

Weight of Freight: Size Matters – owners and charterers adjust to a changing tanker market
From 1967 until the oil crisis of 1973 there were orders for about 80 very large crude carriers (VLCC) and 40 ultra large crude carriers (ULCC), according to engine manufacturer Wartsila. This boom was followed by the total collapse of the newbuild market for these tankers until the middle of the 1980s. Since then, over 400 VLCC have been ordered, but it took more than 20 years before the next ULCC contract was signed.
The new TI class of ULCCs were delivered in the early 2000s, but within a decade most had been converted to floating production, storage and offloading (FPSO) vessels (FSOs) for use in the Mideast Gulf and southeast Asia. Prizing quantity over flexibility, these ships were wider than the new Panama Canal locks (begun in 2007 and completed in 2016), and could not travel through the Suez Canal unless on a ballast voyage.
Their massive capacity of more than 3mn barrels of crude oil reflected climbing global oil demand – almost double what it was in 1973 – and China’s arrival as the world's largest importer of crude oil. Some forecasters now predict oil demand will peak in 2030, reducing the need for supertankers, but other forces have seen shipowners and others return to newbuilding markets for VLCCs in recent months.
Pandemics, infrastructure projects, price wars and actual wars have moved and lengthened trade flows in the last four years, making larger vessels more attractive because of their economies of scale. These have impacted the make-up of the global tanker fleet in other ways as well, such as prompting a small recovery in interest in small Panamax tankers, which have long been sliding out of existence.
The role of vessel size in tanker freight markets is sometimes underappreciated. In the wake of the G7+ ban on imports of Russian crude and oil and products, and attacks on merchant shipping in the Red Sea and Gulf of Aden by Yemen’s Houthi militants, flows of crude oil have had to make massive diversions. Russian crude oil is flowing now to India and China rather than to Europe, while Europe’s imports of oil, diesel and jet fuel from the Mideast Gulf are taking two weeks longer, going around the Cape of Good Hope to avoid Houthi attacks. This has pushed up tonne-miles – a measure of shipping demand – to record levels. Global clean Long Range 2 (LR2) tanker tonne-miles rose to a record high in May this year, data from analytics firm Kpler show, while tonne-miles for dirty Aframax tankers rose to a record high in May last year. It has also supported freight rates.
High freight rates have brought smaller vessels into competition with larger tankers, at the same time as long routes have increased the appeal of larger ships. The Atlantic basin appears to be key site for increases in production (from the US, Brazil, Guyana and even Namibia), and an eastward shift in refining capacity globally will further entrench these long routes and demand for economies of scale.
Aframax and LR2 tankers are the same sized ships carrying around 80,000-120,000t of crude oil or products. LR2 tankers have coated tanks, which allows them to carry both dirty and clean cargoes, and shipowners may switch their
LR2/Aframax vessels between the clean and dirty markets, with expensive cleaning, depending on which offers them the best returns. But an unusually high number of VLCCs – at least six – have also switched from dirty to clean recently. Shipowner Okeanis, which now has three of its VLCCs transporting clean products, said it had cleaned up another one in the third quarter.
A VLCC switching from crude to products is very rare. Switching to clean products from crude is estimated to cost around $1mn for a VLCC. It takes several days to clean the vessel's tanks, during which time the tanker is not generating revenue. But a seasonal slide in VLCC rates in the northern hemisphere this summer has made cleaning an attractive option for shipowners, while their economies of scale make the larger tankers more attractive to clean charterers as product voyages lengthen.
Argus assessed the cost of shipping a 280,000t VLCC of crude from the Mideast Gulf to northwest Europe or the Mediterranean averaged $10.52/t in June, much lower than the average cost of $67.94/t for shipping a 90,000t LR2 clean oil cargo on the same route in the same period. It is likely these vessels will stay in the products market, as cleaning a ship is a costly undertaking for a single voyage.
Typically, a VLCC will only carry a clean cargo when it is new and on its inaugural voyage, but just one new VLCC has joined the fleet this year, further incentivising traders to clean up vessels as demand for larger ones increases. This year has seen a jump in demand for new VLCCs, with 29 ordered so far. There were 20 ordered in 2023, just six in 2023 and 32 in the whole of 2021, Kpler data show. But the vast majority of these new VLCCs will not hit the water until 2026, 2027 or later because of a shortage of shipyard capacity.
