INTERVIEW: Euronav sees tanker market well placed to ride out any COVID-delayed recovery

The oil tanker market is likely to continue to improve despite renewed concerns over coronavirus threats, but a further recovery in freight rates is needed before the sector returns to good health, according to Hugo De Stoop, CEO of Euronav.

Concerns about the coronavirus this winter may weigh on the extent to which demand for oil tankers will grow but there are no immediate prospects of a demand decrease or forced consolidation in the sector, according to DeStoop, head of one of Europe's largest global tanker operators.

The market has started emerging from the trough it languished in over the summer and rates are improving, but they need to recover further for the sector to become profitable again, he told S&P Global Platts in an interview Nov. 26.

Daily time charter equivalent rates of around $7,000 in the summer have grown to about $15,000-$20,000, representing a significant improvement but meaning it is "still a market that's printing red numbers," he said.

Platts assessed Dirty USGC-China VLCC 270,000 mt route at $20/mt Nov. 24. This is noticeably higher than $14.66/mt on Aug. 30 and Platts assessed it at steadily increasing levels between the end of August and late November.

Tanker operators are well placed to wait for the market to recover following a bumper year in 2020, De Stoop said. Platts assessed the USGC-China VLCC rate at a record of $69.814/mt March 30, as a slump in the oil market prompted a rush for storage.

"I don't think that the freight rates we've seen today may trigger many distress situations or consolidation -- it is coming more from a willingness to consolidate, between two players joining forces," De Stoop said.

The outlook for oil demand and tankers is uncertain, after the new COVID-19 variant sparked sharp price volatility. Oil prices sank more than 10% on Nov. 26 on fears of a new wave of travel curbs and other restrictions.

Growth in the Atlantic

Predicting growth areas is hard but the Atlantic basin continues to show promise, De Stoop said: "[It] continues to be a place where the type of oil and the distance over which it needs to be transported is very favorable for the tanker market."

Brazil has continued to increase its production year on year and has development plans until 2026 and significant reserves in Guyana are also promising, he said.

ExxonMobil, the operating partner of a consortium with Hess and CNOOC, expects to deploy 10 floating production, storage and offloading vessels in Guyana's Stabroek Block, where there are an estimated 10 billion barrels of oil equivalent in reserves.

According to S&P Global Platts Analytics, total production could reach 1 million b/d by 2030 if other discoveries come online.

The outlook for US shale production is unclear, as smaller field owners are dependent on financing, which is most easily obtained when oil markets are in contango, and at present they are in backwardation, De Stoop said.

Peak oil approaches

The prospects for transporting oil may only continue to grow for a few more years but the decline will also be gradual. The oil industry has moved from a view of peak oil prompted by supply to one prompted by demand, De Stoop said.

De Stoop sees peak oil demand in the middle of this decade.

Global demand for fossil fuels could peak by 2025 if the world's current climate pledges are fully met, peaking soon after 2025 at 97 million b/d and then falling around 1 million b/d per year to 2050, the International Energy Agency said Oct. 13.

However, oil demand would remain at three-quarters of current levels by 2050, missing climate targets by a wide margin, with the world would still be consuming 77 million b/d, down from around 100 million b/d currently, the IEA said.

Platts Analytics forecasts that oil demand will peak at 115 million b/d in 2038.

"I know the decline is not going to be overnight; you cannot build enough renewable energy [installations] such as solar panels, wind farms and offshore windfarms instantly and certainly not over a decade," De Stoop said.

Solar panels and other infrastructure will need to be transported as they gradually replace existing hydrocarbon infrastructure.

"You need the fossil energy to be able to transition into this new, cleaner world," he said. "I think this could be a very exciting market for someone who is a leader and a dominant player."