It has not been a good year for super tankers, what with sanctions on Iran and the US shale boom that has resulted in reduced demand for cargo transport and a glut of vessels. But Europe’s sanctions against Iran are providing a bit of relief for one specific type of tanker: the Suezmax, for which demand has been rising since the EU slapped sanctions on Iran in July.
Tanker earnings have been hard hit by the US shale gas boom, which has considerably lowered demand for US gas imports. According to Reuters, estimated earnings for large crude carriers will see a 24% drop from earlier predictions for 2013, while Suezmax tankers are expected to bring in 25% less than originally expected for next year.
Indeed, Suezmax owners are eyeing a 17% increase in shipments from the Middle East to the Mediterranean.
Before the EU slapped its own sanctions on Iran in July this year, Suezmax super tankers were in dire straits, there were too many in operation and not enough demand for transport through the Suez Canal on to Mediterranean ports feeding European markets.
Now that Iran’s own exports have dropped by at least half in the face of European sanctions, the concomitant increase in production by Saudi Arabia and Iraq has reignited demand for the tankers and their particular transport route. (Related Article: Iran's People Suffer as Oil Income Protects the Government from Hyperinflation)
Suezmax owners, like Nordic American, are now on the verge of cashing in on this lucrative situation. In fact, they are enjoying an over 60% increase in their average rates for the third quarter of 2012, according to Bloomberg, which also notes that Nordic American Tankers Ltd, with its 20-strong fleet, will gain 33% in 12 months. This is in the face of a nearly 60% drop in tanker earnings for 2012.
The logistics are important, and here is where the Suezmax super tanker excels. They are smaller than traditional super tankers (like VLCCs) but can still carrying up to 1 million barrels while at the same time navigating the Suez Canal, which traditional super tankers cannot. (Related Article: Will John Fredriksen's $11 Billion Gamble Pay Off?)
The bottom line is that refineries previously supplied by Iran on the Mediterranean prefer to accept cargoes from elsewhere shipped via Suezmax tankers.
According to Businessweek, while Bermuda-based Nordic American will report a net loss of $33.3 million next year, this is an improvement on 2012 losses, which will likely be in the neighborhood of $44.9 million. Likewise, shares of Teekay Corp, with its 25-strong fleet, rose 21% in New York this year, and analysts expect global demand for the Suezmax to grow by some 2.4% by the end of 2012.
Nordic American also announced on 9 October that it would acquire the remaining interest in Orion Tanker Pool, established by Nordic and Frontline Ltd in 2011. This comes after Orion signed an agreement with an ExxonMobil subsidiary.