OPEC+ cuts and floating storage requirements? 3 scenarios
This article examines recent progress and initiatives by the shipping industry to meet new IMO targets and provides Signal Ocean Platform data on emissions developments and trends.
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Many estimate that global onshore storage may max out within the next few weeks which could drive additional demand to use tankers as Floating Storage. In anticipation of oil production cuts that may soon be announced through an OPEC+ meeting, we analyzed three scenarios to quantify the potential impact of Crude Oil oversupply on global VLCC supply.
At Signal, we are obsessed with counting vessels and understanding short term vessel commercial availability. We’ve been especially interested in monitoring the VLCC segment since it has been driving the freight market lately.
We did an analysis to quantify how many VLCCs could be required for use as floating storage — and therefore made unavailable — in the face of a global oversupply of Crude oil.We decided to analyze three potential oversupply scenarios for Crude oil overproduction: “Low”, “Mid”, and “Black Swan” and their impact on VLCC supply. We have used the following three key assumptions:
Approximate daily crude production at 85,000,000 bpd
Actual ullage levels of onshore crude storage as monitored by our friends at OilX in their recent report on Global crude oil storage of 650,000,000 bls
Assumed recovery time of 3 months back to normal levels of Supply / Demand
In the table below, you can see the results of this analysis basis the assumptions mentioned above at three different levels of Oversupply (Production-Demand).
Three scenarios showing the potential impact on floating storage requirements.
Obviously, the numbers are highly dependent on a number of factors, including:
OPEC’s decision to cut production further
The reaction of other oil production facilities
The extent of the reduction in demand from refineries
The relative timing of these events
The “Low” Case scenario is almost where we stand at the moment. The “Mid” Case scenario, visualized in the graph below, would result in more than 50% of the VLCC capacity or a mix of VLCC, Suez, Afras being relegated to floating storage:
The "Mid" case scenario: Requirements for crude floating storage per day for the 3 large vessel segments
Monitoring cargoes and associated drops in Vessel supply in real-time will become even more relevant in the current global context. Let’s see how the end of April and beginning of May will evolve during the next few days. We saw an increase of 5% over March 2019 and 20% percent over February 2020.
Using The Signal Ocean Platform, you can view a real time cargo count based on market fixtures for VLCCs on a yearly, monthly, and decade basis.
We will continue to keep an eye on cargoes count and associated vessel supply and will take a closer look at similar events in the past and how the market has reacted. The big question is at what point freight rates become uneconomical and when the market would reach the “tipping point” where freight for normal VLCC voyages due to reduced vessel supply will balance storage rates and smaller crude carriers for storage would be considered.
Please contact support@thesignalgroup.com with any questions.
Creating a sustainable world requires us to embark on a journey towards a zero emission future, where every step is a commitment to preserve our planet for future generations.
Albert Greenway
Environmental Scientist, Sustainability Expert
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Increased Use of Renewable Energy:
Shipping companies are embracing renewable energy sources to power onboard systems and reduce emissions during port operations. Solar panels and wind turbines are being installed on vessels to generate clean energy, reducing reliance on auxiliary engines, and cutting down emissions. Shore power facilities in ports allow ships to connect to the electrical grid, eliminating the need for onboard generators while docked.
Collaboration and Industry Partnerships:
Recognizing that addressing emissions requires collective action, shipping companies, governments, and organizations have formed partnerships and collaborations. These initiatives focus on research and development, sharing best practices, and promoting knowledge transfer. Joint projects aim to develop and deploy innovative technologies, improve infrastructure, and create a supportive regulatory framework to accelerate the industry's transition towards a greener future. The Zero Emission Shipping - Mission Innovation.
To pave the way for a greener future in shipping, the availability of alternative fuels plays a vital role in their widespread adoption. However, this availability is influenced by factors such as port infrastructure, local regulations, and government policies. As the demand for cleaner fuels in shipping rises and environmental regulations become more stringent, efforts are underway to improve the accessibility of these fuels through infrastructure development, collaborations, and investments in production facilities.
Liquefied Natural Gas (LNG) infrastructure has seen significant growth in recent years, resulting in more LNG bunkering facilities and LNG-powered vessels. Nonetheless, the availability of LNG as a marine fuel can still vary depending on the region. To ensure consistent availability worldwide, there is a need for further development of LNG supply chains and infrastructure. For biofuels, their availability hinges on production capacity and the availability of feedstock. Although biofuels are being produced and utilized in various sectors, their availability as a marine fuel remains limited. Scaling up biofuel production and establishing robust supply chains are imperative to ensure wider availability within the shipping industry.Hydrogen, as a fuel for maritime applications, is still in the early stages of infrastructure development. While some hydrogen vessels have been tested or introduced in the first quarter of last year, the infrastructure required for hydrogen production and distribution needs further advancement.
Ammonia, as a marine fuel, currently faces limitations in availability. The production, storage, and handling infrastructure for ammonia need further development to support its widespread use in the shipping industry.Methanol, on the other hand, is already a commercially available fuel and has been used as a blend with conventional fuels in some ships. However, its availability as a standalone marine fuel can still be limited in certain regions. Bureau Veritas in October 2022 published a White Paper for the Alternative Fuels Outlook. This white paper provides a comprehensive overview of alternative fuels for the shipping industry, taking into account key factors such as technological maturity, availability, safety, emissions, and regulations.
