Deliveries of crude tankers set for peak quarter, but fleet growth headwinds to remain through to mid‐2018 says shipbroker

In Hellenic Shipping News 31/01/2017

Newbuilding deliveries are set to spike this quarter across each of the crude tanker size classes, putting over 86 million barrels of new capacity onto the water and marking a peak quarter for the present high‐delivery cycle, said shipbroker Charles R. Weber in its latest weekly report. According to the shipbroker, “the surge comes as yards progress into an orderbook built to high levels between 2014 and 2015 when forward fundamentals indicated a narrowing supply/demand balance. Unfortunately for owners, the surge comes against a backdrop of marked near‐term demand uncertainty and amid a two‐year‐long lull in phase‐outs, threatening to further decouple a fragile supply/demand balance and maintain headwinds on earnings for quarters to come”.

Indeed, according to CR Weber, “supply growth headwinds will likely remain a feature of the market until mid‐ 2018, when we project that the crude tanker fleets will have peaked and phase‐outs exceed new deliveries, ushering a period of negative net fleet growth which we expect will last for a few quarters thereafter. By end‐2018, the moderating of delivery levels will likely have allowed demand to catch up with supply, which should support the start of a new upcycle for earnings. Given the current decline in asset values and a historically slow reflecting in period rates of changing forward prospects and challenges, we believe that after what will likely be a difficult 2017, participants taking an opportunistic approach may view low asset prices and period rates during the first half of 2018 as attractive entry‐points”.

Meanwhile, in the crude tanker markets this week, in the VLCC segment, CR Weber noted that “combined Middle East and West Africa demand expanded modestly this week to 39 fixtures (+5%, w/w) as charterers progressed further into the February Middle East program and remained active in the West Africa market. Despite the demand gains, however, rates were softer this week as vessel availability expanded with fresh positions and a large number of potential units while the extent of demand for the Middle East February program’s second decade was uncertain. The degree of uncertainty is indeed high: we note that with 61 February Middle East cargoes covered to date, there are further 17‐22 cargoes expected through the end of the second decade. Against this, there are 41 units showing availability with a further 10 potentially available. On this basis and assuming that draws from the West Africa market remain around recent averages, the number of surplus Middle East positions at the conclusion of the second decade could be anywhere between 9 and 24 units. The variance is high with materially disparate earnings implied by our models between the high and low ends of the range. Amid all of the uncertainty, what is certain is that surplus supply has expanded with even the low end of the range VLCC Projected Orderbook Deliveries/Phase-Outs representing a four‐month high (the high end of the range would represent the highest surplus since mid‐2014). Thus, while we expect that rates will continue to experience losses during the upcoming week, the extent of rate losses will depend heavily on which supply/demand scenario plays out”, said the shipbroker.

In the Suezmax ship class, CR Weber said that “after a stable first half of the week, rates in the West Africa Suezmax market posted fresh losses late during the week as participants reacted to a widening supply/demand imbalance. A total of nine fixtures were reported, one fewer than a week ago and a quarter fewer than the 52‐week average. Slow recent demand follows elevated VLCC demand in the region during the January program, which has extended into the February program. Elsewhere, demand in the Middle East market has trended stronger since the start of the year, but remains low as compared with levels observed during 4Q16. An accelerating pace of newbuilding deliveries, however, complicates any positive influence from Middle East demand on the overall Suezmax balance as these units generally seek first trades from the region thus reducing absorption of ballast units from Asia, pushing more onto West Africa position lists. Rates on the WAFR‐UKC route shed 7.5 points to conclude at ws80 and the AG‐USG route shed 17.5 points to conclude at ws42.5. High coverage of the February program to‐date by VLCCs leaves fewer cargoes available for Suezmaxes, which will likely see demand remain during the upcoming week at levels which fail to move the balance of favor from charterers to owners”, the shipbroker concluded.

Nikos Roussanoglou, Hellenic Shipping News Worldwide

Container Shipping: Good Prospects For Market Improvement If Focus Is Kept On The Supply Side

In International Shipping News 31/01/2017

Demand

The demand for container shipping grew steadily in 2016. It grew enough to improve the fundamental balance in the market in the second half of the year, though that was primarily due to decisive actions by shipowners selling excessive tonnage for demolition. An early assessment of the overall market demand growth rate for 2016 is 2.5%.

2016 saw increased demand on all trades.

Most importantly, trade grew on the Far East to Europe route that had experienced a decreased level of demand in 2015. The gap is still not closed, as nominal import volumes in 2016 failed to surpass those of 2014. The demand for containership capacity, on the other hand, as evidenced by the very low charter rate levels, showed a total mismatch between demand for and supply of ships for charter.

