May 2015Gibson Consultancy & Research

Prospects for the Clean Product Market

IMSF 2015

2

Source: Norden A/S

Typical Product Market Trades

3

Crude & ProductTanker Supply

4

5

87

396

91

224

167

225

170

551

212

334

136

171

141

215

88

204

111

168

43

117

123

56

64

26

50

44

0% 20% 40% 60% 80% 100%

Handy

MR

LR1/Panamax

LR2/Aframax

Suezmax

VLCC0-5 yrs old

6-10 yrs old

11-15 yrs old

16-20 yrs old

21-25 yrs old

26+ yrs old

Fleet Age ProfileThe fleet is young with most sectors seeing >80% of vessels under 15 years old.

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

YTD

VLCC 37 90 37 98 26 55 13 13 48 38 13

Suezmax 9 81 46 51 27 74 21 9 3 48 20

LR2 15 68 58 24 0 11 1 2 54 11 17

Aframax 31 85 48 31 7 25 13 16 9 10 19

LR1 17 59 54 22 30 18 5 3 0 28 12

Panamax 5 3 1 6 0 0 2 0 0 5 0

MR 131 237 187 68 31 28 42 111 191 35 2

Handy 32 58 59 41 17 8 8 4 34 3 1

Total 277 681 490 341 138 219 105 158 339 169 84

6

New Tanker Orders by Year

• Orders in Q1 2015 already represents 50% of the total placed in 2014.

• Interest in MR/Handysize remains limited.

7

Tanker Orderbook as a % of the Existing Fleet

Handy(25-40 000

dwt)

MR(40-55 000

dwt)

LR1/PANAMAX

LR2/AFRAMAX

SUEZMAX VLCCTotal

Tankers

orders as % of fleet 3.8% 16.5% 10.7% 13.5% 15.8% 15.5% 13.3%

On Order 23 210 46 123 75 97 574

Existing Fleet 606 1,273 431 909 474 626 4,319

3.8%

16.5%

10.7%13.5%

15.8% 15%13.3%

0

25

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

30

40

50

60

70

80

90

100

110

120

130

140

150

160

Ja

nF

eb

Mar

Ap

rM

ay

Ju

nJu

lA

ug

Sep

Oct

No

vD

ec

Ja

nF

eb

Mar

Ap

rM

ay

Ju

nJu

lA

ug

Sep

Oct

No

vD

ec

Ja

nF

eb

Mar

Ap

rM

ay

Ju

nJu

lA

ug

Sep

Oc

tN

ov

Dec

Ja

nF

eb

Mar

Ap

rM

ay

Ju

nJu

lA

ug

Sep

Oct

No

vD

ec

Ja

nF

eb

Mar

Ap

rM

ay

Ju

nJu

lA

ug

Sep

Oct

No

vD

ec

Ja

nF

eb

Mar

Ap

rM

ay

Ju

nJu

lA

ug

Sep

Oct

No

vD

ec

Ja

nF

eb

Mar

Ap

rM

ay

Ju

nJu

lA

ug

Sep

Oct

No

vD

ec

Ja

nF

eb

Mar

Ap

r

2008 2009 2010 2011 2012 2013 2014 2015

VLCC

Suezmax

LR1

LR2

MR

$ mln

8

Tanker Newbuilding PricesNewbuilding prices have remained relatively stable despite firm freight markets

9

34 23 21 21 11 21 14

134 145105

6147 75

80 9474

34

44 38

31

29

1510

626

71 94

69

59

45 2019

38 45

31

46

37

44

4528 8

12 22

28

39

53

56

61

49

30 2416

38

25

0

50

100

150

200

250

300

350

400

450

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

VLCC Deliveries

Suezmax Deliveries

LR2/AframaxDeliveriesLR1/PanamaxDeliveries

No.

Tanker Orderbook Delivery ProfileBased on actual orders placed to date

10

17 2243

26 18 21 1530

16

33

1413 15 8

18

89

12

25

810

12

14

21

2737 30

24

16

1815

13

11

8 19 8

8

98

8

9

14

1214

21

1110

1211

9

0

20

40

60

80

100

120

140

160

180

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

VLCC

SUEZMAX

LR2 /AFRAMAXLR1 /PANAMAXMR

No.

