High utilization driving VLCC rate volatility

According to argus Longer voyages and limited vessel availability have increased volatility this year in very large crude carrier (VLCC) chartering costs.

Daily time-charter equivalent (TCE) earnings for the vessels, which carry around 2 million barrel oil, mostly on routes to China, have fluctuated considerably this year because of stretched supply.

More vessels on long-haul voyages from the Atlantic to east Asia has increased the time VLCCs have spent carrying oil this year and limited the availability of the vessels, meaning small regional changes in vessel supply have had outsized effects on freight levels.

The number of laden vessels has stayed considerably above the number of vessels in ballast, while TCE earnings on the key Bonny to Ningbo route for a scrubber-fitted VLCC have fluctuated by as much as US$80,000/day.

VLCCs loaded more crude west of the Suez Canal in April this year than at any time since January 2021, according to data from Vortexa. Voyages from Bonny in Nigeria to Ningbo, China are around 34 days, as compared to less than 20 days for Ras Tanura in Saudi Arabia to Ningbo, meaning more vessels were occupied for longer, reducing availability. Voyages from the US Gulf or Brazil to China take around 53 and 38 days, respectively.

Interest from Asian buyers in Atlantic basin cargoes increased because of favourable pricing and Saudi production cuts hitting demand for ships in the Mideast Gulf.

The availability of VLCCs has also been impacted by changes in trade flows stemming from the Russia-Ukraine conflict. More VLCCs are occupied on Atlantic voyages because of increased flows of US Gulf, Brazilian and West African oil to Europe to replace sanctioned Russian grades.

Historically these trades were mostly done by smaller Suezmax vessels. Some VLCCs going into the so-called dark fleet involved in transporting Russian oil has also probably meant fewer VLCCs for mainstream trades. Switching between Russian and non-Russian can also contribute to volatility in freight levels as the apparent supply of vessels can change quickly.

Despite a recent downward trend, VLCC earnings are likely to stay high and volatile with the Saudi cuts extended into August and very few new VLCCs joining the global fleet.

Six new VLCCs are on order for delivery this year, three are on order for 2025, 10 for 2026, and just two for 2027, according to data from shipbroker Braemar.

Higher newbuilding prices, full shipyards and uncertainty over future fuels and environmental regulations has kept new tanker orders low, although higher earnings are beginning to encourage a rise in ordering.

 

Putin's effort to stop grain exports from Ukraine termed disturbing by US lawmaker

Michael McCaul in a Thursday interview called Russian President Vladimir Putin’s effort to stop grain exports from flowing out of Ukraine disturbing, warning of possible implications for North Africa, Europe and the United States.

During an appearance on NewsNation, McCaul told Chief White House Correspondent Blake Burman he’s worried about a possible scenario where war escalation could happen between Russia and NATO member countries that border the Black Sea. 

The White House on Wednesday warned that Russia is preparing for possible attacks on civilian shipping vessels in the Black Sea, noting that Russian military forces have laid additional sea mines that border Ukrainian ports. 

“Oh, sure. We’ve been worried about that scenario, since the inception of the Russian invasion into Ukraine,” McCaul told Burman.  

“This is very, I think, disturbing on Putin’s part to shut off […] grain from the Black Sea into the White Sea, because this could cause a famine in Northern Africa and it could also raise prices not only in Europe, but the United States. I think it’s highly irresponsible what he’s doing, but he’s desperate now.”

McCaul also said Turkey has tried to negotiate with Putin on a solution, noting that Russia’s withdrawing from the Black Sea Grain Initiative will affect the global food market. 

“It affects the entire global food market. And again, I think the region that will get hit the hardest will be Northern Africa. It could set them off into a famine. I’ve met with the World Food Program,” McCaul added. “You know David Beasley was the head of that, he negotiated the deal with Putin. I hope we can make some progress, but the fact is, we will feel this here in the United States.”

McCaul’s remarks come days after Russia paused its participation in the Black Sea Grain Initiative, with Kremlin spokesperson Dmitry Peskov saying in a statement that it would suspend its part in the deal unless its demands are met to get its own food and fertilizer out to the world. 

