The NOx on effect
A recent on line news report quoting Jakub Walenkiewicz, DNV GL’s Principal Market Analyst suggested that now might be a good time for crude tanker operators to seek newbuilding tonnage as prices for ULCCs and VLCCs are at a 25-year low.
This year seven tankers for a combined 1.3m dwt have been scrapped with more expected to follow so 2017 is on course to see a much higher run of ships sent for demolition than in 2016. Even so that will still see the tanker market that is over-tonnaged according to some analysts so any ordering spree will exacerbate that situation.
Even so there are more good reasons for an operator to order now than just the low prices. In the anticipated 25-year lifespan of a ship, all owners expect to hit bad times as well as good, and it makes little difference if the bad times come at the beginning, especially if there is cash from scrapping the older vessels they are replacing to be used to cover shortfalls.
Ordering new vessels now will enable them to be built to current EEDI standards rather than the more stringent ones that will come in in 2020 as Phase II takes effect. That does not mean that the owner is settling for a less efficient ship – EEDI rules only stop ships from underachieving against the standard – but it will mean that the extra cost of meeting much more stringent standards can be avoided.
And after MEPC 71, there is a new incentive to buy early now that the European SECAs in the Baltic and North Seas are to be extended to cover NOx as well. That takes effect in January 2021, and any ships built after that date will need to be able to meet Tier III NOx Code requirements when operating in those areas. For tankers which mostly operate with a single direct drive two-stroke, meeting Tier III requires an EGR or SCR system to be installed.
They both come with high capital and not insignificant operating expenses to take into account. As things stand, new ships need only meet Tier III when operating in US ECAs and a ship built prior to 2020 will still have to comply with that so if the prospective owner of a new tanker plans to operate to the US the capital outlay must still be made.
Not considering US trade might once have been unthinkable for a tanker operator but as the US now appears to be (or will soon be) self-sufficient in oil, then the only reason to trade there would be to load cargoes and not all owners may decide to enter that trade. But for ships planned to be loading in the Middle East for European destinations, then building now and avoiding both 2020 EEDI rules and the 2021 requirement to meet Tier III NOx, might be a very powerful incentive.