Everyone talks about Chinese demand for oil. But the Chinese are also increasing their demand for the ships that move that oil around. James Bourne looks at the trend in this week’s Oilgram News column, Petrodollars.
China is currently importing about 6 million b/d crude, and the vast majority of that arrives by sea. Chinese companies currently own about 70 very large crude carriers out of a total global VLCC fleet of 633 units, or about 11% of the world’s working supertankers. In addition, Chinese firms currently have about 27 new tankers on order at shipyards, or about one-third of the current global orderbook.
But that is not nearly enough for Beijing.
In June, China Shipping Tanker Co announced plans to build up to four new VLCCs and at the start of this year privately owned Shandong-based Landbridge Group ordered three new VLCCs, due to be ready by 2016.
State owned Sinopec has said that China’s four state owned tanker companies shipped 47% of the crude imported to China last year, while recent estimates suggest 50-60% of the country’s oil imports now arrive on Chinese tonnage.
However, while growing fast, this still compares unfavorably with Japan, which moves almost 90% of its 3 million b/d-plus crude imports on domestically-owned tankers.
Until more ships are built or bought by Chinese firms, the remainder of China’s oil imports still have to be carried on foreign ships chartered on the open market.
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An April report by Poten & Partners calculated that China’s spot tanker demand accounted for the equivalent of the full utilization of 150 very large crude carriers in 2013, or 23% of the world’s fleet of VLCCs, up from 66 in 2009.
State oil company Sinopec’s trading arm Unipec is reportedly the world’s biggest spot charterer of VLCCs.
For now, Unipec and other Chinese state owned oil company charterers, several of which have Western-sounding names such as Blue Light (Sinochem) or Glasford (PetroChina), still have to charter ships on the spot market.
But the Chinese government wants that to become less and less necessary as the domestic supertanker fleet grows, according to Ralph Leszczynski, Singapore-based head of research at Italian shipbroker Bancosta.
“There is the clear intention for the majority of Chinese oil imports in the future to be carried by Chinese-owned ships,” he says.
And Beijing dislikes spot market volatility. For example, VLCC rates on the Persian Gulf to China route were over $11.40/mt August 13, up from just under $10/mt, a week earlier.
The August 12 announcement of a new $1.1 billion oil shipping venture between China Merchants Energy Shipping and Sinotrans & CSC gave some indication of the scale of these companies’ existing holdings and their future ambitions.
China Merchants Energy said the new JV aims to establish one of the world’s leading tanker fleets and will use purchases of secondhand ships, plus newbuilds to build an oil tanker fleet of “international scale,” thus boosting the JV’s competitiveness in the international market.
By some estimates the new joint venture will be among the world’s top three VLCC operators.
China Merchants will hold 51% of the joint venture and will put its nine existing VLCCs, plus 10 VLCCs currently on order, into the new company. The deal excludes its seven Aframax tankers and its growing LNG fleet.
Sinotrans & CSC is primarily a dry bulk and container shipping company and will not contribute the 19 VLCCs owned by its subsidiary Nanjing Tanker. Those vessels are mostly mortgaged to banks or collateralized for outstanding loans.
In April the firm delisted from the Shanghai stock exchange after posting losses for four straight years, making it the first Chinese state controlled company to be delisted from the bourse.
Nanjing Tanker’s woes could explain the rationale for the JV, as Beijing tries to stem state shipowners’ mounting losses by forcing more consolidation in the sector.
With oil trade slowing down in the developed world, China and India will account for the bulk of oil trade growth. Given China’s investments in VLCC’s it is not a difficult to see who the losers in this race will be.
“This is certainly bad news for established independent owners such as the Japanese (MOL, NYK) and Greeks (such as Anagel) as they will be left fighting for the spoils of the shrinking OECD-countries import volumes. And this in the context when the tanker shipping market is already suffering from heavy overcapacity and very low returns for shipowners,” reasons Bancosta’s Leszczynski.
The one caveat to his prediction on impending dominance of its VLCC market, Leszczynski said, was that China’s oil industry may open up in similar ways as it has with its coal, power sector or steel industry that are “less regulated and more open to private and international competition (also on the shipping side).”–James Bourne in Singapore