Has the time come for oil tanker consolidation?
I have been thinking about two important changes in oil markets that are bound to affect tanker markets. These are in addition to the Opec production cap and rising global oil prices.
First, Saudi Arabia is growing refinery capacity faster than expected, which will change its balance of trade in both crude oil and oil products.
Secondly, the US is pursuing a policy of ‘energy dominance’ supported by the news that domestic US oil production has recovered its 10 Mn bpd peak of 1970, putting Uncle Sam on course to exceed Saudi Arabia and Russia as the world’s number one oil producer.
These factors are driving a rise in M&A activity in oil and gas. In time, these mergers may consolidate chartering customers; one can envisage a smaller number of customers for independent tanker operators, continuing an established trend.
Those customers may demand greater transparency and efficiency. For instance, using blockchain for all the documentary kerfuffle that surrounds a charter. This could also work to ship owners’ benefit, reducing credit risk, managing charter payments, demurrage calculations, and so on.
Customers may also move beyond accessing AIS data to monitor vessels’ progress. They may demand that vessels are equipped with Internet of Things to monitor, for instance, emissions, engine performance and cargo condition.
And, as is happening in iron ore shipments, customers may demand that owners pitch for fixtures via a proprietary system, shifting the asymmetry of information in the charterer’s favour.
As the UK is discovering in its one-sided negotiations with the EU, if you want to negotiate successfully, you need to negotiate from a position of equivalence. Independent ship owners are very small compared to big oil companies. But regulations banning conferences and cartels work against independent ship owners.
The modern form of capitalism is one in which whole markets can be dominated by a very few companies (oil products, computers, phones, TV, personal banking). It is a form of capitalism in which regulators allow domination but not co-operation.
This has applied most particularly to mass market consumer goods and financial services, but there is no reason why such practices should not increasingly be applied in niche business-to-business markets like shipping.
So, if you can’t beat ‘em, and you can’t join ‘em, maybe you should buy’ em….has the time for consolidation in tankers really come?