“When the part of the Black Sea deal related to Russia is implemented, Russia will immediately return to the implementation of the deal,” Peskov said.

The deal, brokered last year by the United Nations and Turkey, became necessary after Russia invaded and blockaded Ukraine’s ports.

Wheat commodity futures have risen about 12% since Russia announced it would suspend the Black Sea Grain Initiative, which allowed Ukraine to export wheat from its southern ports via the Bosporus. Ukraine was one of the world’s largest wheat exporters before the Russian invasion.

Russia has also continued to attack Ukrainian port infrastructure and cities with missiles and drones, damaging the ability to export wheat if the deal were to resume. Those strikes have destroyed 60,000 tons of grain, Ukrainian President Volodymyr Zelensky said Wednesday.

“This attack proves that their target is not only Ukraine and not only the lives of our people. About a million tons of food is stored in the ports attacked today,” Zelensky argued. “This is the volume that should have been delivered to consumer countries in Africa and Asia long ago.”

Secretary of State Antony Blinken predicted the rising prices while criticizing the Russian move Monday.

“So the result of Russia’s action today — weaponizing food, using it as a tool, as a weapon in its war against Ukraine — will be to make food harder to come by in places that desperately need it, and have prices rise,” Blinken said. “We’re already seeing the market react to this as prices are going up.”

 

Saudi energy minister visits liquefied hydrogen carrier

Saudi Minister of Energy Prince Abdulaziz bin Salman made a visit to the world’s first liquefied hydrogen carrier at the Jeddah Islamic Port on Wednesday. He watched the functioning of the giant Japanese ship Suiso Frontier.

During the visit, Prince Abdulaziz was accompanied by Minister of Investment Eng. Khaled Al-Falih, Assistant Minister of Transport and Logistics Ahmed Al-Hassan, and the Japanese Consul General in Jeddah Izuru Shimura.

The ministers were briefed on the innovative technologies that were used by the Japanese ship manufacturer Kawasaki Heavy Industries (KHI) in building the carrier Suiso Frontier. Saudi Arabia has focused on hydrogen production as part of its plans to become global leader in the clean hydrogen production and export sector.

The ship arrived at the port on the occasion of the official visit of Japanese Prime Minister Fumio Kishida to Saudi Arabia recently, of which the main mission was to introduce Japanese technology. It also paved the way for societies that will use hydrogen (clean energy), to cooperate with the company, to transport large quantities of hydrogen at a low cost through its tankers that it developed and would support its distribution. This is within the framework of its efforts to establish global supply chains on a large-scale, fully commercial using it as a preferred carrier.

The ship was built and developed with the support of the Japanese government to transport large quantities of liquefied hydrogen by sea. It is 116 meters long, 19 meters wide, and carries a double tank with a capacity of 1,250 cubic meters to retain hydrogen and maintain it at a temperature of -253 degrees Celsius.

The ship’s arrival comes within the framework of supporting the efforts made by Saudi Arabia to stimulate the green hydrogen economy, and to enhance its global leadership in the energy sector. It is also to confirm the high readiness of its ports to receive this type of ship, which dedicates its position as a global logistics center, and confirms the high competitive capabilities possessed by the Jeddah Islamic Port and its role in supporting the logistical system.

It is noteworthy that the company successfully completed the first shipment and transportation of liquefied hydrogen from Australia to Japan in February 2022, and stressed the need to use technology to transport large quantities of hydrogen efficiently and safely, and to benefit from it as a viable next-generation energy.

Communities depend mostly on energy such as petroleum or natural gas, which causes a serious environmental problem represented in global warming and the risk of depleting natural resources. To avoid these effects, it is essential to invest in alternative sources such as hydrogen energy to secure a stable supply of energy and preserve the global environment.

"Ultimate clean energy" is the name given to hydrogen, and it can be used like petroleum as a fuel to operate cars, and like natural gas to generate electricity. What distinguishes hydrogen is that it does not emit carbon dioxide when it is burned to produce energy, unlike fossil fuels.