Charter rate levels since mid-November for ships with a capacity between 700 – 8,500 TEU have been between USD 4,700 – 8,000 per day, according to Harper Petersen & Co. Owners only seek short term charters (3-9 months) when market conditions are bad to avoid being locked into low rates for a longer term. Poor market conditions hit the panamax ships especially and they now stand completely isolated as the segment that got squeezed out of the market place between the feeder ships and the ultra large containerships. Rates for charters with a duration of 6-12 months dropped by 50% on average in 2016 from the levels seen in 2015. Asset values on the same ships dropped like a stone in September – all down to demolition value – where they remain. 26 panamax ship sales for ongoing trading took place in 2016 (VesselsValue).

Half of them sold in one month from mid-November and all deals had a bank as the direct seller. Most of the 26 sales involved struggling or bankrupt German KG entities or the bankrupt South Korean owner and operator, Hanjin Shipping. In terms of spot freight rates out of China, as measured by the Shanghai Containerized Freight Index (SCFI), the first half of 2016 was particularly miserable. For some of the minor trades, 2016 was a year to be forgotten quickly. Freight rates from Shanghai to neighbouring Korea, Hong Kong, Taiwan and Singapore all fell further from the already poor levels in 2015.

On the trades going to both the West and East Coasts of the US, spot freight rates improved during the second half of the year, surpassing the levels of 2015. But this was only because 2015 saw such a poor run during the final quarter of that year. Inbound loaded containers to the US West coast grew by 2.7% in the first 11 months of 2016 compared to the year before. The US East Coast saw similar growth of 2.5%. The US-bound trades saw falling freight rates because of poor supply side management by the individual operators, not outright lack of demand growth.

On the trades from the Far East to Europe and specifically the Mediterranean countries, the month of May was the turning point after horrifically low figures in the first four months. At its worst level, a TEU container could transport a quarter of the way around the world for just USD 200.

Overall, the ‘peak’ season in 2016 was longer than normal: from August, right through to November. This caused some downward pressure at first, as tonnage was employed in anticipation of a regular season. Fortunately, the market imbalance in Q3 was not as severe as in January through to April, if judged by the spot freight rates.

Supply

2016 will stand out as the year the container shipping fleet surpassed the 20 million TEU mark, only to go straight ahead and demolish excess capacity – starting with panamax ships. At the end of 2016, the fleet accounted for 19.98m TEU, up from 19.74m TEU at the start of the year, down from 20.04m TEU in early August. 660,000 TEU of container ship capacity was sold for scrapping, 60% of that during the final six months.

Container shipowners acted in the opposite way to the dry bulk shipowners, who, during the first half of the year, broke the previous year’s scrapping record level only to shy away completely from scrapping ships in the second half. As the lowest level of newbuild containership deliveries since 2004 was combined with record breaking scrapping levels, net inflow of capacity amounted to just 246,000 TEU – a growth rate of 1.2% – probably the lowest ever. As the year passed, it also became clear that the opening of the new locks in the Panama Canal was embraced by the liner operators. While the full capacity of the locks won’t be available until later in 2017, there are already clear changes to the shipping routes with bigger ships from each operator’s network transiting the canal.

Patiently awaiting the opening of the new locks, the industry was more than ready to deploy neopanamax (beam < 49m and capacity of 8,000-12,000 TEU) ships into the Panama Canal transit trades. In 2016 alone, 34 new neo-panamax ships were delivered, adding to the 75 that went into service in 2015, increasing that fleet segment by 25% in the past 24 months – now comprising a quarter of the total fleet. While being at opposite end in terms of demolition activity, both dry bulk and container shipowners/investors were in the same corner when looking at signing new orders.

Only once in the past 20 years has the contracting of new capacity been so low. Leaving the extraordinary Japanese 5 x 14,026 TEU orders aside for now, 71 ships of an average 1,700 TEU – and not one larger than 3,300 TEU – were all that entered the shipyards’ orderbooks during an eventful 2016.

Outlook

The level of idled capacity has been high since the end of 2015, reaching a new all-time high in Q4- 2016. In the final weeks of 2016, some idled ships were reactivated while others were sold for demolition. By 9 January 2017, the total idle fleet was 351 ships with a combined capacity of 1.4m TEU (source: Alphaliner), equal to 7.0% of the fleet.

As BIMCO forecasts a container shipping market where the nominal (excl. reactivated ships) TEUinflow of supply matches demand growth; keeping 1.4m TEU out of the active fleet going forward will be a minimum requirement to keep the pressure off freight rates. For the charter market and charter rates, it is a bad omen to have idled capacity at all since it illustrates that there is more than enough capacity in the market already. In terms of demand for charter-in tonnage terms, BIMCO expects 2017 to be another tough year on pure tonnage providers. This will be the shipowners who lack attractive options when seeking to put redelivered tonnage back on a charter in a market offering only much lower rates. While protectionism currently dominates the headlines as more trade restrictive measures are taken than trade facilitating, the CETA-agreement between EU and Canada stands out.

