It's a tough time to be investing in new ships. The miserable market is bad enough but there are so many other problems. The endless list of new regulations, often involve technology designers are still struggling with. Then there is the energy problem. Bunker price escalation demands a total re-think of ship design and operating systems. What a nightmare. Back to the Future
But even if clever designers can come up with precisely the right ship to take $650/tonne bunkers in its stride, there is the niggling worry that bunker prices will fall again, making today's great white hope tomorrow's great white elephant. Anyone with a bit of grey hair will recall that 30 years ago shipping was struggling with the same energy problem and it all went wrong. Today Brent oil costs around $110/tonne and in 1982, the inflation adjusted price was $102/tonne. Oil price developments in the early 1980s were very similar to those facing investors today, turning ship design on its head. But four years later, just as the eco-ships were delivered, the price plunged.
A Little History
A reminder of how innovative investors were in the early 1980s is provided by the Panamax bulker River Boyne. It was delivered to ANL by Mitsubishi in October 1982 and recently sold for demolition. Exactly 30 years ago it was loading its first cargo of bauxite from Weipa to Gladstone. Nothing novel about that, except that the River Boyne was coal-fired, a technology that went out with the dinosaurs. Its steam turbine was powered by boilers burning 180-240 tons of coal/day, with automated stoking from the ship’s 3,000 tonnes of bunkers. The economics were persuasive. The ship cost 20% more than a conventional Panamax, but fuel was much cheaper. Although it took three tons of coal to produce the energy of a ton of oil, $30/ton Australian coal was one sixth the price of $180/ton oil. Since it was in service for 30 years the technology was OK.
A Little Bit More History
Two of these two coal-fired ships survived in the Australian domestic trade, but shipowners who ordered eco-ships designed for a life on the high seas, had a less happy experience. In 1986 the crude oil price halved to $14/tonne and was below $20/tonne for the next 15 years. In that environment many of the fuel saving features (shaft generators, waste heat economisers, slow speed propellers etc offered little cash saving). Underpowered, slow speed designs became positively unattractive.
Another Fracking Wrong Forecast?
So there you have it. The early ‘80s oil price explosion was a temporary blip and investors jumping on the bandwagon got a haircut. Energy efficiency went off the agenda, but now it’s back and consensus says it's here to stay. Well, maybe, but today's bulge looks worryingly like the big brother of the 1980s. Better check ALL the bunker scenarios (and don't forget fracking).