Exclusive interview with Tankers International CEO: VLCC pooling’s role poised to grow with energy transition demands rising

As the maritime industry navigates uncertain seas in 2024, including geopolitical tensions, major shipping route disruptions, supply-demand imbalance and new environmental regulations, adaptability seems to be the simple secret to survival and business success.

The very large crude carrier (VLCC) tanker sector is no exception when it comes to the multifaceted challenges the shipping industry is experiencing. To weather numerous challenges more effectively, many VLCC owners opt to join tanker pools.

Tankers International is a UK-based company with offices in London, Singapore and New York that operates the world’s largest pool of VLCCs, which has about 40 ships.

Offshore Energy spoke with Charlie Grey, Tankers International’s CEO, on how its members are doing business amid the current disruptions to shipping, environmental regulations, decarbonization and digital transformation and what challenges they are facing.

• OE: How many vessels does the Tankers International’s pool hold today? How many VLCCs are equipped with scrubbers and are there any with dual propulsion systems?

Grey: We currently have 40 VLCCs in the pool today, bolstered by recent new additions from Kuwait Petroleum Corporation, Transport Recovery Fund and Asia Pacific Shipping Company.

29 of our vessels are equipped with scrubbers, and while we do not have any dual-fuelled ships in the pool at the moment, our pooling model is set up in a way that we can easily adapt to welcome vessels with any type of propulsion system in the future.

• OE: How is your company incorporating sustainable practices and reducing carbon emissions in the VLCC sector? Can you share specific initiatives or technologies your company is adopting to make VLCC operations more environmentally friendly?

Grey: Our team continually monitors developments in the global energy transition, and we recognise shipping’s role and responsibility in making this a reality as well as achieving the industry’s own net-zero targets.

Tankers International is committed to transporting crude in the most efficient and sustainable manner possible. We are always exploring how we can best evolve and develop our flexible pooling model further. Over the years our pooling model has had the ability to successfully adapt, in line with the changing market dynamics that are an inherent part of our industry.

Our most recent initiatives include: trialling biofuels, making reporting mandatory to support the CII prior to its introduction in 2023, and ensuring that our team and pool partners are prepared with the correct processes and knowledge of the EU Emissions Trading System, now that shipping has been entered into this scheme in 2024.

• OE: What has been the experience of shipowners (TI members), ship charterers following the entry into force of carbon intensity indicator (CII) and the Energy Efficiency Existing ship Index (EEXI)? What are the main strengths of pooling when complying with these regulations? What are the issues, given that a large portion of the world’s VLCC fleet, around 30%, is expected to have a hard time in meeting energy efficiency regulations?

Grey: The Tankers International pool supports ship owners in meeting high Carbon Intensity Indicator (CII) ratings for their vessels whilst maximising their commercial performance. Providing a large pool of vessels can ensure that high-paying voyages that may incur a negative CII rating are shared appropriately between vessels to find the best balance between profit and CII impact for all. These factors also lay the foundations to support shipowners through future environmental regulations, which are only set to increase over the coming months and years.

At the same time, the cash-flow and financing advantages that the pool represents also give vessels access to longer voyages that often represent higher rates and CII advantage.

The experience across the Tankers International team and the information sharing culture we promote between our pool partners allows for continued discussion and development of best practices to create a strong platform from which we can ensure regulatory compliance as well as commercial excellence.

Grey added that given that the Tankers International pool consists of high-quality ships, complying with environmental and efficiency regulations is much easier.

• OE: Are your members prepared for the EU ETS? What are the issues when it comes to the EU ETS compliance for VLCC owners/operators?

Grey: We have been preparing for the introduction of EU ETS for several years now, with a team of experts who understand this mechanism and have been able to ensure that we have all the necessary processes and data reporting facilities in place.

It is important to note that many charterers with whom we have strong relationships, have well-established experience operating in the EU ETS since 2005, due to their operations across other industries. We have engaged with these companies to develop our own best practices.

Meanwhile, owners are already reporting emissions under EU Monitoring, Reporting and Verification Regulation and have been since 2018, so most owners and technical managers already had that reporting facility in place.

We believe that shipping entering the EU ETS presents an opportunity for the pool from a financing and structural point of view. For example, TI can support owners with guidance when it comes to the procurement of credits. Meanwhile, for smaller operators, the pool can also help them by providing administrative support.

By freeing up operational resources for shipowners, our pooling model can provide flexibility to redeploy their resources to manage other urgent needs, such as evaluating and trialling new technologies.

• OE: A large portion of the VLCC fleet is older than 15 years and these ships are likely to become recycling candidates due to their inefficiency. On the other hand, the orderbook is at record low levels. This is happening amid the rising global demand for oil. In your view, what’s the solution to this problem? How can the VLCC sector alleviate the negative effects of the new tonnage deficit?

In 2023, the global VLCC fleet took delivery of 22 new vessels, a record low number. In 2024, only a single VLCC is scheduled for delivery, according to Tankers International.

However, the past few weeks saw a significant VLCC orders growth, with Trafigura, DHT Holdings, and a four-member Japanese consortium announcing new shipbuilding projects.

