- Shipping companies enjoy earnings bonanza even if they won’t carry Russia’s oil
Megha Mandavia, WSJ
energiesnet.com 05 162023
“Gone With the Wind” anti-hero Rhett Butler’s brutal take on war still resonates almost a century later.
“There were two times for making big money, one in the upbuilding of a country and the other in its destruction. Slow money on the upbuilding, fast money in the crackup.”
Publicly listed tanker companies are benefiting from the latter. Despite their best efforts not to have their old ships end up with Russia’s so-called shadow fleet assembled for the sole purpose of transporting its oil around the world, they are reaping a bonanza anyway.
Shipping companies have been able to sell their old and soon-to-be-scrapped vessels at high prices as demand remains high from those who are eager to participate in the Russian oil trade. The buyers are often unlisted Greek and Chinese shipping companies. Due to sanctions, trading patterns have become highly inefficient, requiring more tankers to make longer journeys to customers who will accept Russian oil. Vessels earn a certain rate per day irrespective of their age, so a cheap tanker spending more time reaching its destination generates a handsome return. Often vessels transfer oil or refined products from one ship to another at sea to obscure its origin. Growing global oil demand and a dearth of new vessel orders since 2015, according to analyst Benjamin Nolan at Stifel Investment Services, are helping to prop up the value of ancient ships.
But owners of new ones are doing well, too. According to Peter Michael E. Christensen, an analyst at Cleaves Securities, tanker companies’ earnings have increased sharply on the back of historically high tanker rates, and to a lesser extent from selling older vessels at high prices. Euronav EURN 2.97%increase; green up pointing triangle, Frontline FRO -0.13%decrease; red down pointing triangle, International Seaways INSW -1.88%decrease; red down pointing triangle, Hafnia HAFNI 2.26%increase; green up pointing triangle and Mitsui O.S.K. are among the companies that have sold vessels, according to Stifel.
One of the largest private beneficiaries has been Ridgebury Tankers, which is private-equity backed. There are knock-on effects even for those whose vessels don’t wind up hauling Russian crude. Cleaves believes that Double Hull Tankers, Nordic American Tankers NAT 1.40%increase; green up pointing triangle and Teekay Tankers TNK -0.12%decrease; red down pointing triangle have also benefited from the appreciating values of their fleets.
Most are returning money to shareholders through dividends and share buybacks or reducing debt rather than plowing the windfall into orders for new tankers. Shares of Frontline, Euronav, International Seaways and Hafnia have risen by between 54% and 94% in the past year.
Data provided by shipbroker Braemar showed prices of 15-year-old Aframax and Suezmax tankers, which can hold around a fourth to a half the crude of VLCC supertankers, have doubled over the past year. Prices for 20-year-old ships have increased substantially, too. Generally, tankers have a maximum of 25 years of useful life. The proportion of tankers aged 20 years or more has increased from 2.2% in 2019 to nearly 8% today, and on their current trajectory would rise to 15.5% by mid-2025, according to Braemar.
Tankers operating in opaque markets reached a record in the first quarter of this year, with strong support from the Russian trade, according to Vortexa, an energy and shipping analytics firm, in a report published last month. It noted Russian crude and refined products accounted for 80% of all opaque market tanker activity in the quarter, a 50 percentage point increase from the previous quarter as tankers previously carrying Iranian and Venezuelan crude switched.
The effect of the war in Ukraine is lifting all ships in this industry—even for those in the Western world that wouldn’t sully their hands with Russian crude.
Write to Megha Mandavia at firstname.lastname@example.org
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Appeared in the May 16, 2023, print edition as ‘Old Tankers Fetch a Lot Thanks to Russia’.