But was CETA the final big multilateral trade agreement before the closing hour? Or will the “Free Trade Agreement EU-Japan” make it to the finish line too? Even more uncertainty surrounds the intended agreement between the EU and US, known as the Transatlantic Trade and Investment Partnership (TTIP). As the new US Presidency settles in, we will hopefully become more informed about the future for trade agreements as seen in the eyes of Mr Trump. All the above has huge implications for globalisation – and on shipping of containers globally.

BIMCO expects US-bound exports out of Asia to grow slowly, as the economic growth weakens in the US. For the other main lane, European imports are expected to pick up pace, growing slightly faster than in 2016, as consumer demand is still on the rise. On the shorter-haul trade lanes we expect the “ever rising” intra-Asian trades to become even busier while deploying larger ships yet again. Cascading is still an issue as higher demand does not bring much higher freight rates. Handling the supply-side with care is the most important thing for the future.

Looking further, towards late 2017 and early 2018, the benefits of the mergers and newly established alliances in 2016 should become visible. Hopefully, by way of better profits and fleet utilisation, rather than just lower costs and cheaper offers to the shippers. It takes time to merge two companies into one, and make it work in a way that takes advantage of the economies of scale and broader offering into specific trade lanes.

Despite radical changes to the scenery of liner companies and shipping alliances in the past year, there is no entity large enough to dominate or even impact the global market. You must look at the individual trades to find any apparent impact from consolidation. The recovery is slow but if patience is applied and the supply-side handled with care for the years to come, it will happen.

Source: Peter Sand, Chief Shipping Analyst; BIMCO

Strong fleet growth to keep LNG shipping rates in check

In International Shipping News 31/01/2017

2017 will be a tough year for LNG shipowners as rates are expected to remain under pressure, according to the latest edition of the LNG Forecaster report published by global shipping consultancy Drewry.

This year has started on a positive note for LNG shipowners as spot rates have firmed up to the West of Suez because of seasonal demand for LNG. Many analysts have started writing positive stories about the LNG shipping market believing that the momentum in rates will continue. However, Drewry reiterates its outlook that the fundamentals of LNG shipping market are not strong enough to sustain this recovery for long. Soon rates will come under pressure as seasonal demand wanes from April onwards.

Moreover this year the LNG fleet is forecast to grow at its fastest pace in five years at 13%, surpassing anticipated LNG trade growth of 7%. Therefore, Drewry believes that the worst is not yet over for LNG shipowners and spot rates will remain under pressure at an average of around $36,000 per day (East of Suez) in 2017.

“Although the short-term outlook for this year is weak, we remain bullish about the medium and long-term outlook because of expanding worldwide LNG export capacity,” said Shresth Sharma, Drewry’s lead LNG shipping analyst. “Fleet growth will eventually start to slow from next year while tonne-mile vessel demand will improve as US LNG exports pick up pace and Australian plants start operating at full capacity. We therefore expect rates to improve from next year,” added Sharma.

Source: Drewry

The Offshore Markets: 2016 In Review

In International Shipping News 31/01/2017

Expectations at the start of the year that 2016 would be a tough one for the oil industry, and in particular for offshore, were on the whole fulfilled. Overall upstream E&P spending globally fell for the second successive year, and was down by in the region of 27% year-on-year in 2016. Cost-cutting has been a key focus, whether that be through pressure on the supply chain, M&A activity, job cuts or other means.

Lower Spending

Offshore spending has been particularly reined back on exploration activity such as seismic survey and exploration drilling, although 2016 saw weakness spread further to areas such as the subsea or mobile production sectors which had initially shown some degree of protection from the downturn. This was not helped by a 32% year-on-year decline in sanctioned offshore project CAPEX in 2016, despite a small number of encouraging project FIDs, such as that for Mad Dog Phase 2 in the Gulf of Mexico in Q4.

Dayrate Weakness

Dayrates and asset values in those offshore sectors with liquid markets showed further signs of weakening in 2016. Clarksons Research’s index of global OSV termcharter rates declined by 27% in 2016, whilst that for drilling rigs was down by 25% year-on-year. Potential for further falls are, in general, limited, given that rates levels in many regions are close to operating expenses. Owners are doing what they can to control the supply side: just 81 offshore orders were recorded in 2016: for context, more than 1,000 offshore vessels were ordered at the height of the 2007 boom. Slippage has also remained evident, either due to mutually agreed delays with shipyards, or owing to owners cancelling orders. Offshore deliveries were 34% lower y-o-y in 2016.

Despite the severe industry downturn, the oil price actually firmed during the year. Brent crude began 2016 at $37/bbl, before briefly dipping below $30/bbl. However, the price ended 2016 at $55/bbl, helped by a slow firming in mid-year, and then more rapid gains after the 30th November announcement of a concerted oil production cut by OPEC countries.

