After a prolonged drought in the order of new tankers and particularly product tankers, BIMCO is reporting a strong spike in orders for new product tankers in the first half of 2023. The trade group calculates that more product tankers have been ordered in the first half of 2023 versus the total orders for 2022. This includes the first orders in the smaller LR1 category in five years.
“The war in Ukraine, and in particular EU’s ban on Russian oil products, has caused an increase in product tanker demand, resulting in higher volume shipped and longer sailing distances. This has boosted freight rates and a rise in contracting new ships,” writes shipping analyst Filipe Gouveia.
BIMCO calculates in the first half of 2023 a total of 8.9 million dwt has been ordered in the product tanker segment. This is up by a “remarkable 337 percent year-over-year,” they report. Pointing to the spike in freight rates and product tanker demand as likely behind the surge in contracting, BIMCO says the orders represent over nine percent of the current fleet size up from orders representing just over five percent of the total fleet size a year ago.
“The product tanker fleet has been gradually aging over the past ten years, and the average ship is now nearly 13 years old,” notes Gouveia. “The increase in contracting will help the sector address the increased market demand and could help rejuvenate the fleet.”
The largest portion of the orders comes for the higher capacity LR 2 category, ships between 80,000 and 160,000 dwt. So far this year, BIMCO reports contracts for 5.6 million dwt of LR2 ships, which represents more than 21 percent of the current total LR2 fleet.
There has also been ordering both for the medium range tankers and in the LR1 category, between 45,000 and 80,000 dwt. There were contracts for 10 new LR1 tankers signed in the first half of 2023, marking the first orders in this category since 2018.
Due to limited supply growth in the near term, BIMCO expects that freight rates should remain largely affected by demand and not new orders. These new ships are not expected to reach the market till 2025 and 2026 due to the long-lead times at major shipbuilders.
BIMCO warns that this might just be a short-term blimp in the market based on projections for future oil demand. They point to the forecast from the International Energy Agency that estimates that oil demand could peak already in 2028. As demand slows, BIMCO speculates the ships currently on order could be used to replace older tonnage and lower greenhouse gas emissions. They note it could also lead to limited future fleet growth.
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