Tanker Scrapping ForecastInc. single hulls

11

Demand

14

15

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Ja

n

Feb

Mar

Ap

r

May

Ju

n

Ju

l

Au

g

Sep

Oct

No

v

Dec

Ja

n

Feb

Mar

Ap

r

May

Ju

n

Ju

l

Au

g

Sep

Oct

No

v

De

c

Ja

n

Feb

Mar

Ap

r

May

Ju

n

Ju

l

Au

g

Sep

Oct

No

v

Dec

Ja

n

Feb

Mar

Ap

r

2012 2013 2014 2015

30 Spore-Australia Cln 'market speed'

TC2 + TC14 (UKC-USAC + USG-UKC) 'market speed'

$/day TCE

MR Clean Product Tanker Earnings - East vs WestRound Voyage at Market Speed

16

-5,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Ja

n

Feb

Mar

Ap

r

Ma

y

Ju

n

Ju

l

Au

g

Sep

Oct

No

v

Dec

Ja

n

Feb

Mar

Ap

r

May

Ju

n

Ju

l

Au

g

Sep

Oct

No

v

Dec

Ja

n

Feb

Mar

Ap

r

May

Ju

n

Ju

l

Au

g

Sep

Oct

No

v

De

c

Ja

n

Feb

Mar

Ap

r

2012 2013 2014 2015

30 Med-Med Cln 'market speed'

37 UKC-US Cln 'market speed'

TC2 + TC14 (UKC-USAC + USG-UKC) 'market speed'

22 Baltic-UKC Cln (TC9)'market speed'

$/day TCE

MR Clean Product Tanker Earnings: Western MarketsRound Voyage at Market Speed

17

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Ja

n

Feb

Mar

Ap

r

May

Ju

n

Ju

l

Au

g

Sep

Oct

No

v

Dec

Ja

n

Feb

Mar

Ap

r

Ma

y

Ju

n

Ju

l

Au

g

Sep

Oct

No

v

Dec

Ja

n

Feb

Mar

Ap

r

May

Ju

n

Ju

l

Au

g

Sep

Oct

No

v

Dec

Ja

n

Feb

Mar

Ap

r

2012 2013 2014 2015

LR2 AG-East Cln 'market speed'

LR1 AG-East Cln 'market speed'

$/day

LR2 & LR1 Product Tanker TCE EarningsRound Voyage at Market Speed

18

10000

15000

20000

25000

30000

35000

40000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD

LR2 - 1 year

LR1 - 1 year

MR2 - 1 year

$/day

1 Year Product Time Charter Rates

19

Product Surplus and Deficits 2014 vs. 2020 (000’ b/d)

Global Product Supply Imbalances

Source: IEA

Fuel OilGasoil/KeroseneGasoline/Naphtha

-4505251025

1025150

450

North America

-375 -525250 350

Latin America

-250 -375-675 -850

Africa

750 575

-1000-1925

400

Europe

950 1325475

675

Middle East

600 725

1000 1225

1075 400

FSU

-975 -1025

1050

-250-950

Asia

2014 2020

2014 2020

2014 2020

2014 2020

2014 2020

2014 2020

2014 2020

20

JUBAIL 0.4 MILLION B/D2nd Half 2013 Aramco/Total(Full capacity August 2014)

YANBU 0.4 MILLION B/DQ4 2014 Aramco/Sinopec

(expected to reach full scale operations in mid 2015)

JAZAN 0.4 MILLION B/D2016 Aramco

(Delayed till 2017/18 )

ABU DHABI – RUWAIS0.4 MILLION B/D Q4 2014

(expected to reach full scale operations in mid 2015)

Middle East Refinery DevelopmentsAdditional Middle East crude distillation capacity will see more crude go into domestic refining benefitting LR1s & LR2s.