This is clearly positive news for oil companies’ cashflow, and marks the abandoning of Saudi Arabia’s policy of targeting market share by accepting low prices as a means to hinder shale oil production in the US. However, US onshore companies were already feeling more comfortable with slightly improved prices in Q3 2016. Early surveys of intentions for E&P spending suggest that onshore spending in the US could increase by more than 20% in 2017. It is likely that offshore spending will decline further in 2017.

Some Way To Go

Nonetheless, it is important to stress that the offshore sector is far from dead. The expected multi-year downturn is occurring. However, important cost-control and consolidation has taken place. IOCs continue to consider strategic investments such as Coral FLNG or Bonga Lite. This shows that these companies are planning for better times. Decline at legacy fields will help to correct the supply/demand balance. Meanwhile, optimism is building in the renewables and decommissioning markets, with for example, announcements even in the first few days of 2017 that China is to make an RMB2.5 trillion investment in renewables over five years, whilst another North Sea decommissioning project plan has been submitted.

Nevertheless, the supply/demand imbalance in many offshore vessel sectors will take time to recalibrate. However, the weakness of 2016 also put in place many longer term trends which could lay the groundwork for an eventual change in market fortunes.

Source: Clarkson Research

IOTC lends out 35 tankers to European oil giants

In International Shipping News 30/01/2017

NITC head announced that 35 Iranian tankers have been leased out to oil companies in Europe like Spain’s Cepsa and Eni of Italy.

New Managing Director of the National Iranian Tanker Company (NITC) Sirous Kianersi described latest status of oil displacement agreements between NITC and huge European oil companies saying “so far, 35 contracts have been inked with European sides for taking out leases on 35 Iranian tankers.”

The official stated that the 35 lease contracts had been signed with oil giants from various EU states like Greece, Spain, Italy and the Netherlands asserting that the deals were spot contracts which were sealed for transport of crude oil.

He highlighted that Iranian tankers enjoyed highest standards for transference of crude oil in ports and oil terminals of the European Union (EU); “so far, agreements have been signed with majority of European oil firms like Spain’s Cepsa, Italy’s Eni in addition to Greek and Dutch companies.

In view of post-JCPOA conditions and removal of restrictions, more agreements will be sealed with European oil giants for displacement of crude oil, the official reiterated.

Last week, Kianersi had reported on berthing of Iranian oil tankers at EU oil terminals stressing that the first Iranian tanker had tied up at a Spanish socking site.

For the first time ever, an Iranian tanker, which has been lent out to a large Spanish oil company, moored at Algeciras port of the European state.

Source: MNA

Energy-efficient shipping in Malta

In International Shipping News 30/01/2017

It is undeniable that the maritime industry is one of the pillars of Malta’s economy. Boasting the sixth largest registry in the world and the largest registry in the Europe, Malta has become an established and reputable jurisdiction.

In this respect, Transport Malta has been making strides to dispel the notion that the Maltese registry is a flag of convenience through the implementation and enforcement of both local and IMO sponsored legislation.

In 2015 alone, the Maltese shipping registry registered a considerable increase over 2014, while the registered gross tonnage amounted to 66.2GT. This trend has persisted over the last decade, with the Maltese shipping registry strengthening gradually.

Nonetheless, it is time to address a concern that may potentially jeopardise Malta’s progress in the maritime sector, namely energy-efficient shipping, with international benchmarks set to enter into force by 2020, both at an EU level and at an international level.

The role of the EU is particularly important given that around 19 per cent of the global shipping fleet above 19GT is registered in the EU. Moreover, studies have shown that the level of nitrogen oxide, sulphur oxide and particulate matter are estimated to increase exponentially by 2020, in some cases even reaching the levels of land-based sources.

Despite the absence of emissions regulations in international treaties such as the Kyoto Protocol and the United Nations Framework Convention for Climate Change, the shipping industry has begun to be more receptive to energy efficient shipping. This is the result of greater awareness but also financial incentives and legislative restrictions on greenhouse gases, which are making shipbuilders and charterers alike more wary over emissions.

At an EU level, the Sulphur Directives (Directive 1999/32/EC, later amended through Directive 2012/33/EU and Directive 2016/802/EU) oblige Member States to decrease sulphur levels in marine fuel by 2020, which is no easy task and a plan must be put into effect with immediate effect. This decrease must amount to a total content level of not more than 0.5 per cent, which is a marked decrease since sulphur content in the EU is presently set at 3.5 per cent. These directives are complemented by the Alternative Fuels Directive, which seeks to promote LNG as a marine fuel.

It is important to note that this requirement applies to all vessels exercising their right to freedom of passage in EU waters, regardless of registration and destination of the vessel concerned. Additionally, the sulphur directives clearly state that all EU Member States must ensure that all vessels flying their flag and entering their ports are compliant with these directives. This introduces a notion of extraterritoriality that has yet to be openly challenged by third parties. Nonetheless, this principle appears to be upheld by the European Court of Justice, which analysed similar issues in a separate case concerning aviation.

