Lauritzen Tankers
President Anders Mortensen
In 2005, Lauritzen Tankers’ second year of operations, EBITDA was USD 6.8m, up from USD 0.5m in 2004. Ordinary result before tax was USD 4.1m compared to nil in 2004.
Results were better than expected and can be attributed to a higher level of activity as well as higher than expected freight rates, in particular during Q3 and Q4.
Main events
Lauritzen Tankers continued to build-up its fleet of medium range (MR) product tankers during the year and established a partnership with the Grindrod Limited subsidiary Unicorn Shipping (International) Limited.
During the year, three newbuildings were ordered from the Shina Shipyard in Korea for delivery in 2006-08. Three similar newbuildings, ordered by Unicorn Shipping (International) Limited, will be placed in commercial management in Lauritzen Tankers upon delivery during 2006-08.
In 2005, Lauritzen Tankers signed long-term time charters for three MR product tankers for delivery in 2007-09, thus ensuring further expansion of the fleet.
During 2005, Lauritzen Tankers also acquired an unfinished cable layer intended specifically for a conversion project.
Market trends
The tight oil markets reported in 2004 continued into 2005 with increasing prices, cf. Figure 11.
The rise in prices during 2004 was primarily induced by a large rise in demand for oil, leading to significant reduction in surplus capacity. The 2005 oil price rise was mainly caused by supply disruptions.
The spot market for product tankers fell quite significantly at the beginning of 2005, with the downward trend continuing until the end of August, cf. Figure 12, p. 22.
Figure 11: Daily crude oil and gasoline prices 2004-05
USD/barrel USc/gallon
Source: Energy Information Administration
One significant reason for this was a considerable influx of new vessels but the low growth in demand for oil also contributed to reducing the need for more product tankers.
The most significant event during the year was the impact of hurricanes Katrina and Rita on oil product supply in USA. They severely damaged offshore oil production and gave rise to fears of shortages in the United States and required the inflow of refined products at fairly short notice. This in turn had a significant impact on the product tanker market.
Demand for product tankers
Rising difficulties in the refining sector in matching local demand to local production also had a positive impact on demand for product tankers by increasing average voyage distances throughout 2005.
Hurricanes Katrina and Rita led to the use of government controlled oil inventories, in particular European government controlled inventories of refined products, which were released to take the pressure off prices as the US government has no inventories of refined pro-ducts.
These factors helped increase demand for product tankers and even though deliveries of new product tankers continued at unchanged levels, trading conditions tightened again towards the end of the year with increasing freight rates.
Tonnage supply
During 2005 deliveries of tanker vessels classified as product tankers or chemical/oil tankers of 25,000 dwt or more amounted to 8.4m dwt compared to approximately 9.1m dwt in 2004.
Demolition, based on tankers in the segment 25-70,000 dwt fell by 0.6m dwt to 2m dwt. Lower demolition rates were partly due to the stronger market during the second half of 2005 but also to the April 1st deadline for phasing out Category I (non-SBT) single hull tankers. The tankers scrapped during the second half of the year were not significantly older than during the first half.
Orders for new product and chemical/oil tankers amounted to some 8.7m dwt in 2005 compared to approximately 11.8m dwt in 2004.
During 2005 owners reacted to the strong fleet increase and increasing newbuilding prices by cutting orders for new tonnage from 113 units during the first half of the year to 59 units during the second, cf. Table 4.
Table 4: Product and chemical/oil tankers 25,000 dwt or more
- 2005 trends (number of vessels)
*Demolitions include all tankers 25-70,000 dwt
Source: Clarkson Research Services Ltd
Figure 12: Product tankers’ earnings 2004-05 by route
USD/day
Source: Clarksons Research Services Ltd
Second-hand prices for modern product tankers increased during 2005.
Fleet
Lauritzen Tankers operated a fleet of six MR product tankers throughout 2005, employed either in the period market or on a spot basis.
Based on current contracts, Lauritzen Tankers’ fleet of owned, time chartered and managed vessels is projected to increase by 13 newbuildings, with two in 2006, to a total of 19 vessels by 2009.
Freja Atlantic is registered in DIS (Danish International Register of Shipping) and technically managed in-house.
Events after year-end
At the beginning of 2006, Lauritzen Tankers added one additional MR product tanker of about 47,000 dwt on long-term time charter with delivery expected in 2009.
In February 2006, the first of two long-term time chartered 53,000 dwt product tankers was delivered from the Shin Kurushima shipyard in Japan.
Outlook for 2006
The availability of domestically refined oil products in the USA is still constrained despite all efforts to repair the damage of hurricanes Katrina and Rita. Consequently, in addition to the normal seasonal pattern, demand for product tankers started 2006 at a comparatively high level, thus contributing to a strong market.
Although the influx of new product tankers during 2006 will be high and the fact that demolitions are forecast at only slightly higher levels than in 2005, there is considerable confidence in the market as evidenced by the rise in the number of reported MR product tanker period fixtures in 2005.
Implementation of the amendment to IMO regulations on the transport of edible oils on January 1st 2007 is expected to have a positive impact on the market during 2006 as this will generally favour modern tonnage.
Lauritzen Tankers expects the market to soften from current levels during the year, particularly during the summer since tonnage supply growth is forecast to outpace fairly robust underlying demand growth. However, the potential impact from political, climatic or other events may create a rebound in spot rates.
At year-end, Lauritzen Tankers will take delivery of the first vessel in a series of three product carriers on order in Korea.
Lauritzen Tankers is expected to generate a result before tax in line with the 2005 result.
