Oil and Gas Middle East finds out how the tanker industry has faced up to the threats of piracy and dwindling demand
If you are transporting oil, or gas products over long distances, there is nothing more economically viable and efficient as a tanker. Approximately two trillionmetric tonnes of oil alone is moved by tankers every year. On VLCC’s the average cost of this transportation is estimated to be just two or three US cents per gallon. Demand for tankers depends heavily on production levels, as well as other factors. According to a report by Jefferies & Company, tanker demand in the crude oil sector is expected to remain weak over the next several months while crude oil inventories are de-stocked, but demand should improve slightly in 2010 after de-stocking is complete and new non-OPEC production comes online to satisfy improving oil demand.
Douglas Mavrinac, maritime group head, Jefferies, reveals the current state of play: “As OPEC maintains reduced crude oil production levels during the inventory de-stocking period expected to last into 2010, we expect crude oil tanker demand to remain weak through the remainder of this year.
Demand varies depending on what cargo a company specialises in. Soren Huscher, CEO of Norient Product Pool, a company which predominantly manages product tankers, paints a bleak picture of the current market: “Demand is too low unfortunately, we have started to see idle time on our ships and we haven’t seen this for the past five years. All of a sudden we are in a situation of great oversupply of tonnage. “
The major reason for this is, unsurprisingly, the economic downturn, which Huscher believes has had a delayed impact on the tanker industry.
“It has had a great effect on us, particularly over the last five or six months,” says Huscher.
“The economic crisis came somewhat later to the tanker business but it certainly has hit us very forcefully now, and to be honest with you I don’t see an immediate recovery in this market just yet, it’s something we are going to have to get used to for the immediate future.”
Other industry figures agree, Atle Sebjornsen, managing director, Stolte Nielsen, reports: “I believe we are in for some tough sledding for the next two years. That’s what industry analysts are saying, that’s what our competitors are saying and that’s what we believe. It’s a straightforward issue of supply and demand: there are too many ships and demand is likely to be uneven at best in the future.”
In the gas transportation industry, the situation looks a little rosier, at least in Qatar. Nakilat (which means “carrier” in Arabic), an liquified natural gas (LNG) transporter, currently jointly owns 29 ships and fully owns 25. Further ships are being built as the company attempts to put together the largest LNG fleet in the world.
Muhammad Ghannam, managing director, Nakilat, reveals getting the financing for the ships was not a big problem, even in these turbulent economic times: “We are fortunate because we raised the initial phase of our funding then we went to the market in July 2008 and we raised another 1.5 billion. This year in June we were fortunate enough to raise the remaining funding requirements. We got really good participation from the commercial banks and from two Chinese banks as well.”
Somali security
While demand is undoubtedly the biggest issue affecting the tanker business currently, the most high profile issue is that of piracy. The capture of huge tankers off the Gulf of Aden has been widely covered in the international media and the industry has been forced into sometimes drastic security measures in order to deter the Somalian pirates who have been responsible.
“Our policy currently permits transit only under the direct protection of warships, naval patrol boats or shipboard security personnel. Our crews also receive specialised training and frequent drills.” reports Sebjornsen.
“Ultimately, of course, the issue of piracy and the conditions that enable it must be decisively addressed by governments. The costs, of security measures, voyage delays and the anguish to those threatened and taken, cannot be tolerated indefinitely.”
Some believe more should be done to counter these piracy threats.
“In regards to that particular area in the Gulf of Aden , one thing I would like to see is some participation from the immediate surrounding countries in the Middle East, which seem to be doing very little in solving the problems regarding piracy, either by directly fighting it or by assisting in identifying the root cause of the problem within the neighboring countries,” states Huscher.
He added that a lot of the oil which passes through the Gulf of Aden originates from Middle Eastern countries, therefore more responsibility must be taken by governments of these countries in fighting the piracy.
“It seems to be naval ships from far away that are going there to protect the commercial fleet and very little from countries around there, which I think is a shame.”
Insurance can be a worry for tanker companies working in certain areas with bad reputations, such as the Gulf of Aden. Although insurance costs have not risen generally, it can still pose a problem.