Kawasaki built the first LNG carriers in Japan and Asia in 1981 and has since become a leader in refrigerated technology for marine transportation. More than 40 years later, it built the world’s first liquefied hydrogen carrier, with an upgraded system to contain pressurized refrigerated cargo specifically for LH 2, and a carrier design based on safety requirements approved by the International Maritime Organization. Suiso Frontier carried from Australia to Japan its first cargo in February 2022. The 8,000 tons ship can transport large quantities of LH2 over long distances by sea.

It is noteworthy that Prince Abdulaziz bin Salman had recently signed a memorandum of understanding with Minister of Transport and Logistics Eng. Saleh Al-Jasser with the aim of redoubling efforts towards reducing carbon emissions in the railway sector, promoting the use of green hydrogen applications in transportation paths, and employing modern technologies to build safe, sustainable and environmentally friendly transport systems in accordance with the goals of Saudi Vision 2030.

IMF report on Pakistan: Indictment of Sharif government

The IMF staff level report on its new, short-term bailout loan of US$3 billion for Pakistan is a damning indictment of the Shehbaz Sharif government’s economic and financial policies that deepened the trust gap between Islamabad and the lender, and pushed the country towards the precipice in the last nine months, is the opening paragraph of DAWN editorial.

Policy missteps and breach of the previous Extended Fund Facility program had compelled the lender to halt the disbursement of funds, closing the door on other multilateral and bilateral financing.

The IMF document, released on Tuesday, also spells out the program’s goals, many of which, such as increased energy prices, will directly burden the people. It blames the Finance Ministry and State Bank for their frequent tinkering with the market-based exchange rate mechanism, leading to the growth of a large foreign exchange black market. It is also critical of the central bank for resisting a timely increase in interest rates.

That is not all. The report points out that the government balked at maintaining fiscal discipline, cutting non-essential spending, broadening the tax net, controlling the drivers of the power sector’s circular debt, and improving SOE governance.

In view of its experience with Pakistani authorities, the IMF has warned that continuation of the new program will depend on the implementation of fiscal discipline, a return to a market-determined exchange rate and proper functioning of the foreign exchange market, a tight monetary policy aimed at disinflation, and progress on structural reforms, particularly with regard to the energy sector, SOEs and climate resilience.

The report also cautions against the exceptionally high downside risks to the Stand-by Arrangement goals emanating from a tense political environment and potential deviation from agreed policies. Such risks could undermine the program’s implementation, and jeopardize macro-financial and external stability and debt sustainability, leading Pakistan to seek foreign debt restructuring.

Additionally, it says that external financing risks remain high, and delays in disbursement of external financing from IFIs and bilateral creditors would endanger the fragile external balance given limited buffers. Spillovers from Russia’s invasion of Ukraine through high food and fuel prices, and tighter global financial conditions continue to put pressure on the budget.

Highlighting Pakistan’s large gross financing needs of US$28.3 billion, including the US$6.4 billion current account deficit, during this fiscal year, it stresses that multilateral and bilateral support will remain critical for Pakistan beyond the upcoming elections and the SBA.

It is a foregone conclusion that the next government will need another, longer-term IMF program to resolve structural challenges and meet high external debt obligations over the next few years. For that to happen, the country has to achieve the SBA goals, come what may.

 

GCC and Central Asian states share common interests

The Gulf Cooperation Council (GCC) countries and the Central Asian Countries (C5) — Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan and Uzbekistan — all member countries of the Organization of Islamic Cooperation, have shared values and historical ties, and possess significant oil and gas resources that qualify them to play an influential role in global energy security.

Hosting of the GCC-Central Asia Summit by Saudi Arabia reflects its keenness to boost existing relations, in conjunction with the GCC. It also reflects the interest of Custodian of the Two Holy Mosques King Salman and Crown Prince Mohammed bin Salman in developing relations between the GCC and C5 and increasing coordination between them on issues of common interest.

The GCC-C5 Summit held in Saudi Arabia is testimony to the participating countries' appreciation of the status of the Kingdom at the Gulf, Islamic and international levels, and their commitment to establishing a strategic partnership based on a common action plan for political and security dialogue, and economic cooperation and investment.