Regardless of the fact that non-compliant vessels may not be prohibited from exercising their freedom of passage, penalties may be applied, although it remains unclear how these will be calculated and effected.

The IMO has enacted legislation through Marpol Annex VI, even though this Annex largely focuses on decreasing harmful emissions rather than energy efficiency. The IMO also introduced Emission Control Areas, where vessels exercising freedom of passage have to comply with specific emissions benchmarks concerning carbon monoxide, sulphur oxide and nitrogen oxide. This measure has been adapted to an extent by principal ports in Asia and North America, with ports in Hong Kong and California achieving exceptional success.

In 2013, the IMO developed the Energy Efficiency Design Index (EEDI), which is calculated as a ration of CO2 emissions per ton per mile of transported cargo. Acceptable values vary according to the type of vessel and its capacity, with older vessels bound to its restrictions. This regulation applies to all vessels of 400 GT and above.

Marpol Annex VI also introduced the Ship Energy Efficiency Management Plan (SEEMP), which establishes a mechanism to increase energy efficiency on ships. It is estimated that the EEDI will contribute to a 30 per cent decrease in GHG emissions by 2030, while the EEDI and SEEMP in conjunction aim to reduce emissions by 180 million tonnes by 2020 and 390 million tonnes by 2030. The EEDI was rendered mandatory for new ships since 2011, while the SEEMP is applicable to all vessels.

At the 70th session of the Marine Environment Protection Committee, the IMO confirmed 2020 as the date when similar criteria to the EU sulphur directives enter into effect, a measure with potential widespread ramifications for the maritime industry. As a maritime nation, it is in Malta’s interest to start preparing for these deadlines in the immediate future in order to ensure that it is fully compliant with these standards.

Failure to do so will undoubtedly have a negative effect on Malta’s reputation as a strong flag state, while also keeping in mind EU infringement proceedings which will affect Malta more than other EU States due to Malta’s strong shipping register.

Source: Times of Malta

Asian holidays seen depressing VLCC cargo freight rates

In International Shipping News 30/01/2017

Freight rates for large capesize dry cargo vessels, also known as very large container carriers (VLCC) on key Asian routes are likely to trend down this week as an oversupply of ships and reduced chartering activity due to the Chinese New Year holidays weigh on the market.

“No one is particularly excited about the market,” a Singapore-based capesize broker said.

Rates on the route from Western Australia to China are set to slide to $5 per tonne, with rates of $12 per tonne from Brazil to China and $8.50 per tonne from Saldanha Bay, the broker said.

“Rates in February and March may be similar to last year. There is enough cargo volume, the problem now is there are too many empty ships, especially for Brazil,” the broker added.

“Owners will fix what they can or they may idle tonnage. Rates will remain range-bound,” he said.

While spot charter rates fell this week, rates for longer term time charter remain strong, with vessels being fixed at close to $11,500 per day for a one-year contract, Norwegian ship broker Fearnley said in a note on Wednesday.

“Hence, there is more of a cautious optimistic view on this year, though next week is expected to be very slow with China off on holidays,” the Fearnley note said.

Australian miner BHP Billiton expected rates to rise this year as cargo demand and vessel supply become more balanced.

Breakeven costs for a 180,000-deadweight tonne (DWT) capesize ship are around $14,000 per day, Rashpal Bhatti, BHP Billiton Freight vice president, told Reuters on Wednesday.

“With returns lower than that or at par, we certainly don’t think that is sustainable,” Bhatti said, forecasting consolidation among owners and operators.

That came as the world’s largest miner launched its first online auction for an iron ore cargo on Wednesday that attracted more than 50 bids from the 13 owners and operators invited to participate.

Charter rates from Western Australia to China fell to $5.19 per tonne on Wednesday, the lowest since Dec. 22, from $5.87 per tonne the same day last week.

Freight rates for the route from Brazil to China dropped to $12.45 per tonne on Wednesday, against $14.07 per tonne last week.

Charter rates for smaller panamax vessels for a north Pacific round-trip voyage slipped to $5,625 per day on Wednesday from $5,673 per day a week earlier.

That is close to last year’s average of $5,562 per day for all panamax routes, ship broker Banchero Costa said in a report on Wednesday. Rates in the Far East for supramax vessels slipped in a very quiet market, with owners paid about $2,800-$2,900 per day for a voyage from north China to southeast Asia, brokers said.

The Baltic Exchange’s main sea freight index fell to 862 on Wednesday from 952.

Source: Reuters

U.S. exports fill Asia’s LNG demand gap as market tightens

In Freight News 21/01/2017

U.S. liquefied natural gas exporters sending tankers to Asia to fill a gap in the region’s demand as markets have tightened more-than-expected on surging consumption in China and Pakistan as well as Australia’s continuing struggles to ramp up scheduled production.