21

0.530.64 0.60 0.58

0.46 0.39 0.38 0.38 0.31 0.27 0.25

0.180.15 0.17 0.16

0.160.17 0.15 0.16

0.16 0.15 0.22

0.230.21 0.23 0.21

0.180.17 0.17

0.15 0.130.16

0.14

0.120.13

0.13

0.080.10 0.12 0.11

0.00

0.50

1.00

1.50

2.00

2.50

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015YTD

Other

S.America

Caribs

Canada

Europe

Mln b/d

US Gasoline Imports

0.14 0.220.27

0.53 0.590.66

0.851.01

1.13 1.111.02

0.140.14

0.13

0.170.20

0.30

0.48

0.41

0.37 0.44 0.55

0.15

0.060.07

0.08

0.10

0.13

0.16 0.160.22

0.16

0.17

0.370.42

0.47

0.790.89

1.11

1.52

1.70

1.911.98

2.11

0.00

0.50

1.00

1.50

2.00

2.50

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015YTD

Naphtha

Jet-Kero

Gasoline Blending Components

Finished Gasoline

Distillates

Mln b/d

US Clean Product Exports

22

2,200

2,400

2,600

2,800

3,000

3,200

3,400

3,600

3,800

4,000

4,200

4,400

Ja

nF

eb

Mar

Ap

rM

ay

Ju

nJu

lA

ug

Sep

Oct

No

vD

ec

Ja

nF

eb

Mar

Ap

rM

ay

Ju

nJu

lA

ug

Sep

Oct

No

vD

ec

Ja

nF

eb

Mar

Ap

rM

ay

Ju

nJu

lA

ug

Sep

Oct

No

vD

ec

Ja

nF

eb

Mar

Ap

rM

ay

Ju

nJu

lA

ug

Sep

Oct

No

vD

ec

Ja

nF

eb

Mar

2011 2012 2013 2014 2015

000 b/d

FSU Clean & Dirty Product ExportsIncreases in 2015 driven by Gasoil, Naphtha & Gasoline

23

Product Import/Exports: Korea, China, Japan, Australia*Less trade in 2014 due to lower Japanese imports & lower China import/exports.

• Declining Japanese fuel oil imports and reduced Chinese import/exports has tempered trade in 2014.

• Consumption in APAC is growing, which remains positive for product tankers.

• Australian refinery closures will lead to increasing product imports.

• Regional product imbalances could create arbitrage opportunities.

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

(a) there is no double counting of import and export volumes between any of these countries(e.g. exports from Korea being imported by China are only counted once)

000' b/d

(Jan-Feb)

24

25

Post Panamax 2016 “Wide Beam” Deliveries

Owner No.

Navig8 Product Tankers 12

Concordia Maritime 10

Sovcomflot 8

Livanos Group 7

BW Group 6

Petrobras 4

Sinokor Merchant Marine 4

Nisshin Shipping 3

D'Amico Tankers 2

Eletson 2

Nakata Gumi 2

Pleiades Shipping Agency 2

26

Upside Downside

• Modest LR1/LR2 growth in the short term.

• A reduction in European Refining capacityincreases import reliance - boosting tonne miledemand.

• New Middle East refineries increase productexports to Europe, Asia and Latin America.

• Brazilian refinery delays supports demand forproduct imports in the short term.

• Indian refiners seek new markets, sendingproduct further afield including Latin America,however Indian refiners will face competitionfrom the US, Russia and the Middle East.

• Continued Australian refinery closures lead toincreased reliance on imports.

• Russian export tariffs incentives CPP exports.

• Oversupply, particularly in the MR sector. Willhigher earnings in the LR1/LR2 sectorencourage overinvestment?

• Weak scrap prices and firmer markets lead tolower scrapping in the short term.

• Refiners scaling back throughputs in the faceof weaker margins and higher product stocks.

• Delays to major export refinery projects, i.e.Jizan.

• Slowing demand following weaker economicgrowth.

• Slower growth in US product exports comparedto previous years.

27

GibsonConsultancy & Research

research@eagibson.co.uk+44 20 7667 1230

This report has been produced for general information and is not a replacement for specific advice. While the market information is believed to be reasonably accurate, it is by its nature subject to limited audits and validations. No responsibility can be accepted for any errors or any consequences

arising therefrom.© Gibson Shipbrokers Ltd 2015

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

LR2 Mid East-Japan 16,500 15,000 12,500 13,250 13,250 17,750 23,500 26,000 27,000 27,500 27,500

LR1 Mid East-Japan 13,250 11,500 9,500 11,750 12,250 15,250 21,250 23,750 24,500 24,750 24,750

MR Average East/West 8,750 11,000 12,250 11,000 15,500 14,750 19,500 21,250 22,000 22,250 22,250

8,000

12,000

16,000

20,000

24,000

28,000

$/day TCE

Outlook for Spot Product Tanker Earnings*Round voyage basis at market speed

28