Shipping Industry: Current Market Cycle and Future Demand Trends

The current shipping cycle indicates early stages with ordering frenzy and increasing energy demand, influencing vessel market dynamics.

### Tanker Market Analysis and Energy Consumption Trends
* 🛢 The current tanker market cycle is still in its early stages, with **strong demand for new vessels** and **limited fleet growth** expected in the coming years.
* 🏗 Shipyard capacity constraints are a key factor in the market, with **orders for 2026 already sold out** and **2027 nearing capacity**.
* ⛽ Despite expectations for a green energy shift, oil consumption continues to grow, challenging **previous peak oil demand predictions**.
* 📊 Energy consumption is increasing in line with population growth and rising wealth, with **oil's share of the energy mix actually expanding**.
* 🔮 Analysts are adjusting their peak oil demand forecasts, with some pushing the timeline **closer to 2040 or even 2050**.
* 🌍 The slow pace of the green energy transition is supporting current oil demand, with the tanker market **benefiting from this trend**.
* 📈 The speaker believes the market is more of a **supply story** than a demand story, with **supply constraints** driving the current cycle.
* 💡 The early stage of the tanker market cycle suggests **potential for continued growth** and **opportunities for investors** in the sector.

so last time we did an episode, it's actually episode 132. You gave a lot of big lessons that the audience really enjoyed, but one part you spoke about was the Frontline original memo, I think. And you said, you know, Frontline is all about saying, uh, precisely where we are in the cycle, and also, you know, executing. So if this tanker party is going on right now, where are we in the party? Like, is it early in the party? Should we stop drinking alcohol, switch to water just because you don't want to be the last one closing, you know, closing the party? So if you get the analogy because it's been this super cycle has been talked about a lot, and of course you get sentiment momentum. So where do you define this cycle in terms of where are we? Well, I, I, I think we haven't, uh, you know, we haven't even sat down for dinner yet, to be quite honest. So, uh, and I, I have this, um, you know, you kind of for this analogy and imagine, you know, we're

having you know drinks first, then we sit down for dinner. Uh, then obviously we're going to do some dancing and all that stuff. And in Norway, as you know, we do an after party as well. So we actually don't really go home until the Sun is up. So, but we haven't sat down for din yet, I believe. Um, and there's actually clear a few indications about, you know, kind of backing that because over the last couple of months, we've had what some people would refer to as ordering frenzy. Uh, there's been a lot of Suezmaxes, a lot of VLCCs being contracted. You know, on the LR2 side, you could say they started much earlier, but not necessarily from a kind of market point of view, I think, because it's more relating to what shipyards can actually build the various asset classes. And the bigger the asset classes are, the fewer yards can actually build them. And VLCC is quite big, so you need the birth and the size kind of in order.

to to to do build uh but looking at that now so so there's been a frenzy um 2026 is sold out. 2027 is actually starting to. I don't think it's sold out for any, you know, you know. I still think there's possibilities, at least from certain yards, and and if you move maybe what's at least perceived, the lower quality yards, you can probably get a lot of stuff done in 2027. But um, you know, that that gives us. We're only, you know, in the first quarter of 2024. So so so you know, there are a few years ahead of us, uh, and also if you look at how many ships who are not, um, you know, the kind of the Aging profile of the fleet is only getting more and more prominent. Um, so so, um, you know, I think basically what we've see now is that at least for the next few years we're not really going to have any significant Fleet growth in the bigger segments, uh, on the L2 side, yes, but elus again as I've said in my my call and and

I've said a few times, uh, Lusdue to coating tends to have a shorter, uh, lifespan than Sumax and as so, so you, you would more look at the 15E threshold, and then we're actually in the generations that were delivered kind of late, uh, in, in, you know, 2000s. So, 2007, 8, n which are big generations for Lus, um, and, and so basically they will also have this kind of, well, the effectiveness of those fleets will be reduced quite heavily, uh, going forward. So we actually need those 45 or 50, whatever elot are on order right now, we need them to come, uh, and we need, uh, the VC, we need the Su Maxes as well because I think if there's anything that's happened since we did this call the last time is the recognition of the fact that, uh, the green shift is not happening quickly enough, um, and we, you know, we all obviously want alternative energies, we want clean blue skies, we want our children to grow up.

