teekay corporation 2012 jefferies conference market presentation
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Tanker Market
Update
September 2012
2 www.teekay.com
• Spot tanker rates have been below the long-term average since 2009
○ Aframax 2009-12 average of $14,400 / day vs. $25,700 / day long-term average
○ Suezmax 2009-12 average of $22,400 / day vs. $33,500 / day long-term average
Currently In 4th Year of Tanker Market Downturn
0
10
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60
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80
„00
0 U
SD
/ D
ay
Source: Clarksons
Aframax Spot Rates Suezmax Spot Rates
Aframax Long Term Average Suezmax Long Term Average
When will the bottom be reached and how long will the recovery take?
3 www.teekay.com
• Slowing global economy / oil demand
○ Europe in recession; US / Chinese economies slowing down
• Reduced imports for stockpiling in the non-OECD
• High oil prices – impacting on oil demand, increasing bunker costs
• Potential US / IEA stock release
• Widening Brent-Dubai oil price spread
○ Discourages long-haul Atlantic-Pacific oil movements
BUT…
• Short-term events still have the potential to create rate spikes
○ Atlantic hurricane activity, unexpected refinery outages etc.
Near Term Headwinds
4 www.teekay.com
Tanker Market Outlook For 2H-2012
• Seasonally weak summer market is upon us
○ Q3 traditionally the worst quarter for tanker rates
○ Uncertain global economy impacting oil demand
○ Potential for lower OPEC oil production as demand for stockpiling wanes
• Stronger winter market fundamentals expected in Q4-12
○ Heating demand in the northern hemisphere
○ Return of refineries from seasonal maintenance
○ Transit delays due to adverse weather conditions
Additional Factors Which Could Move the Market
Upside Downside
Atlantic hurricane season Weakening global economy
Re-opening of Atlantic refineries Potential OPEC supply cutbacks
Unplanned refinery outages –
increased product tanker demand
Non-OPEC supply outages
(N. Sea, GoM, Sudan, Syria, Yemen)
5 www.teekay.com
Expectations For 2013 Demand Have Weakened
0%
1%
2%
3%
4%
5%
6%
7%
8%
2011 2012E 2013E
% G
row
th
Tanker Demand Growth Tanker Fleet Growth
Source: Platou / Internal estimates
Demand Range Supply Range
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
MB
/ D
ay
EIA Report Date
Evolution of the EIA’s 2013 Oil Demand Growth Forecast
OECD Non-OECD Total
• Uncertainties with regards to the 2013 demand outlook have grown
• Base case view is for supply and demand to be balanced in 2013
○ Previous assumption was for demand to outstrip supply by ~1%
= Reduced Demand Estimate
6 www.teekay.com
• 20-25% decline in asset prices in 2011; further 10% in 2012-to-date
• Asset prices for older (>15 years) vessels under significant pressure
• Newbuilding prices likely to see further downward pressure in 2H-12
○ Lack of new orders putting pressure on shipyards to cut prices
○ Lower steel costs pave the way for lower prices
○ Lack of financing likely to constrain ordering
Asset Prices – Yet To Reach The Bottom
40
50
60
70
80
90
100
110
Suezmax Asset Prices
NB 5-yr
20
30
40
50
60
70
80
90
Aframax Asset Prices
NB 5-yr
Source: Clarksons Source: Clarksons
$ m
illio
ns
$ m
illio
ns
7 www.teekay.com
Aframax / LR2 Best Placed For Recovery
Favorable supply outlook to support Aframax / LR2 rates in 2013
0%2%4%6%8%10%12%14%16%18%20%
0
100
200
300
400
500
600
700
800
MR LR1 Panamax LR2 Aframax Suezmax VLCC
Ord
erb
oo
k a
s %
of
Fle
et
Ve
ss
els
Tanker Fleet & Orderbook Profile By Sector Fleet 0-14 years Fleet 15+ years
On Order O'book as % of Fleet
-60-40-20
020406080
100
2009 2010 2011 2012E 2013E 2014E
Ve
ss
els
Aframax / LR2 Fleet Growth
Deliveries Removals Net Growth
