Intertanko North American Panel Meeting Tanker Market Review: Intertanko Members Top 10 The Short

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Intertanko North American Panel Meeting
Tanker Market ReviewIntertanko Members Top
10The Short Long Of ItPoten Partners,
Inc.March 22, 2004
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Top Five Short Term Factors AffectingThe Oil
Tanker Market

• OPEC
• Iraq
• Venezuela
• Bosphorus/Turkish Straits
• US Gasoline Supply

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Top Five Long-Term Factors Affectingthe Oil
Tanker Market

• China
• Libya
• Single-hull phase out
• LNG
• Industry Consolidation

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1. OPEC Production

• OPEC production and tanker rates are closely tied

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OPEC Production

• Expect seasonal reductions in production
  consistent with historical averages
• The notion of inventory re-build is misleading.
• Oil companies are now comfortable with low
  inventories
• Forward price curve suggests risks are too high
  to rebuild
• The good news no slack in the system

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2. Iraq Post-war Output is on the Rise

• Expect Iraqs Oil production to continue to
  increase
• Khor al-Amaya, Iraqs newly repaired port will
  increase output to about 1.0 million bpd
• Expect 1.5 million per day to continue from
  al-Bashrah
• Ceyhan pipeline exports have resumes
• First VLCC loaded at Khor al-Amaya after 13 years
• SOMO expects total production to be around 2.8
  million bpd by end April

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3. Venezuela

• Currently producing an average of about 2.5
  million barrels per day
• The United States imports about 1.5 million/day
  of this total
• Reduced crude exports increase demand for
  long-haul crude
• Gasoline prices are likely to increase if supply
  is reduced

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Caribs to US Daily Earnings

• Spot market activity has fallen as contract
  coverage has increased.

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4. Bosphorus Bottleneck

• Weather and daylight related delays of 20 to 25
  day in the Bosphorus are quite helpful for
  reducing tanker supply and hence increasing rates
• The straights are probably close to crude export
  capacity, but the Black Sea will continue to be a
  main conduit for Russian crude
• 89 million tons in 2003 vs. 44 million in 2000
• This crude is finding new sales locations
  including the Far East
• Pipeline projects such as the Baku-Tbilisi-Ceyhan
  (BTC) Pipeline will not provide relief next year
  so expect more delays next winter

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5. US Gasoline Supply

• As US gasoline demand begins to increase clean
  tanker rates have followed

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Summary of the Top Five Short-term Factors

• The overall crude oil and product supply market
  is precarious
• Uncertainty generally works in favor of strong
  rates
• Excess European gasoline will come to the states
  increasing transatlantic demand
• With crude oil prices near 40.00/bbl, it is hard
  to complain about high freight rates
• Expect some seasonal weakness in tanker rates,
  but the balance of the year looks promising

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Top Five Long-Term Factors Affectingthe Oil
Tanker Market

• China
• Libya
• Single-hull phase out
• LNG
• Industry Consolidation

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1. China The Waking Giant

• Chinas increasing oil demand is sending tanker
  rates along with everything else - up

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China Demand, Demand, Demand

• Petroleum demand in China second only to Japan
• Current internal production clearly not expected
  to meet demand growth
• Should China reach US crude consumption levels,
  would raise demand by 25 billion barrels/year
• Most analysts predict that the China bubble is
  not likely to burst until after 2008 Olympics

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China A Factor in Shipbuilding

• China is becoming a major player in shipbuilding
  industry
• Orderbook has 113 ships through 2007
• VLCC 9
• Suezmax 1
• Aframax 25
• Panamax 41
• Handymax 37
• Goal is to have 30 of the market by 2015

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2. Libya An Up and Coming Contender

• Large Proven Reserves about 36 billion barrels
• Most crude currently shipped to Italy and Spain
• Libyan crude is primarily shipped on Aframaxes,
  but some suezmax activity to the east
• We see the trade going to India in larger ships
  (Suezmaxes) once investment in Libya increases
  production
• If actual production increases another 1.0
  million by end of decade, the crude will likely
  flow east in larger quantities

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3. Single-Hull Phase Outs

• The EU and IMO regulations have had positive
  impact on rates in the Atlantic Basin tanker
  market
• Still a significant number of ships to phase out
  by 2010 and with some exceptions 2015

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Single-Hull Replacements

• The current orderbook is essentially full
  through 2006
• More orders will still be needed in order to
  meet the full phase out
• Regulatory pressure has generally been favorable
  for overall rates

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4. Global LNG Trade Route Development

• The global LNG trade has seen considerable growth
  in the past 30 years.
• In 1970 only 3 worldwide export locations
  countries serving 5 import countries
• By 2000 the trade grew to 12 export countries and
  11 import countries with a much more dynamic
  trading patterns including spot cargo movements
• The current world fleet of about 155 LNG tankers
  is still quite small compared to conventional oil
  tankers

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1970 Global LNG Trade Routes

• Algeria dominates LNG trade world wide, Libya
  and Alaska are small players
• Europe is the main market

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2000 Global LNG Trade Routes

• US comeback and associated growth in spot trades
• Korea is second largest importer of LNG
  worldwide. The Middle East becomes key supplier,
  able to access both Pacific and Atlantic basins

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Transportation Cost LNG vs. Crude Oil
High transportation costs relative to crude have
limited development of a liquid spot trade in LNG
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LNG Supply/Demand Summary

• Steady growth
• Outlook for growth through 2010 is more rapid
  than in past 10 years
• The challenge will be to meet uncovered demand
  since large contract coverage expires at the end
  of this decade, particularly in Asia-Pacific

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5. Industry Consolidation

• Oil companies merged in the late 90s at a rapid
  pace
• Tanker owners have followed suit
• Analysis suggests that consolidation and the
  formation of pools has had positive economic
  benefits for owners

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1997 Tanker Fleet Profile

• Top ten companies controlled about 19 of the
  Dwt of tanker fleet and 9 of the ships

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2004 Tanker Fleet Profile

• Top ten companies today own about 23 of the Dwt
  of tanker fleet and still about 9 of the ships
• Tanker pools have consolidated certain markets

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The Good News

• Equity market historically tracked physical
  freight market. Both are now at record
  levels

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Top Ten Summary

• With numerous variables in the tanker
  transportation network, wild-cards are generally
  beneficial to owners
• Short-term crude supply is likely to be reduced,
  but overall annual demand is expected to be
  higher thanks to demand growth in key areas such
  as China and the US
• Even the bears are getting, if not bullish, at
  least less bearish

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