Last year and 2024 also saw the first substantial newbuilding orders for Panamax tankers, also called LR1s, since 2017. Product tanker owner Hafnia and trader Mercuria recently partnered to launch a Panamax pool. The rationale may be that Panamax vessels can pass through the older locks at the Panama Canal, and so are not subject to the same draft restrictions imposed because of drought that has throttled transits and led to shipowners paying exorbitant auction fees to transit.
Aframaxes and MRs will remain the workhorses of crude and product tanker markets respectively, but the stretching and discombobulation of trade routes (which appear likely to stay) has already driven changes in which vessels are used and which are ordered. When these ships hit the water, they will join a tanker market very different to the one owners and charterers were operating in just four years ago.
Spotlight content
Related news
German heating oil sales in February higher on the year
German heating oil sales in February higher on the year
Hamburg, 17 February (Argus) — German heating oil sales in February are up from the same month last year, mainly driven by colder weather. Diesel demand, on the other hand, is down. Heating oil volumes submitted to Argus in the week ending 14 February held steady compared with the week prior. But volumes in the first half of February have been around 70pc higher than in the same period in 2024, and many buyers' tank levels are very low. Temperatures in most regions of Germany in February were 1.1-2.1°C lower than the 1991-2020 average, according to weather information website Wetterkontor. Average consumer stock levels were just over 51pc on 12 February, according to Argus MDX. This is not unusually low for the time of year, but is 1.2 percentage points below the same day in 2024. Traded diesel volumes in February to date are around 15pc lower than in the first half of February 2024. Traders attribute this to worsening economic conditions and an increase in bankruptcies. The production index for the manufacturing sector in December was at its lowest since May 2020. Increasing use of alternative fuels such as HVO100 could also be linked declining diesel demand, at least regionally, although only to a small extent. HVO100 sales in Germany are gradually increasing, and Argus estimates that around 15,000m³ (around 3,150 b/d) are sold per month. Meanwhile, 65,000 b/d of diesel arrived in northern German ports in February. This is an increase of around 68pc compared with January. Of the arrivals this month, 40pc came from India. These are the first cargo deliveries from the Jamnagar refinery in India to northern Germany since November 2024. By Johannes Guhlke Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.
Philippines to review shutdown of 232MW coal plant
Philippines to review shutdown of 232MW coal plant
Manila, 17 February (Argus) — The Philippines will review plans to retire the 232MW Mindanao coal-fired power plant in Misamis Oriental province because the rehabilitation of a major regional power complex could cause an electricity supply shortage. The country could put on hold plans to accelerate the retirement of the Mindanao coal plant to 2026 from 2031, the Department of Energy (DoE) said. The plant, majority owned by private-sector Aboitiz Power, started operations in 2006 under a build-operate-transfer (BOT) agreement with the National Power and Power Sector Assets and Liabilities Management. The plant was originally scheduled to be retired in 2031 once the BOT agreement had run its course and plant ownership transferred to the national government, but authorities later decided to shut it down by 2026. The plant consumes over 1mn t/yr of coal. Authorities might review the retirement plans to offset the loss of power supply from the 1,000MW Agus-Pulangi hydropower complex, which will be rehabilitated next year. The complex comprises seven hydropower plants and serves as a key source of baseload power in the Mindanao grid. It is currently capable of producing only 600-700MW of power because of siltation and ageing infrastructure. Parts of the power complex are over 50 years old and its oldest dam, Agus 6, started commercial operations in April 1971. The rehabilitation involves repairing, replacing and upgrading the components of an existing hydroelectric power plant to restore its functionality, improve efficiency and extend its lifespan. The complex will run at a derated capacity during rehabilitation works, which could take several years. This comes as power demand in the Mindanao grid continued to increase last year. Demand averaged 2.248GW in 2024, a 10.2pc increase from 2.040GW a year earlier. The Mindanao plant could supply enough power to keep the grid stable at its full capacity, by covering for the loss in generating capacity and meeting the increase in power demand, DoE added. By Antonio Delos Reyes Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.
