Refineries revolution to spur use of oil products supertankers

The rapid growth of mega refineries is prompting a new class of oil products supertankers, mirroring an earlier revolution in crude oil shipping, as traders look for scale that was previously not economically viable.

In the early 1970s, ships capable of carrying 2 million barrels of crude oil were built to mitigate disruptions from the closure of the Suez Canal and to meet growing global demand. Now, the products trade is spurring similar innovation.

As the Middle East and U.S. Gulf Coast transform into refining hubs, traders require ever-larger tankers to move oil products such as gasoline, diesel and aviation fuel to Europe, Asia and Latin America.

Vessels previously used for crude are starting to carry products instead and new vessels are being purpose-built to carry larger quantities of oil products more efficiently.

Trading powerhouses such as Vitol, Total and Shell have already booked vessels that can carry as much as 1 million barrels - more than three times the typical size for oil products - to criss-cross the globe, sailing from the Middle East to Ecuador, Morocco to Japan and back again.

Just one of these tankers can carry enough to meet a fifth of Europe’s daily diesel consumption.

“As the scope of the product market grows, so does the complexity ... and that creates demand for tankers,” said Anthony Gurnee, chief executive of Ardmore Shipping Corp, which operates a fleet of smaller products tankers.

“If you think back to the early 1950s, a supertanker was 27,000 deadweight (tons). Clearly over time, the scale evolves.”
Modern 2 million barrel vessels are between 160,000-320,000 dwt.

Previously, refineries were close to buyers, leading traders to ferry oil products to consumers in ships carrying as little as 40,000 barrels. Those refineries were generally no bigger than 400,000 barrels per day (bpd), so it would take days to produce enough to fill a million-barrel vessel.

New refineries are transforming the picture: India’s Jamnagar complex, owned by Reliance, can process more than 1.2 million bpd of crude, and two new Saudi units - Satorp and Yanbu - together process 800,000 bpd.

Abu Dhabi’s National Oil Company is doubling the Ruwais refinery capacity to more than 800,000 bpd, while Kuwait National Petroleum Co is investing $40 billion to double output to more than 1.5 million bpd.

Kuwait-headquartered Arab Maritime Petroleum Transport Company, in which Kuwait’s government has a stake, has ordered two tankers for delivery in 2017 with options for a further two, data from maritime analysis firm VesselsValue.com showed.

These projects are capturing the attention of those aware that the refinery additions also mean less crude oil trading.

“We think products are going to be at the fore,” David Fyfe, head of market research and analysis with trading firm Gunvor, told an industry conference earlier this year.

The products supertankers - suezmaxes which can carry up to 1 million barrels - emerged nearly a decade ago, but slowly.

There are now at least 11 in circulation and trading and shipping sources said their number could increase quickly as traders maximize efficiency.

Two of the supertankers already operating have caught the eye of traders by moving naphtha in particular more economically and efficiently. That helps to override reticence to book vessels which are too large for many ports, requiring transfers via bigger ports into smaller vessels.

Vitol recently booked the Novo supertanker to carry naphtha from Ruwais to Asia, and traders said such vessels could also help carry U.S. condensates.

“The Novo and the Odessa have been quite successful,” one trader said. “They won’t fit in many places, although it is enough to benefit from economies of scale savings.”