• Aframax / LR2 fleet shows virtually
no fleet growth for 2H-2012;
shrinking fleet in 2013
• Suezmax / VLCC with ~5-7% fleet
growth to come in 2013
• New round of orders has re-inflated
the MR tanker orderbook
8 www.teekay.com
• 2012 / 13 projected to be the trough in terms of tanker fleet utilization / rates
• Improvement in rates from late 2013 / 2014 due to slowing fleet growth
(sub-3% p.a.) coupled with economic recovery, improved oil demand
• Recovery will be gradual; pace of ordering must remain low
Gradual Recovery Starting Late 2013 / 2014
0%
1%
2%
3%
4%
5%
6%
7%
8%
76%
78%
80%
82%
84%
86%
88%
90%
92%
94%Fleet Utilization Tanker Demand Growth Tanker Supply Growth
9 www.teekay.com
Long-Term Crude Tanker Demand Drivers
Plenty of pent-up demand in the non-OECD… …with China the main driver of demand growth
• Future oil demand growth to come almost entirely from non-OECD
○ Increasing wealth to drive demand for transportation fuels
• China is expected to account for the majority of growth in crude imports
○ Supply sourced from Middle East and, increasingly, Atlantic Basin (long haul)
• Growth in crude trade partially offset by a decline in US seaborne imports
0
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2000
2001
2002
2003
2004
2005
2006
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2008
2009
2010
2011
2012E
2013E
2014E
2015E
2016E
MB
/D
Source: IEA / BP
China Oil Market Fundamentals
Oil Demand
Domestic Oil Production
Refinery Capacity
Crude Imports
0.0
0.2
0.4
0.6
0.8
1.0
1.2
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1.6
0
5
10
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25
Po
pu
lati
on
(B
illi
on
s)
BB
L /
Pe
rso
n / Y
ea
r
Oil Consumption (LHS)
Population (RHS)
10 www.teekay.com
• Global refining capacity set to increase by ~8 mb/d during 2012-2016
○ ~40% of new capacity is from export-oriented facilities in India / MEG
• Older / less efficient refineries in the Atlantic Basin becoming marginalized
○ Displaced in part by long-haul product imports from the East
• Growth in long-haul product tanker trade to benefit LR2s / LR1s the most
Long-Term Product Tanker Demand Drivers
Product tanker tonne-miles set to grow… …as fleet growth slows to a 10-year low
0%
2%
4%
6%
8%
10%
12%
14%
0123456789
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2005
2006
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2008
2009
2010
2011
2012E
2013E
% F
lee
t G
row
th
Mil
lio
n D
ea
dw
eig
ht
Fleet Growth* (mdwt) Fleet Growth (%)
Source: IEA / Internal
Source: Clarksons / Internal estimates
11 www.teekay.com
• Development of shale oil reserves
is having a significant impact on US
oil supply / demand dynamics.
• According to some estimates, by
2020 North America could have a
hydrocarbon surplus.
• Potentially very negative for US
seaborne crude imports (though
could lower global oil prices and
stimulate demand elsewhere)
• US has the potential to become a
major exporter of refined products.
• The US is expected to have a large
surplus of naphtha by 2015 as
NGLs push naphtha out of domestic
petrochemical markets.
Wild Card – US Tight Oil Production
US Oil Production & Canadian Imports
US Net Product Imports / Exports
Source: Citi
Source: Citi
LNG Market
Update
September 2012
13 www.teekay.com
Current Market Snapshot
• Spot / short-term shipping rates with
prompt delivery command a steep
premium (>$150,000 / day)
• Longer duration / forward starting
charters likely to earn closer to long-
term average (~$70-90,000 / day)
0
20
40
60
80
100
120
140
160
„00
0 U
SD
/ D
ay
Source: Various Broker Estimates
LNG Shipping Spot Rates
Short Term Shipping Rates Remain Firm; Depend on Duration, Start Date
• 17 new LNG carrier orders in 2012 to
date versus 50 in 2011.
