1. Challenges for the tanker sector in the second decade of the 21 st century Bill Box Senior Manager Communications & External Relations INTERTANKO Plymouth University Friday 8 November, 2013

2. INTERTANKO What we do: Provide leadership to the tanker industry in serving the world with safe, environmentally sound and efficient seaborne transportation of oil, gas and chemical products What we work towards: A responsible, sustainable and respected tanker industry, committed to continuous improvement and constructively influencing its future...... zero fatalities, zero pollution, zero psc detentions

3. INTERTANKO – the figures 220 members 3,250 tankers 284m dwt 40 countries 75% of independent fleet > 10,000 dwt + 300 Associate Members

5. INTERTANKO – strength in its committees Associate Members Bunkers Chemical Tankers Documentary Environmental Human Element Insurance & Legal Offshore Tankers Safety & Technical Vetting

6. INTERTANKO – c h a l l e n g e s Sustainability Tanker Supply & Demand Green Transportation Piracy

7. Sustainability

8. Commercial sustainability = viability Strategies for s u r v i v a l Is the old way of doing business the right way for the second decade of the 21 st century?

9. INTERTANKO – viability and sustainability Today’s tanker market is unviable and poses a serious threat to the sustainability of the energy supply chain

10. INTERTANKO – viability and sustainability

11. Un-viability manifested + in charter/freight rates not covering basic vessel operating costs + in the late payment of freight and demurrage  hits owner’s cashflow  increases owner’s working capital req’t + in inconsistent, unbalanced charter terms

12. INTERTANKO – viability and sustainability

13. Estimated accumulated losses VLCCs + Suezmaxes + Aframaxes $ billion

14. INTERTANKO – Sustainability Project Aim: To realign tanker industry key stakeholders, and to work towards more balanced tanker trading conditions and fair risk sharing, that will allow sustainable quality shipping regardless of market cycles. To change bad habits/practices (late payments) A m b i t i o u s aim? Start with some specifics...

15. INTERTANKO – Sustainability Project Specifics: Erosion of, and failure to adhere to c/p terms Lack of understanding about Worldscale Inconsistent, subjective, costly vetting practices Delays in freight and demurrage settlements

16. Sustainability Project ty

17. Sustainability Project Headline figures: Accumulated losses since 2009 for large/medium tankers $26bn The same again (or more) accumulated by the smaller sizes

18. Sustainability Project Contractual obligations? Freight payable on completion of discharge Pilot study: Typical 5-10 days Demurrage payable on receipt owner’s invoice Pilot study: Typical >3 months

19. Sustainability Project – pilot study, demurrage

20. Sustainability Project Primary Focus: late payments by charterers Ultimate Aim: to change ingrained bad habits INTERTANKO Chairman Letter to Charterers >70 top level recipients Oil companies and oil traders

21. Sustainability Project Chairman’s Letter to Charterers Payment terms, freight & demurrage – worsening trend towards chronic late settlement Honouring key contractual obligations Voluntary Code of Conduct

22. Tanker supply and demand

23. Weak market, uncertain fundamentals Oil demand increasing 1-2% pa But oversupply of tankers - physical and operational Increasing North American oil supplies (shale oil) replacing Middle East oil Reduced tanker tonne-miles Tanker supply and demand - the key

24. 100,000 tonnes North Sea/NW Europe (530 miles) 53m tonne-miles 100,000 tonnes Middle East/NW Europe (11,150 miles) 1,115m tonne-miles Tanker tonne-mile effect

27. Tanker indices %

28. Tanker fleet development (Assumed max phase-out) Tanker fleet increase 2003-2013 some 72% m dwtnumber Assumed orderbook August 2011, include chemical tankers

29. Volatile tanker demand = volatile rates Source: Baltice: Exchange/BITR $/day

30. Strategic considerations for a tanker investor Young fleet - 70% for another 10-15 years China + Asia Pacific expected to drive oil demand Middle East has the production reserves Eyes fixed on 2014 BUT world economy unstable and high oil price increases uncertainty Large orderbook and deliveries weaken s/d balance Successful global GHG emission reduction means reduced oil consumption LNG Carrier and Product Tanker market strongest today - fewer ship deliveries, demand for clean energy US shale-oil backing out long-haul Middle East crudes

31. Tankers – green transportation

32. Average age tanker fleet above 10,000 dwt Based on LRFairplay Years

33. Shipping is energy efficient Toyota Prius - 1 tonne, 1 kg CO2, 12 km Source: Danish Shipowners Association

35. Int’l shipping - environmental performance Industry programmes in conjunction with the IMO: Oil pollution - reduced by > 95% since 1970s Engine efficiency - improved by > 20% in last 15 years Volatile Organic Compounds (VOCs) - voluntary measures - VOC emissions down by > 80% and over the next ten years will also deliver: Toxic air emissions (SOx and NOx) - sulphur oxide (SOx) emissions being further reduced by c. 90% and nitrogen oxide (NOx) by c.60%

36. Industry pushing mandatory efficiency improvements Reducing GHG emissions on new ships by 30% by 202510% 20% 30% Phase 1 2015 - 2019 Phase 2 2020 - 2024 Phase 3 on and after 2025 Reference Line Today Design Index (EEDI) Ship Size (DWT) Attained EEDI < Required EEDI [Tankers>20,000 DWT]

37. Shipping is energy efficient US $ 240,000,000,000 …… and still has a massive incentive to continuously reduce its GHG emissions - the annual fuel bill for international shipping - and one that is set to rise as oil prices rise and cleaner fuels are introduced - fuel bill is often 60- 80% of total operating costs

38. 1.Tanker industry is able to achieve compliance with current and future discharge standards (both regionally and internationally) 2.Installation and Operation of appropriate and adequate ballast water management systems 3.Compliance and enforcement – need strong, well defined and realistic international regulations 4.Given 1,2 and 3, tanker owners can then safely invest in BWM systems Ballast Water Management INTERTANKO’s Strategic Plan

39. Piracy

40. Northernmost Attack 15 Jan 11 MV SAMHO JEWELRY (Pirated) Easternmost Attack 5 Dec 10 MV JAHAN MONI (Pirated) 2005 – 165 nm off coast 2006 – 200 nm 2007 – 200 nm 2008 – 445 nm 2009 – 1,200 nm 2010/2011 – 1,500+ nm 1,400 nm 1,450 nm 1750 nm Haradeere Somali piracy – geographic spread 065E 15S Southernmost Attack 28 Dec 10 FV VEGA 5 (Pirated)

41. Arabian Sea/Indian Ocean ship transits N / S transit of Arabian Sea vessels keeping ever further East – running out of ocean space!

42. Naval arrest and prosecution of pirates

43. Piracy - Somalia 2009 Statistics - 47 hijackings (21% of incidents) 2011 Statistics - 24 hijackings (12% of incidents) 2013 Statistics - 6 attacks, 1 hijacking (brief), - numerous ‘suspicious incidents’

44. Piracy - Somalia Fewer successful pirate attacks: Proactive interventions from naval forces Armed guards Ship speed Implementing BMP

45. B M P Three essential requirements that cannot be over emphasised: Register Register in advance with naval forces Report Report to naval forces Implement Implement Self Protection Measures

46. Gulf of Guinea Violent attacks by armed pirates Aiming to steal cargo, not hold hostages In national waters: so no international naval intervention only permitted use local armed guards

47. Thank you for your attention