Japan’s economy grows in 2024
Japan’s economy grows in 2024
Osaka, 17 February (Argus) — Japan's economy expanded for a fourth consecutive year in 2024 as corporate investment increased, even as oil product demand fell. Gross domestic product (GDP) rose at an annualised rate of 2.8pc in October-December, according to preliminary government data released on 17 February, following growth of 1.7pc in July-September and 3pc in April-June. This sent Japan's full-year 2024 GDP up by 0.1pc from a year earlier, its fourth straight year of growth after a Covid-19 induced slump in 2020. Nominal GDP amount totalled ¥609.3 trillion ($4 trillion) in 2024, exceeding ¥600 trillion for the first time. Investment by private-sector companies rose by 1.2pc from a year earlier in 2024, recording annualised growth of 1.9pc in October-December. The rise partially reflected a government push for a green and digital transformation of the economy in line with its 2050 net-zero emission goal. Such spending is expected to continue to increase under Tokyo's economic stimulus package. Japanese business federation Keidanren has forecast that nominal capital investment could rise to ¥115 trillion in the April 2027 to March 2028 fiscal year, up by 7.5pc from an estimated ¥107 trillion in 2024-25. But private consumption, which accounts for more than 50pc of GDP, dropped by 0.1pc from a year earlier in 2024, as inflation capped spending by consumers. This also probably weighed on demand for oil products such as gasoline, despite government subsidies. Japan's domestic oil product sales averaged 2.4mn b/d in 2024, down by 5.2pc from a year earlier, according to data from the trade and industry ministry Meti. Gasoline sales, which accounted for 31pc of the total, dropped by 2.2pc to 752,700 b/d over the same period. But Japanese electricity demand edged up by 0.7pc year on year to an average of 98.8GW in 2024, according to nationwide transmission system operator the Organisation for Cross-regional Co-ordination of Transmission Operators. Stronger power demand reflected colder than normal weather in March and unusually hot weather in October. Japan's real GDP is predicted to rise by 1.2pc during the 2025-26 fiscal year, following predicted 0.4pc growth in 2024-25 and a 0.7pc rise in 2023-24, the Cabinet Office said on 24 January. The figures are the Cabinet Office's official estimates and form the basis of its economic and fiscal management policies. By Motoko Hasegawa Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.
Japan’s Mitsubishi Chemical to produce recycled PE, PP
Japan’s Mitsubishi Chemical to produce recycled PE, PP
Tokyo, 17 February (Argus) — Japanese petrochemical producer Mitsubishi Chemical plans to demonstrate production of recycled polyethylene (PE) and polypropylene (PP) at its chemical recycling plant in eastern prefecture Ibaraki from this summer. Mitsubishi Chemical and its five recycled plastic supply chain partners — the city of Kashima in Ibaraki, recycled material producer Refinverse, package manufacturer Toyo Seikan, food supplier Kewpie and Ibaraki-based supermarket operator Kasumi — signed an agreement on 14 February to collaborate in demonstrating recycled plastic production and supply. The firms will collect waste plastics within Ibaraki for processing to produce oil, which will be used to manufacture recycled plastics such as lids of sauce bottles for supply to the market before being collected from end users as waste plastics for chemical recycling. Mitsubishi Chemical will use its chemical recycling plant in the Kashima petrochemical complex in Ibaraki for this circular economy project. The firm completed construction of the plant in November 2024 and has been conducting a trial run to turn waste plastics into regenerated oils. Mitsubishi Chemical's subsidiaries Japan Polyethylene and Japan Polypropylene will be in charge of manufacturing PE and PP from the recycled oil. The demonstration will continue until June 2026. But the timeline for this project and its Kashima chemical recycling plant beyond this, including targets for commercial operations, was not disclosed. Mitsubishi Chemical initially aimed to start commercial operation of the plant, which can process 20,000 t/yr waste plastics to generate around 12,000-16,000 t/yr of regenerated oil, by the April 2023-March 2024 fiscal year. But construction was postponed because of the Covid-19 pandemic and delays in deliveries of equipment amid the Ukraine-Russia conflict. By Nanami Oki Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.