Benefiting from the Panama Canal expansion last year that allows bigger ships to cross from the Gulf of Mexico into the Pacific, around a dozen LNG cargoes from the United States have gone to Asia since December. Data in Thomson Reuters Eikon currently shows two LNG tankers, carrying a combined 280,000 cubic metres of gas, are currently crossing to Asia from Louisiana.

The U.S. LNG exports are coming from Cheniere Energy’s Sabine Pass, Louisiana, facility that opened last year as the first U.S. export terminal outside Alaska.

U.S. spot natural gas GT-HH-IDX costs just $3.21 per million British thermal units (mmBtu), while Asian spot LNG prices LNG-AS have soared over 80 percent since June last year to almost $10 per mmBtu.

“This run up in prices definitely took everyone by surprise. In mid-2016, I don’t think anyone expected LNG prices to double to reach $10 per mmBtu,” said Chong Zhi Xin, principal Asia LNG analyst at consultants Wood Mackenzie. “Cheniere definitely did well (out of filling the supply gap), as they have been selling on a spot basis.”

Shipping brokerage Arctic Securities said this week that this Asian LNG premium meant “LNG traders (are) netting $1 million plus per U.S.-Asia cargo.”

Along with Cheniere, Royal Dutch Shell, and Spain’s Gas Natural Fenosa (GNF) have been active exporters from Louisiana to Asia.

“LNG exports out of U.S. to Asia… is clearly an attractive deal which is benefiting the likes of Cheniere Marketing, and Shell/GNF, who own volumes at the first two trains,” Arctic Securities said.

TIGHTER ASIA

The juicy arbitrage route is a result of Asian demand rising faster than expected.

Commodity trader Gunvor has won a major tender to supply 60 LNG shipments to Pakistan over a five-year period, starting this year, while Italy’s Eni will supply the country with 180 LNG cargoes over a 15-year period, a Pakistani energy official told Reuters this week.

The expected surge in Pakistani demand is occurring as colder-than-normal winter weather in North Asia has increased LNG requirements.

China’s 2016 LNG imports surged 30 percent from 2015 to over 25 million tonnes a year, making it the world’s third-biggest LNG importer behind Japan and South Korea.

Including India and Taiwan, the world’s five largest LNG consumers are now in Asia, using about 70 percent of globally traded LNG, according to the International Gas Union (IGU). Meanwhile, demand is stagnant in Europe, the next biggest import region.

Asia faster-than-expected demand is happening amid delays and outages at new export sites.

Chevron’s Gorgon export facility, which was launched last year in Western Australia, has had several outages due to technical trouble. Upcoming projects like Shell’s Prelude, the world’s biggest ever floating liquefaction vessel, and Ichthys – led by Japan’s Inpex – have had delays in expected first exports.

Still, the LNG market remains well supplied, with available LNG capacity standing 45 percent above demand last year, according to Eikon data.

Source: Reuters (Reporting by Henning Gloystein; Editing by Christian Schmollinger)

DryShips Acquires Its First Very Large Gas Carrier With a 5 Year Time Charter Attached to an Oil Major

In Hellenic Shipping News 21/01/2017

DryShips Inc., a diversified owner of ocean group cargo vessels, announced that it has acquired one Very Large Gas Carrier (“VLGC”) currently under construction at Hyundai Heavy Industries (“HHI”) for a purchase price of $83.5 million. The Company financed the closing price of $21.9 million by using part its undrawn liquidity under the $200.0 million New Sifnos Revolver, which now stands at $142.9 million. The $61.6 million balance of the purchase price for the VLGC will be payable in installments until the vessel’s delivery from HHI.

The VLGC will be employed on a fixed rate time charter with five years firm duration to an oil major. The charterer has options to extend the firm employment period by up to three years. The Company expects a total gross backlog associated with this time charter of up to $92.7 million including the optional periods, and expects to take delivery of the vessel in June 2017.

Mr. Anthony Kandylidis, President and Chief Financial Officer commented:

“We are very pleased to have acquired our first high specification VLGC newbuilding opening a new era of investments since the restructuring of our balance sheet. The closing of our first investment in the gas carrier segment, which we believe will be highly accretive to earnings and cash flow, was financed by our New Sifnos Revolver evidencing once more Mr. George Economou’ s commitment to DryShips.”

The Company is a diversified owner of ocean group cargo vessels that operate worldwide. The Company owns a fleet of 13 Panamax drybulk carriers with a combined deadweight tonnage of approximately 1.0 million tons, 1 Very Large Gas Carrier newbuilding and 6 offshore supply vessels, comprising 2 platform supply and 4 oil spill recovery vessels.

The Company’s common stock is listed on the NASDAQ Capital Market where it trades under the symbol “DRYS.”

Source: DryShips Inc.

