Crude tanker fleet renewal to accelerate as order book/fleet ratio hits 9-year high

“Due to low contracting volumes in 2022, the crude tanker order book/fleet ratio bottomed out at 2.8% in March 2023. It has climbed steadily since and has now hit a nine-year high of 14.1%. The order book may kickstart the renewal of a fleet that has grown older on average since 2018,” says Niels Rasmussen, Chief Shipping Analyst at BIMCO.

Since 2023, 325 crude tankers with a deadweight capacity of 68.7m tonnes have been contracted and the order book now contains 309 ships totalling 65.8m deadweight tonnes (DWT).

The three largest shipbuilding nations in the world, China, South Korea and Japan, also dominate the crude tanker sector. Shipyards in China hold 60% of the crude tanker capacity on order while South Korea and Japan hold 31% and 8% respectively. The remaining 2% is held by yards in the Philippines, Russia and Iran.

Deliveries are currently scheduled to peak at 28.2m DWT in 2027 and 98% of the order book DWT capacity is scheduled to be delivered before the end of 2028. Suezmax and VLCC tankers dominate the order book with 135 and 128 ships respectively.

“The order book’s size may appear too large compared to the expected global oil demand growth in the future. In its recent World Energy Outlook, the International Energy Agency (IEA) estimated that average annual growth in global oil demand between 2024 and 2035 will be maximum 0.7% per year,” says Rasmussen.

Depending on the progress towards decarbonisation, oil demand growth may slow and could even contract. Should governments follow through on current and planned policies, the IEA’s Stated Policies scenario estimates that oil demand growth will average only 0.2% per year between 2024 and 2035. If decarbonisation progress is aligned with the Paris Agreement’s goal of maximum global warming of 1.5℃, global oil demand could even contract by 3.3% per year, IEA predicts.

It therefore seems critical that most of the ships in the order book end up replacing older and more inefficient ships instead of adding to the fleet.

Offhand that seems feasible as 18.2% of the ships in the fleet are currently 20 years old or older. In total, they provide 17.2% of the fleet’s DWT capacity and the recycling potential is thus slightly larger than the order book.

“Despite the relatively large order book and potentially weak demand growth, it appears likely that the market can achieve a balanced supply/demand if older ships are recycled. However, we estimate that more than 40% of the recycling potential comes from currently sanctioned ships. The sanctions, however, also restrict the selling of these ships which may further delay their recycling and/or cause them to achieve lower recycling prices than unsanctioned ships,” says Rasmussen.