Lost and Found

Deepwater Gulf of Mexico prospects and developments have probably posed the biggest threat to tanker owners the past few years. Substantial resources and fairly rapiddevelopment schedules have signalled increased US oil output and severely capping (long-haul) imports. Now, in the past two years, delays and accidents, as well as hurricaneshave come to the tanker owners´ rescue.

Following last year´s hurricane season, the US has lost approximately 167 mb of oil output; on average, equivalent to about 565,000 b/d during the past 10 months. Since the start of this year, the average loss has been about 327,000 b/d. Furthermore, both the Thunder Horse and Atlantis production units were expected to commence operations in2005, but now official estimates indicate "end of 2006"whereas rumours indicate as late as March 2007. Combinedplateau output for the fields is about 400,000 b/d. Thus,there has been a "virtual" loss in output over the last yearin addition to the above mentioned physical loss.

Meanwhile, US crude oil imports year-to-date are almostunchanged from the same period last year. Commercialstocks are approximately 6.4% higher than one year ago,average refinery utilization year-to-date is 4.3 %-points lowerthan the same period last year, and, finally, products importsare up 12%. As a result, the maintained imports have resultedin stockbuilding, only.

Now, considering the loss in production and delayed startupof Atlantis and Thunder Horse, we believe it is fair to say that total lost production year-to-date is (at least) some0.5 mb/d. In other words, tanker owners have been blessedwith an unexpected maintenance of demand from the USA.

Transforming this loss of production into tanker demandgives some interesting results. Based on West African suppliesexclusively, the loss have resulted in full time employmentfor some 8-9 VLCCs. If all volumes were sourced in theMEG, the result would have been around 20 VLCCs.Looking at US import statistics for 1Q06 it is apparent thatquite large volumes have been sourced from "medium-haul"sources. As North Sea exports to the US have declined,most of the growth stems from West Africa. Thiscorresponds quite well with the strength of VLCC freightrates in the Atlantic so far this year.

We are still very early in the 2006 hurricane season andhave so far only seen one tropical storm ("Alberto") which,luckily, did not transform into a damaging hurricaneHowever, the height of the season is in a couple of monthstime. Given the forecast provided by the National HurricaneCenter, one should expect a few severe hurricanes this year.Thus, it is not unlikely that we get a repeat of last year´s lossof production in the Gulf of Mexico. However, if offshoreinfrastructure remain relatively unharmed and the new fieldscome on stream according to current schedules, we believe2007 may prove to become difficult year in the tankermarket.

Especially considering the looming order book.