil Export Ban
Could Be A Game Changer
Page 18

On Friday, December 18, 2015, President Obama signed a $1.8 trillion spending package into
law, ending the 40-year-old ban on crude oil exports

A number of export cargoes have already been shipped out of the U.S. Gulf: several to Europe,
at least one to Venezuela and one or two (test) cargoes to Asia (China and Japan)
All vessels so far have been Panamax and Aframax sized

The volumes and destinations of future exports will depend on different factors:
Future U.S. production
World oil markets
U.S. export infrastructure

Over the medium to long-term, prospects for increased U.S. crude oil exports are good,
especially if improved infrastructure allows for the use of larger vessels (Suezmax/VLCC)
Plans are being discussed to convert LOOP to an import as well as an export terminal

Relative pricing of U.S. crudes relative to other regional grades will be the most important driver
of potential exports
U.S. Crude Exports Peaked in August 2015
Page 19

Source: IEA
 Convert LOOP To Enable Exports As Well
As Imports
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LOOP is the largest U.S. waterborne

crude receipt terminal LOOP Offshore Oil Terminal & Pipeline Assets
It can accommodate up to ULCCs
LOOP also receives crude from various offshore
U.S. Gulf fields (via pipeline)
Oil is pumped via pipeline to a storage facility at
Clovelly, 25 miles inland
Clovelly can store 68 million barrels
LOOP is connected to several refineries

Lousianas Offshore Oil Port (LOOP) could

become a Gulf Coast crude blending and
trading hub if its infrastructure is
upgraded to facilitate exports

LOOP could become an export terminal

for increase GOM production as well as
other domestic and Canadian crudes

The ability to use VLCCs will open up

Asian markets for U.S. shale or GOM
Source: Shell Midstream Partners
grades
Iran Is Back
 Iranian Crude Re-enters World Markets
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International sanctions related to Irans nuclear Iranian Floating Storage

program were lifted on January 16, 2016

Many U.S. sanctions remain in place, complicating

P&I insurance and US$ transactions (at least initially)
Could take several months to sort out

The Iranians have a significant fleet consisting

primarily of VLCCs
Poten estimates that 13 of Irans 37 VLCCs are used
for storage (crude and condensates)
The Iranian vessels will gradually re-enter the world
market
Source: Foresea Oil

Iran produced about 3.6 Mb/d of crude oil in late

2011, but due to sanctions has reduced production
to about 2.9 Mb/d currently; local oil demand is
about 1.9 Mb/d
Iran has aspirations to increase output to around 5.0
mb/d in 2020, although the IEA expects them to only
reach 3.94 mb/d by that time

Iran aims to start selling crude again to its old

customers in Europe, but initial moves will be to
existing Asian clients (India, China and Korea)
 Long Term Opportunities Outweigh Short
Term Challenges In Iran
Page 23
Iran Crude Capacity Scenarios
Short Term Challenges
U.S. sanctions remain in place
Threat of snap-back sanctions concern
investors
Other oil producers have taken market share
(esp. in Europe)
Current low oil price environment reduces
the appetite of IOCs to invest in Iran
The Iranian fleet has been underutilized for
Source: IEA
several years and some of their vessels need
repairs and lack class certificates

Long Term Potential

Iran has the worlds fourth largest proven oil
reserves
The IEA expects Irans crude production
capacity to increase by 340,000 b/d and
reach 3.94 mb/d in 2021
NITC wants to contract newbuildings to
replace ageing tankers
The Expanded Panama Canal Game
Changer or Non-Event?
 Panama Canal Expansion to be Completed
mid-2016
Page 25

Greatest impact will be on container trades

New locks will accommodate ships of up to 366 m in
length, 49 m in width and more than 15 m in depth
Panama Canal tolls are applied on a round-trip basis
under the Worldscale system and are for the charterers
account
The new locks will be able to accommodate fully laden
Aframaxes (~95,000 MT), and partially laden Suezmaxes
(~130,000 MT)
New locks can accommodate 12 transits per day
Container vessels are expected to be the main users

Tankers transiting the Canal will have

significant competition
The Trans-Panama crude oil pipeline (600 kbd) was reversed in
2006 to flow from the Caribbean to the Pacific; this infrastructure
change had a greater impact on crude oil trade flow than the canal
expansion is likely to have
Container vessels can pre-book and have priority
as they have to follow a schedule
LNG and LPG tankers are also likely users of the
new locks, in particular since the U.S. is expected
to become a significant gas exporter
Tankers may encounter more waiting time and
delays when transiting
Tankers may use the new locks for movements to
the USWC. VLCCs will be used for long-haul
movements to Asia
Final Thought
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 Poten & Partners, Inc.

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