The first-of-its-kind summit reflects the keenness of the GCC countries, mainly Saudi Arabia, to establish partnerships with the international community to enhance the global status of the GCC.

The GCC Secretary General held the first high-level meeting with the ministers of foreign affairs of C5 countries in the Kazakh capital, Astana, on October 12, 2021; Bahraini Minister of Foreign Affairs Dr. Abdullatif bin Rashid Al-Zayani participated in it. The meeting highlighted the importance of the C5 region for GCC countries and the desire to start a strategic dialogue with it.

Participants in the high-level ministerial meeting stressed the importance of relations of Gulf-Central Asian countries and their aspiration to boost cooperation and coordination in areas of common interest, bolster bridges of communication and work to seize opportunities and develop processes of coordination and cooperation.

The First Ministerial Meeting of the GCC-Central Asia Strategic Dialogue was held in Riyadh on September 07, 2022. Chaired by Saudi Foreign Minister Prince Faisal bin Farhan bin Abdullah, the goal was to develop relations with a view to achieving common interests.

The ministers affirmed their commitment to establishing a strong and ambitious partnership among their countries, based on common values and interests, deep historical ties between the peoples, and the existing cooperation at bilateral and multilateral levels.

They also reaffirmed commitment to previously agreed-upon cooperation to support global economic recovery efforts and address the COVID-19 repercussions, help supply chains recover, support transportation and communication, food, energy and water security, develop green energy sources and technologies, address environmental challenges and climate change, education, and exchange of best practices and expertise in various fields, create business opportunities and support investments through appropriate business and investment mechanisms.

Moreover, the ministers underlined the relevance of the principles, goals and priorities stated in the context of Central Asian countries interaction, adopted by the heads of Central Asia states on July 21, 2022, in Cholpon Ata, Kyrgyzstan, and the GCC decision to establish cooperation with Central Asian countries.

To achieve their goals, the ministers endorsed the Joint Action Plan for Strategic Dialogue and Cooperation between Central Asian countries and the GCC States for the period 2023-27, including political and security dialogue, economic and investment cooperation, enhancing people-to-people contacts, and developing effective partnerships between business sectors in the GCC and Central Asia. The ministers also pledged to take the measures necessary for the proper implementation of the plan at bilateral and multilateral levels.

The value of trade between the GCC and Central Asia countries amounted to US$3.1 billion in 2021, about 0.27% of the total value of the GCC merchandise trade.

The value of GCC exports to Central Asia amounted to US$2.06 billion in 2021, while imports amounted to US$1.03 billion.

The maximum exports from the GCC to Central Asia reached 0.37% in 2020, while the maximum imports by the GCC reached 0.21% in 2021.

Electrical machinery and appliances constituted the major goods exported to Central Asia, at a value of US$0.98 billion, about 47.6% of the total volume of goods exported by the GCC to Central Asia, which amounted to US$2.06 billion.

Copper and its by-products constituted the major commodity imported from Central Asia, at a value of US$0.45 billion in 2021, or about 43.7% of the total commodity imports from Central Asia, followed by gold, precious metals and stones, and iron and steel, at about 24.3% each.

Russia strikes Ukraine grain storage facility

According to Western media, Russian missile attacks on Ukraine’s Black Sea coast have destroyed 60,000 tons of grain and damaged storage infrastructure. Agriculture Minister Mykola Solskyi said a considerable amount of export infrastructure was out of operation.

Lately, Russia pulled out of an international grain deal in place since last summer, guaranteeing safe passage for exports across the Black Sea. The Kremlin argued its demands for Russian exports had not been honored.

Within hours of its withdrawal from the grain deal on Monday, Russia struck the southern port cities of Odesa and Mykolaiv in the early hours of Tuesday. It was followed by more strikes overnight into Wednesday, targeting grain terminals and port infrastructure in Odesa and further down the Black Sea coast in Chornomorsk, two of the three ports that were included in the export deal.

Odesa military spokesman Serhiy Bratchuk called it a “truly massive attack”.

Ukrainian President Volodymyr Zelensky said each missile strike was a blow not just to Ukraine but to “everyone in the world striving for a normal and safe life”.

