LR1 tankers, which range in size from 60,000 to 84,999 dwt, and MR1s (34,000 to 40,999 dwt) are fading away. Among the most popular clean petroleum product tankers 15 years ago, the two tanker segments are now ageing fast with a scant orderbook and little appetite to contract new vessels.
A new report from Alphatanker shows there are just five LR1s and two MR1s on order, which equates to around 1% of each fleet respectively.
“Going forward, we do not anticipate that there will be a rebound in ordering activity for either of these segments as they have largely been superseded by larger MR2s and LR2s,” Alphatanker stated. The tanker analysts reckon the MR1 fleet will contract by 0.8% this year, while the LR1 fleet will grow by 0.8%.
Explaining why LR1s and MR1s have fallen out of favour, Alphatanker looked at newbuilding prices.
“Newbuilding prices have been an important driver in making owners decide to opt for larger vessels as the deltas in newbuilding prices for MR1s and MR2s and LR1s and LR2s have narrowed significantly over the past couple of decades,” Alphatanker pointed out. For example, at end-2020, it cost $40m to order an LR1. Meanwhile, an LR2 cost $49m, a difference of $9m or 18%. This compares with a 30% ($25m) difference between LR2 and LR1 prices in 2008, a year when the ratio of the orderbook to the existing LR1 fleet stood at a whopping 70%. A similar trend is present in MR1 prices.
Then there are the economies of scale from ordering larger tankers. An MR2 carries around 20-24% more cargo than an MR1, but its operating expenses are only around 10% higher. The numbers are similar between LR1s and LR2s, according to Alphatanker.
The need for larger tankers is also down to the fact that export-orientated refineries constructed over the past decade tend to be far larger than their forebears, producing bigger parcels of products for shipment.
A consequence of the small orderbook is that both the LR1 and MR1 fleets are ageing rapidly. The average age of the LR1 and MR1 fleets is 10.9 and 13.4 years old, respectively.
Concluding, Alphatanker suggested that MR1s and LR1s are becoming “niche” tankers.