According to Poten & Partners, everyone in the tanker industry is aware of the recent drop in crude oil prices and the decline in bunker fuel prices that followed. Bunker fuel is the single most expensive cost in operating tankers, so this is a welcome relief for ship owners.
The cost of Heavy Fuel Oil (HFO) in Fujairah has declined to a current price of $460 per metric ton from an average of $609/MT over the first six month of the year, a reduction of 24%.
Due to the high oil prices over the last couple of years and the anticipation of continuing high prices in the future, owners have made operational adjustments by utilizing slow steaming on the ballast leg of a voyage, while shipyards and engine manufacturers have worked hard to improve the fuel efficiency of new ships. In this Weekly Opinion piece, we will examine the impact of these in the current fuel price environment.
Using a VLCC as the basis for such analysis as the longer voyages benefit relatively more from fuel efficiency, we use a 2007 built VLCC ordered when HFO prices were around $160/MT and a modern 2013 built VLCC. Vessels can vary significantly in their fuel consumption, both through design and over time, dependent on the condition of the hull paint, etc.
The modern vessel in our example saves 7 tons/day in laden condition compared to the older design and 4 tons/day while in ballast. For the comparison we will use the typical VLCC round trip voyage from Ras Tanura to Chiba using the current fuel price ($460/MT) and the average price during the first 6 months of 2014 ($609/MT)
On the round trip, the fuel efficient vessel saves $116,200 in fuel with current prices and $151,500 in the higher price environment compared to the 2007 built vessel. This represents savings of $2,179/day in time charter equivalent (TCE) at current bunker prices and $2,839 at 2014H1 bunker prices.
(Image Credit: Poten)
In order to improve TCE, owners have made operational adjustments by slow steaming during the ballast leg of the voyages, and during the laden leg where it was permitted in the charter party. This helps the owners by
improving the economics on individual voyages as the fuel cost savings more than offset the longer steaming time when the market is low. An added benefit is that slow steaming reduces the efficiency or the fleet as more vessels are needed to move the same volume of cargo.
Earlier in the year, when the rates were lower, slow steaming made more sense as the additional revenue that could be earned during the additional 3.9 ballasting days was lower than the fuel savings. At current market rates and lower bunker prices, this situation has shifted. At least for the vessel and voyage combination in our example, increasing the ballast speed could prove to be beneficial. The situation could be different for other vessels and voyages, but it makes the case for owners to run the numbers.
The benefits of fuel efficient designs might have been reduced for now but the investment is for 20+ years and fuel prices are likely to increase again in the future.
Source: Poten
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