Creating a sustainable world requires us to embark on a journey towards a zero emission future, where every step is a commitment to preserve our planet for future generations.
Albert Greenway
Environmental Scientist, Sustainability Expert
Increased Use of Renewable Energy:
Shipping companies are embracing renewable energy sources to power onboard systems and reduce emissions during port operations. Solar panels and wind turbines are being installed on vessels to generate clean energy, reducing reliance on auxiliary engines, and cutting down emissions. Shore power facilities in ports allow ships to connect to the electrical grid, eliminating the need for onboard generators while docked.
Collaboration and Industry Partnerships:
Recognizing that addressing emissions requires collective action, shipping companies, governments, and organizations have formed partnerships and collaborations. These initiatives focus on research and development, sharing best practices, and promoting knowledge transfer. Joint projects aim to develop and deploy innovative technologies, improve infrastructure, and create a supportive regulatory framework to accelerate the industry's transition towards a greener future. The Zero Emission Shipping - Mission Innovation.
To pave the way for a greener future in shipping, the availability of alternative fuels plays a vital role in their widespread adoption. However, this availability is influenced by factors such as port infrastructure, local regulations, and government policies. As the demand for cleaner fuels in shipping rises and environmental regulations become more stringent, efforts are underway to improve the accessibility of these fuels through infrastructure development, collaborations, and investments in production facilities.
Liquefied Natural Gas (LNG) infrastructure has seen significant growth in recent years, resulting in more LNG bunkering facilities and LNG-powered vessels. Nonetheless, the availability of LNG as a marine fuel can still vary depending on the region. To ensure consistent availability worldwide, there is a need for further development of LNG supply chains and infrastructure. For biofuels, their availability hinges on production capacity and the availability of feedstock. Although biofuels are being produced and utilized in various sectors, their availability as a marine fuel remains limited. Scaling up biofuel production and establishing robust supply chains are imperative to ensure wider availability within the shipping industry.Hydrogen, as a fuel for maritime applications, is still in the early stages of infrastructure development. While some hydrogen vessels have been tested or introduced in the first quarter of last year, the infrastructure required for hydrogen production and distribution needs further advancement.
Ammonia, as a marine fuel, currently faces limitations in availability. The production, storage, and handling infrastructure for ammonia need further development to support its widespread use in the shipping industry.Methanol, on the other hand, is already a commercially available fuel and has been used as a blend with conventional fuels in some ships. However, its availability as a standalone marine fuel can still be limited in certain regions. Bureau Veritas in October 2022 published a White Paper for the Alternative Fuels Outlook. This white paper provides a comprehensive overview of alternative fuels for the shipping industry, taking into account key factors such as technological maturity, availability, safety, emissions, and regulations.
OPEC+ cuts and floating storage requirements? 3 scenarios
By Ioannis Psarros, Kostis Chatzimichalis, Semiramis Assimakopoulou
Posted by
The Signal Group
|
April 5, 2020
Many estimate that global onshore storage may max out within the next few weeks which could drive additional demand to use tankers as Floating Storage. In anticipation of oil production cuts that may soon be announced through an OPEC+ meeting, we analyzed three scenarios to quantify the potential impact of Crude Oil oversupply on global VLCC supply.
At Signal, we are obsessed with counting vessels and understanding short term vessel commercial availability. We’ve been especially interested in monitoring the VLCC segment since it has been driving the freight market lately.
We did an analysis to quantify how many VLCCs could be required for use as floating storage — and therefore made unavailable — in the face of a global oversupply of Crude oil.We decided to analyze three potential oversupply scenarios for Crude oil overproduction: “Low”, “Mid”, and “Black Swan” and their impact on VLCC supply. We have used the following three key assumptions:
Approximate daily crude production at 85,000,000 bpd
Actual ullage levels of onshore crude storage as monitored by our friends at OilX in their recent report on Global crude oil storage of 650,000,000 bls
Assumed recovery time of 3 months back to normal levels of Supply / Demand
In the table below, you can see the results of this analysis basis the assumptions mentioned above at three different levels of Oversupply (Production-Demand).
Three scenarios showing the potential impact on floating storage requirements.
Obviously, the numbers are highly dependent on a number of factors, including:
OPEC’s decision to cut production further
The reaction of other oil production facilities
The extent of the reduction in demand from refineries
The relative timing of these events
The “Low” Case scenario is almost where we stand at the moment. The “Mid” Case scenario, visualized in the graph below, would result in more than 50% of the VLCC capacity or a mix of VLCC, Suez, Afras being relegated to floating storage:
The "Mid" case scenario: Requirements for crude floating storage per day for the 3 large vessel segments
Monitoring cargoes and associated drops in Vessel supply in real-time will become even more relevant in the current global context. Let’s see how the end of April and beginning of May will evolve during the next few days. We saw an increase of 5% over March 2019 and 20% percent over February 2020.
Using The Signal Ocean Platform, you can view a real time cargo count based on market fixtures for VLCCs on a yearly, monthly, and decade basis.
We will continue to keep an eye on cargoes count and associated vessel supply and will take a closer look at similar events in the past and how the market has reacted. The big question is at what point freight rates become uneconomical and when the market would reach the “tipping point” where freight for normal VLCC voyages due to reduced vessel supply will balance storage rates and smaller crude carriers for storage would be considered.
Please contact support@thesignalgroup.com with any questions.
