Consolidation key to tankers meeting climate goals: International Seaways CEO

Consolidation and partnerships between companies will be crucial for the tanker sector to keep abreast of the energy transition, said Lois Zabrocky, president and CEO of tanker firm International Seaways June 16.

The sector is under pressure from a cocktail of challenges, including not just an uncertain future for propulsion but also more immediate problems of a coronavirus-induced ceiling on oil consumption and weak freight rates.

S&P Global Platts assessed VLCC freight rates between the Arab Gulf and China at an average of $6.09/mt in 2021 to date. The average in 2020 was $13.44/mt and in 2019 it averaged $12.52/mt. Aframax US Gulf Coast-UK Continent assessments have averaged $14.29/mt in 2021 so far, compared with $20.01/mt in 2020 and $21.06/mt in 2019.

One potential response is to get together. "I think that as tanker companies, we have to consolidate, we have to get larger," Zabrocky, said during a panel discussion in S&P Global Platts' Global Executive Virtual Conference.

Companies need the scope to keep up with technological developments as the energy transition in shipping gathers pace, she said.

The sector is facing a range of potential fuels and efficiency savings to cut its greenhouse gas footprint and these are at different stages of readiness. This presents some complex analysis and decision-making for firms who must in some cases invest now in assets that could still be in use in 2050 and be operating in an environment for which there is currently limited regulatory and commercial clarity.

"If you're not doing an R&D project yourself you at least must be monitoring everything that is happening in the world so that you can remain on the forefront of what's really going on," Zabrocky said.

"We need to get bigger and be watching everything that's happening in order to be able to respond very quickly," she said.

International Seaways Inc. and Diamond S Shipping Inc. announced a merger March 31 which will form one of the largest US-listed tanker companies, both companies said in a joint statement March 31.

The combined company will have a total of 100 tankers, making it the second largest US-Listed tanker company by vessel count and the third largest by tonnage, with a value of approximately $2 billion, according to the statement.

The announcement came amid difficult times for the tanker sector but with the promise of higher oil demand ahead.

Freight rate optimism

The tanker market will only return to profitability when oil inventories normalize and oil demand returns to pre-coronavirus levels, which is only likely "at some point in the next 12 months," tanker operator Euronav said March 31.

The tanker market is entering what should be the more profitable half of the year and S&P Global Platts Analytics believes sustainable increases in freight rates are achievable, rather than the spikes the market has seen so far in 2021, causing only uncertainty for charterers and other industry players.

"Shipowners across all markets are attempting to harness the positive sentiment to push freight rates higher alongside expected increases to Brent and WTI," Platt Analytics said June 11.

However, tonnage lists need to be reduced, especially for Suezmaxes in the Mediterranean/Black Sea region and LRs in the Middle East, analysts believe.