A Range Of Ordering In The LR Sector

Upsizing has been evident across many areas of the tanker fleet in recent years, and the products sector has been no exception. The total long range product tanker fleet, comprised of coated Panamaxes of 60-80,000 dwt (LR1) and coated Aframaxes of 80-120,000 dwt (LR2), stood at 583 vessels of a combined 51.7m dwt at the start of December. The growth of longer-haul products trade, partly supported by the growth of refinery hubs such as those in India and the MEG, has been coupled with the decline of the European and Japanese refinery sectors. Consequently, LR tankers have become more attractive to owners. As a result, the total LR fleet has grown by a CAGR of 11.3% between end 2000 and end 2013.
Expanding The Range

At the start of 2005, the total LR fleet stood at 231 tankers of a total of 19.5m dwt. As shown by the Graph of the Month, LR contracting reached a historical high in 2006 at 11.8m dwt. This was largely driven by 7.9m dwt of LR2 tonnage ordered in the year, partly supported by the expected opening of refinery hubs, such as Jamnagar in India.

Subsequently, as these orders were delivered into a relatively small fleet (just 22.7m dwt at the start of 2006), fleet expansion increased. LR1 fleet growth hit 25% y-o-y in 2007, whilst LR2 fleet growth stood at 21% the following year. Between the end of 2005 and the end of 2011, the combined LR tanker fleet more than doubled to 46.0m dwt, having increased by a CAGR of 15%.
Low Range Interest

Following the economic downturn, contracting decreased, to a low of 0.4m dwt in 2011. As a result fleet growth slowed in subsequent years, with just 2% y-o-y expansion in the LR1 and LR2 sectors in both 2012 and 2013.

However, further growth in long-haul products trade has been maintained, partly supported by further expansion of refinery hubs. In 2013, 7.5m dwt of LR2 tonnage was ordered, comparable to 2006 levels. Meanwhile, there was no interest in LR1s, and no contracts were placed in 2013. However, in the first ten months of 2014, LR1 newbuilding interest has risen with 1.5m dwt reportedly ordered, whilst 1.3m dwt of LR2 tonnage has been contracted.
Two Is Quicker Than One

In the first 11 months of 2014, the LR2 fleet has grown by 4% to stand at 27.9m dwt. In 2015 the LR2 fleet is expected to increase by 8.3% y-o-y, to 30.4m dwt. Meanwhile, the LR1 fleet has grown by 1% so far in 2014, largely due to very little LR1 newbuilding interest between 2011 and 2013. Largely on the back of this, the LR1 fleet is expected to decline by 0.1% in 2015 to stand at 23.9m dwt, although it is expected to grow significantly in 2016, with 1.8m dwt scheduled for delivery.

So, long range products tankers have increasingly piqued the interest of owners as long-haul products trade has become more significant. Consequently, between the end of 2005 and the end of 2013 the LR tanker fleet has grown at a CAGR of 10.5% per annum. Although fleet growth has slowed in recent years, it is likely that this will change in the short-term and fleet growth will pick-up again as the majority of the 10.4m dwt on order is delivered into the fleet in the next two years.
Source: Clarksons