Orix agrees to buy $290 mln of RBS shipping loans -sources

In International Shipping News 21/01/2017

Japanese financial services firm Orix Corp has agreed to buy $290 million worth of shipping loans from Royal Bank of Scotland, sources with direct knowledge of the deal told Reuters on Friday.

RBS, which is more than 70 percent state-owned, is still in the throes of a restructuring, which includes asset sales, job cuts and tackling multi-billion dollar charges to settle litigation and pay regulatory fines for past misconduct.

Reuters reported last month the British bank was close to selling at least $600 million worth of shipping loans to financial institutions including Orix.

Most of the loans Orix is buying from RBS are of investment grade and made to Greek borrowers, said the sources, who were not authorised to discuss the matter publicly.

An Orix spokesman declined to comment. RBS officials were not immediately reachable for comment.

RBS initially tried to sell its entire Greek shipping business, which was valued at $3 billion at the time and held talks with Orix. They could not reach an agreement.

European banks, major lenders to the shipping industry, have been reducing exposure to the sector amid stricter banking rules and a weak shipping market.

Orix sees the situation as presenting an opportunity to cheaply buy loans made to healthy borrowers, sources said, adding that the firm was already in similar talks with other lenders to the shipping sector.

Source: Reuters (Reporting by Taiga Uranaka; Editing by Himani Sarkar)

SK E&S imports South Korea’s first U.S. shale gas spot cargo – sources

In Freight News 21/01/2017

South Korean gas and power company SK E&S Co Ltd took delivery of the country’s first spot cargo of shale gas imported from the United States early in January, two industry sources said on Friday.

The arm of South Korean conglomerate SK Group imported 66,000 tonnes of U.S. shale gas from Cheniere Energy Inc’s Sabine Pass liquefied natural gas (LNG) export terminal in Louisiana, according to one industry source with direct knowledge of the matter.

Price details for the shipment, bought for use as a power station fuel, were not available, the person said. The person spoke on condition of anonymity because he wasn’t authorised to discuss the matter publicly.

The first U.S. shale gas delivery comes as the Korean government encourages domestic companies to look for more opportunities in U.S. oil and gas projects under the incoming administration of President-elect Donald Trump. South Korea is the world’s second-largest LNG buyer after Japan.

An unforeseen demand increases in northern Asia and production delays in Australia have also fuelled a wave of U.S. LNG cargoes coming into Asia. The spot purchase aside, SK E&S is scheduled to import 2.2 million tonnes a year of U.S.-originated LNG from 2019 through 2039.

A spokeswoman for the company declined to comment on the first shipment.

South Korea mostly imports LNG through state-run Korea Gas Corp, the country’s sole wholesaler. Private gas companies and utilities in South Korea are only allowed to import LNG directly for their own power generation purposes.

KOGAS is also set to import 2.8 million tonnes a year of LNG processed by Cheniere Energy under a 20-year supply deal starting this year. The first cargo is expected to arrive either in June or in July this year, a KOGAS spokesman said.

Source: Reuters (Reporting by Jane Chung; Editing by Kenneth Maxwell)

Hanjin Shipping recognition proceedings answer question about extent of the automatic stay under the Model Law on Cross-Border Insolvency

In Shipping Law News 21/01/2017

Readers will recall that on 23 September 2016 we posted an article about recognition under the UNCITRAL Model Law on Cross-Border Insolvency (Model Law) of the Korean rehabilitation proceedings for Hanjin Shipping.

After granting interim recognition of the rehabilitation proceedings in September 2016, the Federal Court granted final recognition orders on 11 November 2016. The final orders obtained and the court’s reasons for granting the orders are significant as they answer the question of how the scope of the automatic stay is determined upon recognition of a foreign main proceeding of a corporate debtor under the Model Law.

The confusion about the extent of the stay had arisen because article 20 of the Model Law (which provides for the automatic stay) is subject to section 16 of the Cross-Border Insolvency Act 2008 (Cth) which states that:

For the purposes of paragraph 2 of Article 20 of the Model Law (as it has the force of law in Australia), the scope and the modification or termination of the stay or suspension referred to in paragraph 1 of that Article, are the same as would apply if the stay or suspension arose under:

Chapter 5 (other than Parts 5.2 and 5.4A) of the Corporations Act 2001 (Cth), as the case requires.

Chapter 5 of the Corporations Act covers schemes of arrangement, voluntary administration, court-ordered liquidation and voluntary liquidation. No stay applies to schemes of arrangement and the stays which apply in voluntary administration, court-ordered liquidation and voluntary liquidation are all different.

Rares J in Hur v Samsun Logix Corporation [2015] FCA 1154; (2015) 238 FCR 483 at [21] described the operation of these provisions as “beguilingly ambiguous, since the Corporations Act has a variety of different stay provisions that differentially affect the position of secured creditors, sometimes at different points in the same overall process”.

