Lauritzen Tankers
President Anders Mortensen
In 2006, Lauritzen Tankers’ third year of operations, EBITDA was USD 6.4m compared to USD 6.8m in 2005. Profits before tax were USD 3.8m compared to USD 4.1m in 2005.
Results were in line with expectations.
Main events
Lauritzen Tankers continued to build up its fleet of medium range (MR) product tankers during 2006.
In February, Lauritzen Tankers took delivery of a 53,000 dwt MR product tanker newbuilding from Shin Kurushima Dockyard in Japan, the first of a series of six sister vessels to be delivered to Lauritzen Tankers.
A 46,200 dwt 1999-built product tanker was acquired in November 2006 with prompt delivery.
During the year, two 53,000 dwt newbuildings scheduled to be delivered on long-term time-charter were converted to purchase contracts and will thus be owned by Lauritzen Tankers on delivery in 2009-10.
In 2006, Lauritzen Tankers signed long-term time-charters for three 47,000 dwt MR product tankers for delivery in 2009-11. Further, two 53,000 dwt MR product tankers to be delivered in 2007 were taken on time-charter securing further expansion of the fleet.
Based on current contracts, Lauritzen Tankers’ fleet of owned, time-chartered and managed vessels will increase by 15 newbuildings (with five in 2007) to a total of 23 vessels by 2011.
Market trends
The impact from the devastating hurricanes in 2005 faded to a large extent during the first part of 2006. However, increased political turmoil in the Middle East and disruptions to production in West Africa increased crude oil prices, peaking in September at about USD 75 a barrel before falling to the mid-USD 50s in December, cf. Figure 13.
Prices of refined products increased due to higher crude oil prices and continued high utilization of refineries, as illustrated in Figure 13. The rises led to a fall in demand for refined products in many markets, including the USA. Although prices of crude oil and refined products have fallen since September, they are still comparatively high.
Figure 13: Daily crude oil and gasoline prices during 2005-2006 (USD per barrel)
Source: Energy Information Administration
The spot market for MR product tankers opened on a very strong note in 2006 with spot rates of around USD 38,000 per day before falling to about USD 7,000 per day in late March in the Far East. Average earnings recovered to about USD 30,000 per day in July. The subsequent set-back ended with spot market rates in the Far East below USD 8,000 per day in November. In 2006, the winter seasonal upswing did not start until second half of November, cf. Figure 14.
During 2006, spot market rates for MR product tankers were 13% lower on average than in 2005, whereas 12 month period rates were up by about 5%. Second-hand prices for modern tonnage settled at a fairly stable level in 2006.
Demand for product tankers
Global demand for oil increased by 1.0% in 2006, down from 1.6% the previous year. Falling demand was reported in all regions of the OECD. Strong growth was recorded only in China and the Middle East, which together accounted for about 15% of the global market.
During 2006, demand for gasoline, gas/diesel oil and other products increased in the OECD area, whereas demand for naphtha, kerosene and heavy fuel oil declined. As requirements for gasoline as well as diesel oil specifications constantly increase in response to new regulatory conditions, local refineries continued to have difficulty in matching local demand. This contributed to demand for product tankers, which grew more than expected in 2006.
Table 4: Number of vessels in 2006
Source: Clarkson Research Services Professional Register
New regulations for the seaborne transportation of edible oils had a positive impact on demand.
Tonnage supply
During 2006, deliveries of tanker vessels classified as product tankers or oil/chemical carriers of 25,000 dwt or more amounted to 9.6m dwt, up 9% on the previous year. The number of tankers delivered in this segment increased by 17 units to 181 product tankers/oil-chemical tankers. The pace of delivery eased slightly in the second half compared with the first, cf. Table 4.
Demolition of product tankers increased to 1.5m dwt (38 vessels) compared to 0.8m dwt (23 vessels) in 2005, cf. Table 4.
Published records indicate that the number of product tankers and oil/chemical tankers contracted more than doubled between 2005 and 2006 from 164 vessels to 368 vessels, cf. Table 4. The total order book of oil/chemical and product tankers 25,000 dwt or more amounts to almost 39m dwt or 48% of the existing fleet.
Figure 14: Weekly spot market earnings by route 2005-2006 (USD per day)
Source: Clarkson Research Services, Shipping Intelligence Network
Fleet
In 2006, Lauritzen Tankers’ total number of ship days reached 2,489 (6.8 vessels on average) compared with 2,151 days (5.9 vessels on average) reported in 2005.
At the end of 2006, the company controlled a fleet of eight MR product tankers employed either in the period market or on a spot basis.
Technical management of Lauritzen Tankers’ own vessels was handled by Lauritzen Fleet Management.
Events after year-end
A 37,200 dwt 2004-built ice-class product tanker was acquired with delivery in January 2007. Furthermore, a 40,000 dwt product tanker newbuilding was sold and delivered to buyers in February 2007.
Prospects for 2007
The health of the global economy combined with lower oil prices is expected to ensure a stronger rise in demand for oil than in 2006. This will boost demand for product and oil/chemical tankers, which is expected to increase by about 4-5%. If ongoing requirements and changes to fuel quality continue to make it difficult for refineries to match the local demand mix, further growth might be induced. Although located far away from their customers, export refineries remain competitive due to scale and feedstock costs and they continued to expand capacity which helped boost demand due to longer transport distances.
Even after deducting (possibly) higher demolition sales, additions to the product tanker and oil/chemical fleet will lead to an even higher rate of growth in the tanker fleet than in 2006.
During 2007, Lauritzen Tankers will take delivery of a 40,000 dwt vessel. Three 53,000 dwt and one 48,000 dwt long-term time-chartered product tankers will also be added to the fleet.
Results for 2007 are expected to be better than 2006, primarily due to the continued expansion of the fleet. Profits before tax are forecast at about USD 16m.
