Ardmore Seafox

Ardmore to move toward more non-fossil fuel cargoes as part of the energy transition plan

The global energy transition will have a profound impact on the shipping industry, including product tanker and chemical tanker segments, Anthony Gurnee, Chief Executive Officer of Ardmore Shipping, believes.

Ardmore Seafox, Image credit: Ardmore

“While this will unfold over years, the impact has already been felt through anticipated regulations and constraints on newbuilding ordering activity. Our view is that the transition represents more opportunity than compliance challenge as reflected in our energy transition plan,” Gurnee said in an earnings call on Wednesday.

The main elements of Ardmore’s energy transition plan include continued improvements in fuel efficiency as well as early adoption of zero-carbon fuels.

Secondly, since many of the company’s customers have similar incentives to decarbonize, Ardmore wants to approach this through closer collaboration with shipping companies, to assist their customers in achieving their aims.

And finally, the company’s chartering activity will migrate more toward non-fossil fuel cargoes, for which demand will continue to grow along with the global economy, the company estimates.

“In fact, already 25% of our business is non-fossil fuel cargo,” Gurnee added.

“The energy transition plan is a progressive initiative, but at the same time it’s strategically consistent and focused on performance, which we will describe more fully in our upcoming 2020 sustainability report due out next week.”

Commenting on the energy transition’s impact on product and chemical tanker supply, Paul Tivnan, Chief Financial Officer (CFO) of Ardmore, said the switch would accelerate a significant turnover in the global fleet as increased emissions and efficiency targets put pressure on older, less-efficient ships, resulting in more scrapping.

“And to put this into perspective, over 800 ships or 26% of the product tanker fleet will be over 20 years old and within the scrapping zone in the next 5 years.

“The current order book is already at all-time lows. Product tanker order book is 6.3% or 193 ships delivering over the next 3 years, and we expect fleet growth net of scrapping to be approximately 1% to 2% per annum for the next 2 years. Chemical tanker order book is 3.6% or 64 ships. And net of scrapping, the expected fleet growth is less than 1% per annum for at least the next 2 years.”

Tivnan added that ship ordering was expected to remain low until there is further clarity on propulsion technology and emissions regulations as well as an economic justification for ordering.

The company reported a net loss of $6.0 million for the twelve months ended December 31, 2020, as compared to a net loss of $22.9 million for the twelve months ended December 31, 2019.

 Net loss for the twelve months ended December 31, 2020 includes the held for sale loss on the Ardmore Seamariner of $6.4 million.

During 2020, the product tanker market experienced its most extreme period of volatility in many years. During the first half, MR charter rates rose to record highs, peaking at $77,000 per day, while the second half saw charter rates reach new lows as the pandemic impacted oil demand and cargo volumes,” Gurnee commented.

Beyond the immediate post-pandemic recovery, we believe product tankers will experience continued overall demand growth to the end of the decade, with global economic growth and refinery developments away from points of consumption more than offsetting the initial impact of the energy transition; however, we expect the energy transition to put a significant damper on tanker supply as new regulations such as EEXI accelerate the phase-out of inefficient vessels, resulting in a tight market.”

As at December 31, 2020, the company had 27 vessels in operation, including 21 MR tankers (15 Eco-Design and six Eco-Mod) and six Eco-Design IMO 2 product / chemical tankers.