Ukraine’s reconstruction ministry published a series of photos showing damage to silos and other grain facilities.

Russian war commentators said the damage proved that Kyiv was unable to shoot down the majority of Russian missiles and drones.

Officials said the coordinated attack involved Kalibr cruise missiles, Onyx supersonic and Kh-22 anti-ship missiles as well as kamikaze drones, fired from the Black Sea, Crimea and southern Russia.

Although 37 Russian missiles and drones were shot down, a number did penetrate Ukrainian defenses, they said.

Russia had called its initial attack on Odesa a mass revenge strike for an attack on the Russian-built bridge over the Kerch strait linking occupied Crimea to Russia. Seaborne drones were blamed for Monday’s bridge strike that knocked out a section of bridge and killed a Russian couple.

Russian-installed officials also shut a 12km (7.5 mile) section of the Tavrida motorway that links the cities of Simferopol and Sevastopol in southern Crimea to the bridge over the Kerch strait. Construction of the road by Russia’s occupation authorities began in 2017.

 

Is bidding farewell to fossil oil possible?

The western mantra to get rid of fossil oil is getting louder. There are suggestions that countries have to take extra measures to contain carbon emission. In this race the developed countries, particularly United States and its allies are promoting clean energy i.e. solar, wind and gas. In the mean time the pressure is mounting on the less developed countries, currently using fossil oil and coal.

The International Energy Agency (EIA) expects US$2.8 trillion of investment in energy this year, with roughly 60% of that going toward clean energy. In the past two years, clean energy investment has risen 24% as compared to 15% for fossil fuels.

Producers of fossil fuels reaped huge profits in 2022, but less than half their cash flow is going towards new supply. Unsurprisingly, Middle Eastern producers lead in terms of spending on new supply.

A question arises, why the sudden surge in clean energy investment? The main explanations include volatility in fossil fuel markets, renewed interest in energy security, rising appreciation of the disruption created by climate events and greater societal interest in slowing climate change.

The largest increases in spending on clean energy by far have come from China, the European Union and the United States. Despite high interest in clean energy, the transition faces many challenges, chief among them the complexity and cost of developing and growing new energy supply chains.

The ongoing energy disruptions in the wake of the hostilities in the Ukraine have had a dramatic impact on export of LNG from the United States.

In the newly released edition of the Natural Gas Monthly, published by the Energy Information Agency (EIA), part of the US Department of Energy, the changing dynamics of the US export trades are described in detail.

In the publication, the EIA notes, “During the first four months of 2022, the United States exported 74% of its liquefied natural gas (LNG) to Europe, as compared to an average of 34% a year ago.”  It adds, “In 2020 and 2021, Asia had been the main destination for US LNG exports, accounting for almost half of the total exports.” Overall, US LNG exports saw an 18% increase as compared to 2021.

Exports have averaged 11.5 billion cubic feet per day (Bcf/d) during the first four months of 2022, aided by the opening of new export facilities. The increase in US LNG exports was driven by additional export capacity at Sabine Pass (Train 6) and at nearby Calcasieu Pass, with a facility that came online in early March. The Sabine Pass terminal loaded nearly 110 LNG cargoes during Q1 2022. Venture Global’s Calcasieu terminal, Louisiana began exporting in March, when five cargoes were loaded - four to Europe and one to Japan.  

The move towards European destinations had already begun before the late February invasion of Ukraine, with the huge inventory draw downs underway in advance of the winter season. The EIA said, “The United States became the largest LNG supplier to the European Union and the United Kingdom in 2021. They said that LNG imports from the United States to the EU and the UK more than tripled during January to April, 2022, as compared to 2021, averaging 7.3 Bcf/d.”

The EIA pointed out, “During the first four months of 2022, US LNG exports to Asia declined by 51% to 2.3 Bcf/d as compared to 4.6 Bcf/d in 2021.”

Its analysts also alluded to a drop-off in moves to China due to the extremely high Asian LNG prices and pandemic-related lockdowns. China received only six LNG cargoes from the United States in January–April 2022 or just 0.2 Bcf/d as compared to 1.2 Bcf/d in 2021. Japan and South Korea also saw declines.