# The Diminishing Future of Oil Tankers: Challenges Ahead
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Chapter 1: The Decline of New Oil Tankers
Recently, Steven De Jaeger from Remant Transport Architects shared a striking observation: the market for new oil tankers is virtually non-existent. The latest figures reveal that the ratio of crude tanker capacity on order compared to those currently in service has plummeted to an unprecedented low of just 2.7%, as reported by Clarksons Securities.
For very large crude carriers (VLCCs), which transport up to 2 million barrels of crude, the figure is even lower at 1.7%. These vessels play a crucial role in moving crude oil exports from regions like the U.S. Gulf and the Middle East. As it stands, by the end of this year, there will be 910 VLCCs operating, yet not a single new VLCC is set to launch in 2024, and only one is expected in 2025.
The outlook for product tankers is similarly grim, with the order-to-fleet ratio dwindling to merely 6.1%.
The assertions made in the recent article are intriguing, yet they seem to be accompanied by various justifications for this decline. The primary concern is the anticipated peak in oil demand, likely to occur within this decade, making the purchase of a capital-intensive asset with a lifespan of 25 years a questionable investment. In the case of oil tankers, this could lead to physical obsolescence in addition to financial stranding, akin to the challenges faced by the Trans Mountain Pipeline project.
For context, numerous organizations, including Equinor, McKinsey, and the International Energy Agency, have projected peak oil demand occurring between 2025 and 2030. Factors such as the COVID-19 pandemic and the European energy crisis have accelerated this shift away from fossil fuels. Previous peaks for coal and natural gas have been observed, with expectations of decline in the coming decades.
Section 1.1: Future Projections for Maritime Shipping
In my analyses of maritime shipping trends, including tonnage, energy consumption, and fuel sources, projections indicate a return to around 2017 levels by 2030, with about 3,000 megatonnes of oil and gas transported. This figure is expected to decline by approximately one-third each decade through 2050, eventually stabilizing at around 200 megatonnes by 2090 and 2100. Notably, 40% of bulk shipping is currently represented by coal, oil, and gas, which are largely expected to diminish, while another 15% is comprised of raw iron ore, which will also see a reduction due to increased scrapping and local processing.
Despite the evident downward trends, the oil and gas sector seems reluctant to acknowledge these shifts. Many industry players are clinging to the notion that peak oil demand will merely lead to a prolonged plateau; however, this perspective may be overly optimistic.
Subsection 1.1.1: The Transition to Electric Vehicles
80% of fuel demand originates from ground transportation, which is on the verge of significant electrification. Countries like India and China are leading the charge, with electrification rates for heavy rail reaching 83% and 72%, respectively. Meanwhile, European nations are also making strides, with a 60% electrification rate. The rise of electric vehicles in China, which has already surpassed 60% of annual purchases in plug-in vehicles, signals a transformative shift in fuel consumption patterns.
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Section 1.2: Financial Risks and Market Dynamics
As the shipping industry grapples with uncertainty, many hesitate to sign long-term contracts for crude deliveries, fearing that these assets may become stranded. The cost of large vessels can range from $60 million to $120 million, with lifespans of 20 to 25 years. Given the existing fleet of VLCCs, many of which could be extended for additional years, the reluctance to invest in new ships is understandable.
Chapter 2: The Cost of Transitioning in Maritime Shipping
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How An Oil Tanker Works And Designed - YouTube
This video provides an insightful overview of the design and operational mechanics behind oil tankers, shedding light on their role in the shipping industry.
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Salvagers Abandon Efforts To Tow Oil Tanker Set Ablaze By The Houthis - YouTube
This video chronicles the challenges faced by salvagers attempting to manage a burning oil tanker, illustrating the risks associated with maritime oil transport.
In summary, the maritime shipping industry faces a confluence of factors that are leading to a stark decline in new oil tanker orders. With rising costs and uncertain market conditions, the future of oil tankers appears increasingly precarious.