Oil Shipping Today Peter M Swift 26 April 2005 Center for Maritime Economics & Logistics Erasmus University Rotterdam.

Oil Shipping Today

Peter M Swift26 April 2005

Center for Maritime Economics & Logistics Erasmus University Rotterdam

Global primary energy consumption by fuelmillion tonnes oil equivalents

Source: BP

24 %

25 %

6 % 6 %

39 %

Oil: 3563

Gas: 2286

Coal: 2412

Nuclear: 611

Hydro: 593

World oil supply 1900-2005mbd

0102030405060708090

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

ROW

Middle East

Western Europe

USA

Crude oil seaborne trade

Oil consumption per capita (Litres/day - 2003)

02468

1012

US

Korea

Norway

Japa

n

OECD

Italy

Franc

e UK ME

World

FSU

L Am

er

China

Africa In

dia

Litre

The world needs tankers

Tanker Fleet Ownership

Source: SSY Consultancy & Research Ltd

0

10

20

30

40

50

60

70

80

90

100

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

pe

rce

nta

ge

Independent Owner Company (End User)

AS AN INDUSTRY WE MAY NOT BE LOVED BUT WE ARE NEEDED

• World Oil World Oil Consumption 3.6 Consumption 3.6 billion tsbillion ts

• Transported by sea Transported by sea 2.2 2.2 billion tsbillion ts

• 6060% transported by sea.% transported by sea.

Regular supply critical

Daily VLCC spot rates

0

10

20

30

40

50

60

70

80

90

100

J ul-9

9

Oct-9

9

J an-

00

Apr-0

0

J ul-0

0

Oct-0

0

J an-

01

Apr-0

1

J ul-0

1

Oct-0

1

J an-

02

Apr-0

2

J ul-0

2

Oct-0

2

J an-

03

Apr-0

3

J ul-0

3

Oct-0

3

J an-

04

Apr-0

4

'000 U

SD

/day

Source: INTERTANKO

Tanker spot market - average monthly freight ratesJ an 2000 - Nov 2004

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

J an-

00

Apr-0

0

J ul-0

0

Oct-0

0

J an-

01

Apr-0

1

J ul-0

1

Oct-0

1

J an-

02

Apr-0

2

J ul-0

2

Oct-0

2

J an-

03

Apr-0

3

J ul-0

3

Oct-0

3

J an-

04

Apr-0

4

J ul-0

4

Oct-0

4

$/d

ay

VLCC: AG - J apan 250' dwt

Suezm: WAFR - USAC 130' dwt

Afram: N Sea - Cont 80' dwt

Clean: Caribs - USAC 30' dwt

Clean: Cont - USAC 33' dwt

Oil price and tanker freight rate 1970-2004

0

10

20

30

40

50

60

70

80

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02

Max

04

US

D p

er b

arr

el Nominal Price Arabian Light

Real Price Arabian Light

Nominal Freight Rates PG-West

Real Freight Rates PG-West

Deflated by Consumer Price Index (USD)

T H E T A N K E R R O L L E R C O A S T E R 1945 - 2001

0

1 0 0

2 0 0

3 0 0

4 0 0

5 0 0

6 0 0

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

Sc

ale

- I

nte

rsc

ale

- W

orl

ds

ca

le

<3 0 00 0 D w t 3 0-4 0 ,0 00 D w t 9 0 -10 0 ,0 00 D w t V L C C

War in Palestine

Korean WarSuez Canal Zone

Conflict

Suez Canal Closure

1973 Oil Crisis

Suez canal reopens

Market Doldrums

Kuwait 1990-1

Asian Financial

Crisis

¥

Source: E.A. Gibson Shipbrokers

5254

5658

6062

6466

6870

7274

7678

8082

8486

8890

9294

9596

9799

20012002

2004

Years

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00Freight cost ($/bbl)

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

$55

$60Crude oil price ($/bbl)