in the world you know with the basically less pollution, but uh, it doesn't happen as quickly as people would have wanted. So, in this equation where you have, you know, the order book, the vessels, and the market, it's, it's fair to say that you're very comfortable with this Market perspective since the order book. But on the other side of the equation is that as easy and predictable because markets, you know, we can get dive into, of course, the market perspectives, but there, there is a lot of unknowns, of course. So, how would you like if you take that equation? This is definitively, uh, a supply story. So, it's not a demand story. Demand is extremely difficult for us to, to, to understand or, or, or, or analyze. I think just the volatility in oil price itself, as I touched upon two years ago as well, is, you know, is not, is not a very efficient market. But I think kind of what we've seen is that overall energy consumption is going up, uh, you know, incidentally, um, kind of around the time we had the call.

two years ago, uh, DMV, you know, they give out their annual report, which is I think it's called Vision 5050. No, sorry, 2050 or something, um, and where they, uh, try to analyze and try to give estimations of how the Energy Mix is going to look in 2050, uh, and they also then have ideas about peak oil demand, you know, when does oil demand start to reduce, replaced, you know, everybody knows energy is probably demand is going to grow, but what's the mix going to be like, right, and and two years ago they actually had us being at the peak in 2019, 2020, so, so, so, uh, well, actually to be fair to them, probably 21 because, um, you know the Assumption was that postco, um, you know, the peak oil demand of hydrocarbons in the mix had peaked already, uh, it's quite obvious that that never happened, so overall, uh, energy demand does follow the, you know, the estimated path, um, and grows more or less with the population growth, and obviously with the

you know, people are becoming more and more wealthy, actually affording to have an Eevee, for instance, or affording to, you know, replace firewood with the, with the, uh, LPG, for instance, uh, and, and, um, so, so, so that's happening. But oil, as a part of the energy mix, is not reducing, it's actually increasing, um, so, so when, you know, I think kind of most analysts and experts looking at this basically have to gradually, re-just their models and they see, and it's not like necessarily it's a disaster for the world because we are actually capturing more of, um, uh, kind of the bad stuff, uh, from our, our, our energy consumption, but, but, but, um, uh, it seems to continue to grow, um, and, you know, I think if you ask, well, if you look at, um, is it BP that do, do their huge analysis, um, then, you know, that kind of peak is starting to move closer and closer to 2040, uh, even some putting it closer to 2050 now, so, so, so we, we, we, you

know, I think on average, last time I checked, uh, last fall, I think the average, if you put all these, you know, uh, uh, numbers together, uh, from the various analysts, uh, you know, we were peing around 2037 or something, now it's moving closer and closer to 2014, yeah.

Frontline CEO, "This Tanker Party Is Just Getting Started" | Lars Barstad On Vonheim

Christopher Vonheim

Analyzing the Current Position in the Shipping Cycle

The speaker likens the current shipping cycle to a party, indicating that they believe it is still in the early stages, with a lot of ordering activity in recent months.

They explain that the ordering frenzy for different types of vessels supports their view and that the market point of view is also a crucial factor in determining the cycle's position.

The speaker also mentions the impact of shipyard capabilities on the timing of the cycle for various asset classes.

Projections for Ship Production and Fleet Growth

The ship production for 2026 is already sold out, with 2027 filling up quickly, especially in the higher quality yards.

However, there is a notable aging profile of the fleet, particularly in the big generations for Lus, which will heavily reduce their effectiveness in the coming years.

As a result, there is a need for the ordered ships to be delivered, including the Su Maxes, due to the slow progress of the green shift towards alternative energies.

The Complexities of Energy Market Perspectives

The energy market's future is driven by supply rather than demand, which is challenging to understand and analyze.

The volatility of oil prices indicates an inefficient market, despite increasing energy consumption.

The projected peak oil demand in 2019-2021, as suggested by the Vision 2050 report, has not been realized, with energy demand continuing to grow alongside the population.

The Increasing Affordability of Eevees and LPG Substitution

As people become wealthier, they can afford to have Eevees as pets and switch from firewood to LPG.

Despite this, oil remains a growing part of the energy mix, with the projected peak of its consumption being pushed closer to 2040 or even 2050, leading to a gradual reassessment by analysts and experts.

Decreasing Average Projection for the Year 2037

The average projection for the year 2037 has decreased from 2037 to 2014.

This change is based on data from various analysts and indicates a significant shift in the projected average.