In Hanjin, the court confirmed that the applicable stay is determined by the nature of the foreign proceedings compared to the nature of proceedings under the relevant Parts of the Corporations Act. This meant that the court had to identify which Parts of the Corporations Act would apply to the foreign proceedings if they were taking place under that Act.

Hanjin had entered rehabilitation proceedings under the Debtor Rehabilitation and Bankruptcy Act 2005 (Republic of Korea) (Rehabilitation Act). A partner of a law firm in Korea gave expert evidence about the operation of the Rehabilitation Act, explaining that:

• A debtor company may file for commencement of rehabilitation proceedings, which commence only when the court issues a commencement order.
• Upon commencement, the court appoints a custodian; usually an existing representative of the company unless the insolvency was caused by the representative, in which case the court will appoint an independent administrator (in this case, a director of Hanjin had been appointed as custodian for the purposes of the rehabilitation proceedings).
• The custodian has the power to conduct all of the debtor’s business and manage all of its property, subject to the court’s supervision. However, if/when the custodian intends to perform any of a designated list of acts affecting the debtor’s property or liability, approval from the court is required.
• The goal is to rehabilitate insolvent debtors by restructuring their debt pursuant to a rehabilitation plan approved by the creditors and the court.

The foreign representative argued and the court agreed that, whilst the rehabilitation proceeding had some characteristics in common with a scheme of arrangement, the proceedings most closely resembled voluntary administration and therefore the stay which should apply was that applicable to a voluntary administration. The court ordered that the stay be that which would apply in a voluntary administration under Part 5.3A of the Corporations Act.

The effect of this was that secured creditors without security over all or substantially all of the assets of Hanjin would be prevented from enforcing their security in Australia without leave of the court or consent of the foreign representative. This would prevent the holders of maritime claims in rem from from enforcing those claims by arresting ships. The court was cognisant of this, but was comforted that maritime claimants were required to bring an application to issue an arrest warrant and leave could be sought upon that application.

Key takeaways When seeking recognition of a foreign main proceeding under the Model Law, foreign representatives need to put on evidence about the nature of the foreign proceeding so the court can determine which of the Australian insolvency proceedings the foreign proceeding most closely resembles and thus the nature of the automatic stay which applies. If the extent of the automatic stay will not be wide enough, additional orders should be sought under Article 22 of the Model Law.

Source: McCullough Robertson

VLCC rates to slide as chartering slows ahead of Chinese holiday

In International Shipping News 21/01/2017

Freight rates for very large crude carriers (VLCCs) are likely to fall next week as charter activity from China slows ahead of the Chinese New Year holiday, ship brokers said.

Rates on the West Africa-to-Asia route have already started to slide probably because of the Chinese New Year impact, said Ashok Sharma, managing director, BRS Baxi Far East, Singapore.

“I feel the Middle East has plateaued. If next week the market is slow and quiet then the market will take a bit of a correction,” he told Reuters.

Around 30 VLCC cargoes have been fixed for loading from the Middle East in the first 10 days of February, brokers said.

“It is a fairly sound number for a short month,” he added.

Cargo volumes could also slow down in March due to refinery maintenance in April, he told Reuters.

The tonnage list of VLCCs available for charter is “well populated” with ships although the supply of ships than can load prompt cargoes is tight, a European supertanker broker said.

“I would think we will see the market soften over the next couple of weeks,” the European broker added.

That came as shipbrokers Banchero Costa (Bancosta) and E A Gibson highlighted growth in the tanker fleet this year, partly due to the delay in delivery of new ships between 2016 and 2017, that could adversely affect freight rates.

“Fleet growth could be as high as 6.5 percent in 2017 if both slippage (delivery delays) and demolition remain low. This will certainly put negative pressure on rates and values this year and probably next year as well,” the Bancosta report released on Wednesday stated.

The VLCC fleet is forecast to grow 5.4 percent this year and 3.6 percent in 2018, while tankers totaling 25.9 million deadweight tonnage (DWT) are due for delivery this year, Bancosta said.

Delivery of 25 percent of the tankers has been delayed from last year, Gibson said in a report on Monday.

The number of delayed cases were maximum for Suezmax tankers with 13 ships of 40, which were to be delivered, yet to hit the water. Around 25 percent of VLCCs have been delayed, the Gibson report said.

VLCC rates on the Middle East to Japan route rose to around 85.75 on the Worldscale measure on Thursday, from W83.25 last Thursday.

That is equivalent to an increase in rates to $43,232 per day from $42,035 per day last week, freight data on the Reuters Eikon terminal showed.

Rates on the West Africa-to-China route fell to around W82.76 on Thursday from W83.50 last week.

Charter rates for an 80,000-dwt Aframax tanker from Southeast Asia to East Coast Australia surged to W133 on Thursday from about W105.50 last week on higher cargo volumes. That was an increase in daily earnings to $17,015 from $10,274.

Source: Reuters (Reporting by Keith Wallis; Editing by Sherry Jacob-Phillips)