Grey: VLCC fundamentals and the wider tanker markets look bullish as we start 2024, and demand is set to increase with continued growing tonne miles.

To meet the market’s requirement for VLCC tonnage, therefore, the role of pooling will also grow. Beyond the demand to carry cargo, we expect that compliance will also emerge as a challenge and will require significant investment from some VLCC owners. Planning and allocating funds for those investments will present a cash flow challenge for those without bottomless war chests.

By providing a guaranteed, regular income, the pooling model can smooth out cash flow issues and make planning easier for a future that will include CAPEX-intensive emissions reduction technologies.

Meeting the demands of the energy transition will also require action from VLCC owners. Pooling offers owners the benefit of regular forums and knowledge sharing opportunities that will enable technological delegates to share insights and experiences on important innovations and best practices.

• OE: With changing dynamics in global politics, particularly involving major oil-producing nations, how do you assess the potential impact on the VLCC segment?

Grey: The last three years have been a rollercoaster for VLCCs. Many of the same factors that drove 2022’s tanker market trends remained relevant in 2023, including Russian oil displacement to Far Eastern markets, the OPEC+ alliance curbing global oil supplies, and a “dark fleet” of often older tonnage continuing active trading, when in the past they would have exited the market years sooner.

As we enter 2024, the tanker markets have strong fundamentals. Despite being at more muted rates, oil demand continues to grow, and there remains a geographical mismatch between growth in oil demand and growth in supply.

Action in the Red Sea has yet to translate into a meaningful impact for VLCCs, unlike the immediate impact felt by other vessel segments. This complexity will continue to create new trading patterns, drive more creative triangulation opportunities and ultimately commercial optimisation of our fleet. We expect much of the same as we have seen last year, with a strong upside potential supported by zero to negative supply growth.

• OE: Considering China’s commitment to environmental sustainability, how do you anticipate this impacting the demand for cleaner shipping solutions, and how is your company aligning with these expectations?

Grey: While China is on a push to commit to environmental sustainability with its carbon neutrality pledge by 2060, oil demand continues to grow, and monthly crude imports reached new records in 2023.

The country’s economy is transitioning away from being based on manufacturing and construction and, instead, expanding its petrochemical capacity, aiming for greater self-sufficiency in feedstocks such as LPG, ethane, and naphtha, which now drive demand more than the traditional gasoline, jet, diesel, and gasoil. China’s oil demand is set to continue to expand in 2024, and the country is still considered to be the main contributor to global growth this year.

• OE: As the industry undergoes digital transformation and decarbonisation efforts, how do these factors impact the overall profitability of the VLCC sector?

Grey: When it comes to decarbonisation, we recognise the ongoing importance of the energy transition and strive to meet and exceed compliance targets within the shipping industry, with a focus on developing the lowest carbon intensity and most carbon-efficient fleet of vessels.

Meanwhile, Tankers International is at the forefront of digitalisation in the tanker market, utilising complex digital data analysis techniques to improve the recording and benchmarking of vessel efficiency. This analysis will ultimately be used to optimise the performance of every vessel in the Tankers International Pool, especially in relation to the CII and EEXI standards.

In terms of improving operational efficiency, Tankers International is a member of the Blue Visby consortium; a group which aims to tackle the ‘Sail Fast Then Wait’ phenomenon.

Utilising software, data and an innovative contractual framework, a vessel’s arrival time at a port is optimised. Giving charterers the freedom to slow steam, as their place in the virtual queue is guaranteed.

Tankers International’s considerable market knowledge and approach to data insights is also embodied in the “industry-leading” Tankers International Fixture App, which we continue to develop and evolve in response to market and user demand.

• OE: TI’s VLCC Fixture app is the only publicly available source of fixture data for the global VLCC fleet. Recently, TI added a new CII feature to the app to calculate indicative voyage CII scores for all market fixtures. How can this app help owners/operators to cut emissions and improve performance?

Grey: From brokers and charterers to media and industry investors, whilst serving every pool partner, the Tankers International app is used by multiple key market players and provides unique information on the global VLCC fleet that is not otherwise publicly available in an easily accessible and useable format.

The app’s CII and EEXI update provides all users with the ability to make informed decisions based on CII ratings. The app provides full transparancy on how each individual CII rating is calculated to give a clear understanding of how voyage selction impacts emissions and ultimately affects a vessel’s CII performance.

From a pool partner point of view, the size and scale of Tankers International’s fleet enables voyage optimisation decisions to be taken to maintain and protect vessel CII ratings for partners, whilst delivering associated operational efficiencies and, therefore, emissions reductions.

• OE: What are the main challenges facing VLCC owners and operators? What are the main opportunities for growth and development, in the view of TI members?

Grey: In the near term, VLCC owners and operators must navigate a range of complex geopolitical challenges.

Demand continues to grow, even if at slightly more muted rates, but there is a geographical mismatch between oil demand and supply growth, which provides opportunity in terms of growing tonne miles.

In the long-term, Tankers International is well-positioned to support its partners with a young average vessel age, wealth of data and collaboration mentality that will all be crucial as shipping rides the macro-economic waves that have rocked global commerce and the supply chain since 2020.

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