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Decarbonisation set to boost Middle East oil producers and VLCCs

The structural decline in likely oil demand as a result of global climate policy may be daunting for many oil producers, but not those located in the Gulf for whom the outlook is ‘rosy’, according to a Special Report published in the most recent issue of The Economist.

Paul Bartlett, Correspondent

March 20, 2024

2 Min Read
Front view of tanker at sea
File photo of tankerPhoto: AdobeStock

The analysis will please the small group of VLCC owners who have embarked on something of a VLCC spending spree in recent weeks. Through the course of 2023, VLCCs on order had fallen to a long-time low. The few contracts that were placed were at significantly higher prices and had long lead times.

Since then, however, a series of new deals have been signed and options taken up by companies including Euronav, Magni Partners and Seatankers. Trading house Trafigura, meanwhile, has entered the sector with its first pair of VLCCs ordered at China’s Jiangsu New Hantong Ship Heavy Industry, a newcomer to large tanker construction.  

The petro-states of the Gulf will grow more powerful as the world consumes less petroleum, The Economist declared, explaining that they can produce lots of oil cheaply and have the capital needed to produce more. Predictions of future supply see more of it coming from them, and the faster the world decarbonises, the further their concentration will go, the report said.

Gulf crude has the advantage of being less carbon-intensive than other oil, both in carbon content and ease of extraction. The report highlights the UAE where ADNOC has committed $23bn to decarbonisation projects, including $4bn for shipping onshore carbon-free electricity to provide power for offshore operations.

Related:Trafigura orders two VLCCs in breakthrough for Jiangsu New Hantong

The money could have been used to expand output but the Emirates chose instead to produce oil more cleanly. The UAE would like to be seen as the supplier of choice in a climate-concerned world, the report said.

Not everyone is bullish about the outlook for big tankers, however. New York broker, Poten & Partners, urged caution recently. Noting the uptick in VLCC orders, the firm pointed out that large tankers are designed for long-haul routes – as oil demand growth is expected to switch from China to India, this will support the Suezmax and Aframax sectors. 

However, more bullish analysts suggest that the age profile of the VLCC fleet, the inelastic supply of new ships, and continuing demand for long-haul crude from the Gulf to east and west, provide a sound basis for VLCC business models, at least for the foreseeable future.  

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About the Author

Paul Bartlett

Correspondent

UK-based Paul Bartlett is a maritime journalist and consultant with over four decades of experience in international shipping, including ship leasing, project finance and financial due diligence procedures.

Paul is a former Editor of Seatrade magazine, which later became Seatrade Maritime Review, and has contributed to a range of Seatrade publications over the years including Seatrade’s Green Guide, a publication investigating early developments in maritime sustainability initiatives, and Middle East Workboats and Offshore Marine, focusing on the vibrant market for such vessels across that region.

In 2002, Paul set up PB Marine Consulting Ltd and has worked on a variety of consultancy projects during the last two decades. He has also contributed regular articles on the maritime sector for a range of shipping publications and online services in Europe, Asia, and the US.

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