China’s Bank of Communications Financial Leasing (Bocomm Leasing) has confirmed that energy major Shell is to go ahead with its requirements for a dozen dual-fuelled LR2 tanker newbuildings, despite the outbreak of coronavirus and volatility in the crude oil price.
Speaking anonymously to TradeWinds, an official at the Shanghai-based lessor said: "Shell confirmed orally that nothing has changed."
That confirmation came in response to market speculation that Shell had decided to delay its newbuilding programme — under which it would charter the vessels from Bocomm Leasing.
Shortlisted
In early March, Shell was reported to have shortlisted Bocomm Leasing from a group of owners — which included China’s Shandong Shipping, ICBC Financial Leasing and fund manager JP Morgan — for the deal that is estimated to be worth close to $650m.
TradeWinds understands that talk of a signed contract is premature, but that Bocomm Leasing is likely to do the 12-ship deal in collaboration with Shandong Shipping.
State-owned Shanghai Waigaoqiao Shipbuilding (SWS) and Guangzhou Shipyard International (GSI) have been discussed as the builders for the tanker newbuildings, which will be able to run on LNG or conventional fuels. But no letters of intent have been signed.
Sources expect GSI to build eight of the vessels and SWS the other four, with delivery scheduled for 2022. The LNG-fuelled tankers were reported to have a price tag of about $54m each.
But doubts remain in the industry.
“Covid-19 has led to stock-market crash and uncertainty in the global economy," one shipbuilding player said. "With the cheaper oil price, Shell is able to charter existing vessels using low-sulphur fuel oil [LSFO] to transport the cargoes instead of fixing high-capital dual-fuelled ships.”
Slowing down
Another industry participant added that Chinese leasing companies, including Bocomm Leasing, are slowing new business as they are exposed to the aviation industry.
But the Bocomm Leasing official insisted nothing had changed.
"The process is a little bit slowed down, but the main reason for that is many people are staying at home, so the completion is delayed," said the Bocomm Leasing official, who also believes concerns based on the price spread between LSFO and high-sulphur fuel oil were misplaced.
"That judgement is only according to the current situation. Recently, LSFO is cheaper than people had expected, but that is due to the competitive situation among crude-oil producing countries. The price difference will eventually be maintained at a reasonable level."
The Bocomm Leasing official also downplayed the long-term effects of the pandemic and his company's exposure to the aviation market.
"Shell's charter would be a long-term contract that begins two-and-a-half years from now, and the world economy can be expected to have recovered by then," he said. "And the price and charter rate are very attractive to Shell.
"Shipping is shipping, aviation is aviation. Nothing has changed to our ability, especially when our shipping clients' performance is still very good. And our aviation clients are also first tier."
A Shell spokeswoman declined to comment on the issue.