“We have not seen an increase in these rates, always if you are going through an area which is considered dangerous then you pay a premium for these areas,” says Ghannam.
Balancing act
A major problem for the tanker industry is achieving a balance. It is a watchword of the sector, with firms aspiring to it, bemoaning a lack of it and constantly monitoring it.
“Every market presents its own set of challenges and the Middle East is no exception. The number one issue here is the trade imbalance. Chemical exports substantially exceed imports,” says Sebjornsen.
It is a view shared by Huscher: “I would like there to be better correlation, a balance between demand and supply which is completely uneven as we speak. It would be fantastic if when we see future upturns in the market, owners don’t make the same mistakes again of going on a shopping spree and ordering ships that will then kill the market. “
Terminal tools
Fleet sizes can vary, as can the size of the ships themselves. Nakilat owns some of the largest LNG tankers in the world, although this isn’t always an advantage due to problems with entering some areas and using certain terminals.
“Our ships were designed to allow them to go through the Suez Canal,” reports Ghannam.
“Most of the world’s terminals are built to receive our ships. We are confident most of our ships are able to deliver cargo worldwide.”
Tankers interaction with terminals can be complex. Other ways of loading and offloading the contents of a tanker are generally welcomed. One such method is through Single Point Mooring Systems (SPMs).
Ton van Schie, general manager, Bluewater Technical, explains how his company’s SPM product, the Calm Buoy, interacts with tankers: “The tanker will be moored to the buoy via a hawser system and then the loading or unloading hoses will be connected.”
These systems offer multiple benefits to tankers. Van Schie reveals: “The Calm system is able to weathervane 360 degrees and as such tankers are always moored into the wind.”
The market for SPMs is beginning to pick up, according to Raymond Hervouet, sales manager at SBM Offshore. “If we talk about new buoys, there has been a delay on quite a few projects in the last year, however, recently we have seen an improvement in the market.”
The future for the industry not only depends on the galvanisation of the world’s economy but also the situation of the tanker company itself. For each company, the voyage through the credit crunch has been an individual one. Nakilat, set an example powering through its fleet building plans,. It is this type of market bullishness that suggests the stronger companies will pull through these challenges with some ease.
Get connected
Gunnar Andre Valle is the Dubai-based director of Norwegian satellite communication company Marlink. The company has been providing integrated communication systems to the maritime industry since 1976. Marlink now operates an extensive network of teleports (satellite base stations) and provides a full range of services to maritime companies throughout the world, with a strong oil and gas pedigree.
“Our core business is providing satellite airtime to business,” he says. “We also support hardware, although we are independent of any brands and offer full activation, billing and collection services and connectivity from all the different market suppliers. For software applications we have a email programme and it has an internet portal called Marlink online.”
“In regards to cost saving, of course it is true that a small vessel making short journeys will not benefit from the installation of a full satellite communications system. You could never justify the cost in such a case. However, a high-end vessel such as an oil tanker or LPG vessel will benefit. And when you are carrying a US$100 million cargo you cannot afford to take your choice of communication system lightly.”
Although investing in a full ‘always on’ VSAT system doesn’t come cheap, there is no denying that you do get a lot for your money. “The system can be connected to your onshore network so the vessel can effectively become like a ‘next door’ office,” says Valle.
Tracking technology
With security an integral concern of the tanker industry, many new technologies have been introduced into the industry in order to better protect staff on board vessels. One provider of technology such as this is Track 24, a tracking solutions firm.
“What Track 24 does is we provide clients with an operating picture of all their assets around the world. That could be boats, it could be vehicles, it could be people. So consequently we have devices which are small devices and could be put onto tankers and an operator could view progress of tankers all over the world,” says Track 24 director Tim Grant.
One of the systems main advantages is its early notification should a problem occur.
“If there was an emergency, somebody would hit the panic alarm and the CEO could view it on his laptop, if he happened to be in the supermarket he’d get a message to his mobile phone. So basically it engages everyone quickly to the issue,” reports Grant.
