Shipping group seeks big tanker role

A shipping veteran has outlined an audacious plan for the oil product tanker company he runs to become one of the industry’s biggest forces after it bought up large swaths of the available capacity to build ships.

Robert Bugbee, chief executive of Scorpio Tankers, said his company had “first-mover advantage” because it had reserved so much of the available capacity to build some product tanker types. Would-be competitors would now struggle to find competitively priced capacity.

Mr Bugbee expected the market for product tankers – which has been depressed since the 2008 financial crisis – to grow strongly in the near future, partly thanks to the growth of big refineries in India and around the Gulf and to demand for palm oil. The effect on the market of the US’s energy production boom was likely to be particularly strong.

“We have this tremendous, once in a generation change as a result of shale oil and gas in the US,” Mr Bugbee said.

Scorpio, which is listed in New York, owns 15 vessels, operates 25 chartered from other owners and has 54 on order. It announced 16 new orders on May 30.

Mr Bugbee said the company held around 60 per cent of the worldwide contracts to build LR2 longer-range tankers and 25 per cent of the medium-range tanker orders.

Mr Bugbee, who was worked nearly 30 years in the tanker industry, was previously the chief executive of OMI Corp, a listed tanker operator, which he sold to two rivals – the US’s Teekay and Denmark’s Torm – in 2007.

Many of Scorpio’s ships would be identical, which creates economies of scale, Mr Bugbee said. Its relatively large fleet would also make it easier to deploy vessels efficiently, without wasting effort by moving vessels empty .

The new vessels will also use less fuel than rivals’ older ships and will be able to move faster between carrying different products, thanks to improved tank-cleaning technology.

The product tanker market has been suffering an oversupply of ships and weak demand, partly because many new oil refinery projects worldwide failed to open as quickly as expected. The slump forced Torm, one of the biggest product tanker operators, into a painful restructuring to stave off bankruptcy.

Mr Bugbee insisted that new refineries in India and the Middle East were finally coming on stream and there would be strong future demand to move products long distances. “We’re shipping cargo from India to all around the world,” he said.

Scorpio’s strategy echoes that of John Fredriksen, the world’s most influential shipowner, who has placed significant ship orders to benefit from new vessels’ improved efficiency. His first order under the strategy was a batch of 10 medium-range product tankers.

But Mr Bugbee insisted that only a handful of Korean shipyards had the capability to build high-quality product tankers, the financial stability to sign contracts and the spare capacity to build vessels. That would make it impossible for competitors to catch up with Scorpio.

“You can’t get a free berth at a top Korean yard for a product tanker until 2016,” Mr Bugbee said.