• Enquiry for new tonnage has fallen in
recent weeks on concerns that the
orderbook is sufficient to meet near-
term demand (i.e. up to 2015)
Pace of LNG Vessel Orders Has Slowed
0
5
10
15
20
25
No
. V
es
se
ls
Source: Clarksons
LNG Vessel Orders
14 www.teekay.com
• Natural gas gaining market share from oil and coal due to its low cost,
abundance, and cleaner burning properties
• Demand driven by the power sector (gas displacing coal)
• Non-OECD accounts for ~85% of natural gas demand growth to 2035
“Golden Age of Gas”
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
Oil Coal Natural Gas
CA
GR
(%
)
Fossil Fuel Demand Growth Outlook (2010-35)
IEA EIA BP Exxon
Average: 0.9% p.a.
Average: 1.0% p.a.
Average: 1.9% p.a.
15 www.teekay.com
• LNG is a cornerstone of China’s energy mix
• Chinese LNG imports expected to double to ~25-30 MT by 2015
• Domestic gas shortfall prompting India to turn to LNG
• India planning to double regasification capacity by end-2015
LNG Demand Primarily Driven By China & India
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Current Secured by2016
MOU
Mil
lio
n T
on
ne
s
Chinese LNG Purchase Agreements
Australia Qatar Indonesia
Malaysia PNG Portfolio
0
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15
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30
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40
2012 2013 2014 2015 2016
Mil
lio
n T
on
nes
Pe
r A
nn
um
Indian Regasification Capacity
Source: Thomson Reuters Source: Ambit Capital
16 www.teekay.com
• Nuclear accounted for 30% of
Japan’s electricity generation
pre-Fukushima
• Without nuclear Japan
depends on fossil fuel imports
(vulnerable to price shocks)
• Only 2 of Japan’s 50 nuclear
reactors are currently online –
no clear timeline for activation
of remaining reactors
• Backwardation in LNG
charter rates reflect the
Fukushima effect lasting
through end 2013
Japan and the “Fukushima Effect”
0
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Mil
lio
n T
on
nes
Japanese LNG Imports
Source: Thomson Reuters
17 www.teekay.com
• Australia expected to add ~80 MTPA of LNG supply by 2020
• US is a wild card: 100+ MTPA of planned export projects, but how much will
come online?
• Requirement for additional newbuildings to move new LNG volumes
Wave of New LNG Supply From 2015
200
250
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500
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Mil
lio
n T
on
nes P
er
An
nu
m (
MT
PA
)
LNG Capacity Additions By Region
Others
Middle East
Canada
Other Asia
Africa
USA
Russia
Australia
Existing
170 MTPA by 2020 =
170 incremental LNG carriers
Source: Multiple Sources / Internal Estimates
18 www.teekay.com
US Exports Competitive at $5-6 Henry Hub or Lower
Source: Deutsche Bank
• US LNG export model based on
cheap domestic natural gas
prices.
• At current prices US exports are
competitive with Australia
despite longer transportation
distances.
• US LNG exports remain
competitive until the price
exceeds $5-6 / mmbtu.
