The latest figures from Poten & Partners on VLCC spot fixtures in 2018 show that Chinese oil trader Unipec is increasingly reliant on the spot VLCC market Ė is it time to scale up?
One of the most interesting elements of the Poten & Partners analysis of the top 20 spot tanker charterers of short-term transport contracts for fuel oils and other less-refined oil was the outright dominance of Unipec at the head of the list.
Unipec is the trading arm of the Chinese-state owned oil company China Petroleum & Chemical Corp, generally known as Sinopec.
Unipec fixed 985 tankers off the spot market in 2018, considerably more than Shell in second place with 692 spot fixtures and the Indian Oil Company (IOC) in third place with 280 spot fixtures.
The bulk of the Unipec spot fixtures were in the VLCC sector, where the trader fixed 703 VLCCs in 2018. In fact, the rise of VLCC spot fixtures in the Unipec name has been dramatic, according to the figures produced by Poten & Partners. In 2016 Unipec fixed 524 VLCCs, rising to 611 in 2017.
According to VesselsValue Trade module, there were 1,380 VLCC journeys to China, but only 384 journeys were on China-flagged VLCCs.
In my mind, this increasing use of the VLCC spot market is like the situation in the Capesize market in 2004 onwards. The increase in demand for iron ore was a boom for the independent Capesize owner but created a security of supply issue and an exposure to freight rate risk for China. This situation resolved in the creation of the Valemax and the subsequent takeover of part of that fleet by the Chinese.
In my opinion, the Unipec numbers are a good case for the trade to scale up to the often rumoured Chinese ULCC fleet. China has the capacity to build the ULCCs, and Unipec is gaining tanker operation experience (it has four VLCC on charter). China already has a terminal capable of receiving ULCCs (in 2017 TI Europe was used to test run ULCC berthing at Daxie Bay Shihua No 2 oil terminal and Nianyu Bay oil terminal in China). China thinks in the long-term and a resolution with the US would re-commence loadings at LOOP, and I imagine that China will build ULCC loading/lightering facilities with its main crude oil providers.
The impact on the Asian tanker trade of a Chinese ULCC fleet would be significant, as seen in the Capesize market when the Valemax became operational, but would offer opportunities for finance, technical management and shipmanagement providers in the region, too.
We are still some way from the Chinese ULCC becoming a reality, but the Chinese pull on crude oil and its demand on the tanker market are crucial to the development of the tanker industry in Asia, and these topics will be discussed the Asian Tanker Conference in February.
If you wish to discuss the idea of Chinese ULCCs, or post a question for the Asian Tanker Conference, then contact me, Craig Jallal at firstname.lastname@example.org