BMI View: Thailand's increasing demand for imported oil is opening up opportunities for tanker operators, a trend we expect to continue over the medium term. While we highlight that Thailand has ramped up the development of its own domestic fleet of tankers the country still needs the capacity and expertise that is on offer from Japanese ship operators, as the latest deal between NYK and Thai Oil highlights.
Thai Oil, which operates Thailand's largest oil refinery, has signed a deal with Japan's NYK for the shipment of crude oil from the Arabian Sea to Thailand. Under the contract NYK's very large crude carrier (VLCC) Tateyama will be contracted for at least three years to operate on shuttling oil on this route. The deal marks a further development in Thai Oil's relationship with NYK. In February 2011 the two companies established a joint venture which purchased the VLCC Tenyo and then chartered it to Thai Oil on a 10-year contract.
The continued increase in demand for imported oil from Thailand will lead to further opportunities for tanker operators in this market. In 2013 we forecast that Thailand's oil production will stand at 336,700 barrels per day (b/d); this will, however, be outpaced by demand, with the country's oil consumption forecast to stand at 1mn b/d. BMI forecasts that Thailand will have to import 692,400 b/d to make up the short full. We project the disparity between supply and demand to widen over the medium term (2013-2017) with BMI forecasting that the country will need to be importing 867,800 b/d in 2017 to keep pace with demand.
|Importing To Make Up The Shortfall|
|Thailand Total Oil Production 000b/d and Thailand Total Oil Consumption, 000b/d*|
In order to keep up with the country's demand for oil imports Thailand has been investing in its merchant tanker fleet. According to UNCTADstat the capacity of tanker's registered in Thailand has increased over the decade from 419,000 dead weight tonnes (DWT) in 2002 to 2mn DWT in 2012. While Thailand is able to depend more on its domestic operators to meet its oil import needs the country still requires the capacity and expertise on offer from Japanese ship operators.
|Expanding But Outside Help Still Required|
|Thailand Oil Tanker Fleet ('000 DWT)|
The further development of NYK's relationship with Thai Oil is good news for NYK's bulk shipping operations. The sector, which includes the firm's car carrier division, dry bulk operation and tanker unit, dominates the company's operations in terms of revenue generation, accounting for 38.4% of the total in FYH1 2012 (April 1 2012-September 1 2012). The sector is one of the few still posting y-o-y profit and revenue growth and the potential for NYK to expand its relationship with Thai Oil in the future as Thailand's oil import needs increase offer the company further revenue growth options.
|A Growing Unit|
|NYK Revenue y-o-y % Change (H1 FY2012) By Operating Unit|
BMI highlights that the deal also offers NYK some protection from the volatile spot market, with the Tateyama contracted for at least three years. BMI tracks the Baltic Dirty Tanker Index, which is made up of a number of spot rates for global crude -oil shipping routes for a variety of different vessel classes, and demonstrates the volatility in this market. From a three-year peak of over 1,200 at the close of 2009, the index has spent much of 2012 under 650, before rising to over 700 once more in November.
|Avoiding The Volatility|
|Baltic Dirty Tanker Index|
Daily returns for VLCCs operating in the spot market have had an even more unpredictable time, with ships on the benchmark Middle East Gulf -to -Asia route securing only negative returns for periods of the past year. In this operating environment the long-term time charter market becomes more attractive as it offers steady returns and long-term ship employment.