• New projects on hold until US
government assesses the
impact of LNG exports on
domestic gas prices
$5.40 / mmbtu
$2.60 / mmbtu
$4.00 / mmbtu
Henry Hub Price
19 www.teekay.com
• Spot and short-term LNG trade currently make up 25% of total trade
(up from 5% in 2000)
• Trend expected to continue towards short-term / flexible volumes
Changing Nature of LNG Trade
0%
5%
10%
15%
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25%
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35%
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Mil
lio
n T
on
ne
s P
er
An
nu
m
(MT
PA
)
Spot and Short-term LNG Trade
Spot LNG Trade (MTPA) % of Total Trade
Source: GIIGNL
20 www.teekay.com
• Orderbook of 76 vessels represents 20% of the fleet size
○ 32 LNGCs on order are currently uncommitted to long-term charters
• Move towards standardized size of 160-170 kcbm
○ New technologies (MEGI engine, new containment systems)
Orderbook Reflective of Strong Spot Market
0
10
20
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60
Nu
mb
er
of
Ve
ss
els
LNG Carrier Fleet and Orderbook
Long Term Contract Short Term Contract / Uncommitted
Source: Clarksons
21 www.teekay.com
2012-2015
• Market likely to remain tight through 2013 on elevated Japanese demand
• Risk of a softening in spot / short-term charter rates once the orderbook starts
to deliver in 2013 / 14
• Bulk of new LNG liquefaction capacity comes online post-2015
2016-2020
• Significant ramp-up in LNG export volumes and therefore transportation
demand
• Estimated 100 LNGs over and above the current orderbook required to satisfy
projected demand by 2020
• Demand for floating regasification set to grow in tandem with increased LNG
export volumes and global infrastructure build-out
LNG Carrier Supply / Demand Balance
Offshore
Market Update
September 2012
23 www.teekay.com
Leading indicators for offshore
production, storage and
transportation demand
Linking Rig to Refinery
Teekay’s role in the
offshore value chain
24 www.teekay.com
Drilling Activity a Key Leading Indicator
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$ / B
BL
Oil
Pri
ce
MO
DU
Ord
ers
MODU Orders Versus Oil Price
Jack Ups Semi-subs and Drillships Oil Price (USD)
• 81 mobile drilling unit (MODU) orders placed in 2011
○ Highest since 1980
• Growth strongest in the deepwater / ultra-deepwater drilling fleet
• Deepwater wells yielding the biggest results
○ Average discovery size in 2010 for wells >1,500m depth was 1,000+ mboe
Source: Clarksons, Douglas Westwood, BP
25 www.teekay.com
• Resurgence in North Sea
drilling activity yielding
results
○ 1.7 - 3.3 billion barrel
Johan Sverdrup find was
biggest of 2011
• New finds tend to suit an
FPSO and shuttle tanker
solution
• Enhanced Oil Recovery
leading to renewed
production in mature areas
• Move into Barents Sea
requires high-specification
shuttle tankers and FPSOs
North Sea Market – Resurgent Activity
Record high level
of exploration
*Source: Norwegian Petroleum Directorate
Norwegian Exploration Wells Drilled*
Norwegian Sea
(existing shuttle
region)
North Sea
(existing shuttle
area)
Barents Sea
(emerging
shuttle region)
26 www.teekay.com
Brazil Market – More Growth to Come
0
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40
60
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140
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Brazil Offshore Production Fleet Development
Installed On Order Planned
• Brazilian offshore production fleet set to double in 2011-18
○ Growth in offshore production drives demand for shuttle tankers and FPSOs
• Petrobras is aggressively increasing its production capability
• Other oil companies also have shuttle requirements in offshore Brazil
Source: IMA
27 www.teekay.com
• The number of projects which could require an FPSO has doubled in
the past five years
• Estimate of 20-28 FPSO orders per year over the next five years
depending on the global economy, oil demand and energy prices
• Operational and engineering expertise required to be successful in
the leased FPSO business creates a high barrier to entry
Strong Future Demand For FPSOs
0 50 100 150
Apr-12
End-08
End-06
141
96
68
FPSOs in the Planning Stage
0
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25
30
Avg.Orders
per year
OrdersJan-Apr
2012
LowCase
BaseCase
HighCase
15
10
20
24
28
FPSO Forecast (Next 5 Years)
Avg.
Orders
per year
Orders
Jan-Apr
2012
Low
Case
Base
Case
High
Case
Source: IMA Source: IMA
(2007 – 2011) Next 5 Years
28 www.teekay.com
• Resurgence in offshore activity creating new FSO opportunities
○ Re-emergence of FSO demand in the North Sea
○ New development in S.E. Asia
• 22 projects currently considering the use of an FSO
○ 11 in Asia; 4 in North Sea
Increased Demand for FSO Solutions
0
2
4
6
8
10
12
S.E. Asia NorthSea
MED GoM Brazil Africa
11
4 3
2 1 1
Planned FSO Projects
0
2
4
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8
10
TankerPacific
Teekay Modec TradaMaritime
MISC
7
5
4 4
3
Top Leased FSO Operators
4 Owners with 2 units
19 Owners with 1 unit
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