Freight Oil Price

Freight and Oil Price Movement - 1950-2004

Suez Crisis

'67 M E war

'73 M E war

OPEC price

power

Kuwaitoccupation

After Erika

Gasoline price at the pump

0,0

0,3

0,5

0,8

1,0

1,3

1,5

USA Japan Germany UK

Long haul freight,$3/bbl

Marketing etc

Oil price (FOB)OPEC basket Jan2003 IEA table 8Tax

Cost elements making the: gasoline price:

$ per litre

Oil into the Sea Annual Releases, best estimates

Average 1990-1999, '1000 ts

Natural seeps

Extraction of oil

Tanker accidents

Tanker operation

Other transportation

River and run-offs

Other shipping

Other consumption related

Source: National Academy of Science

47%

21%

11%

8%

3%

3%

• Meeting Society’s expectations ( “ our licence to trade”)- including the environmental challenges

Key issues for Tanker Owners

The world expects us to have 0 accidents.

Even though 99.9997% of oil is delivered safely

It takes only one accident to change the industry

Ballast Water Management - invasive species

Air Emissions - Engine and Cargo (VOCs)

Ship RecyclingShip Recycling – ship breaking, scrapping, demolition

• Meeting Society’s expectations ( “ our licence to trade”)- including the environmental challenges

• & addressing the “image” issue

Key issues for Tanker Owners

The image ?

OWNER CHARTERER CLASS

IMAGE PROBLEM !

The Rogues of the Tanker Industry

• Meeting Society’s expectations ( “ our licence to trade”)- including the environmental challenges - managing our “image”

• Maintaining International versus Regional and Local legislation

Key issues for Tanker Owners

Threats to international maritime law

• Escorting of single hull tankers out of EEZ by Spain, France et al, in contravention of MARPOL and UNCLOS obligations

• Detention of seafarers, e.g. in Spain and Pakistan in contravention of UNCLOS

• Adoption of Criminal Penalties Directive for ship-source pollution

• European Commission suggestion that UNCLOS might be revised to alter the balance between flag states and coastal states.

• Willingness of EU to implement measures in conflict with MARPOL

• Canadian Bill C-15 in conflict with MARPOL and UNCLOS

But ALL Politics are local

Threats to US federal law pre-eminence• INTERTANKO vs. State of Washington (2000)• - overturning state laws on manning, design, construction and

operation

• USCG vs. State of Massachusetts (pending)

• State of California – vetoed on Escort Tugs, etc. (2004)

• New Jersey (possibly Delaware) threatening to ban single hulls (2005)

• EPA challenged on Ballast Water discharge exemptions (2005)

• Local and state air emission legislation (ongoing)

• State ballast water regulations (ongoing)

But ALL politics are local

CHALLENGES TO INDUSTRY GOVERNANCE

International vs. local, national and regional

• Liability – EU Penal Sanctions vs. International Conventions

• Safety & Environment – EU (Post Erika & Prestige) vs. IMO/Marpol & SOLAS

• Sulphur Levels / Air Emissions – EU, USA vs. IMO

• Security – MTSA vs. ISPS

• Ballast Water Management – US et al vs. IMO

EU Maritime Safety Package III

• Amendment to Directive on Vessel Traffic Monitoring and Information

• Liability and Compensation (principally Passengers)

• Recasting of Legislation on Port State Control

• Role of Classification Societies

• Marine Casualty Investigations in the EU

• Maritime Labour Standards

• Flag State Initiative

But how about earlier programmes – Places of Refuge, Ratification of Conventions, Reception facilities

• Meeting Society’s expectations ( “ our licence to trade”)- including the environmental challenges

• Maintaining International versus Regional and Local legislation

• Overhauling the governance structure of the industry:- Class, Flag, Port State Control

Key issues for Tanker Owners

• EU Challenge on Role of Class – perceived conflict of interest between statutory and classification activities

• Joint Tanker Rules – good rules, common rules, as quickly as possible,freely available, with process for further development/harmonisation

• Role relative to Goal Based Standards – IMO/Flag states versus IACS control of Goal Based Standards

• Who sets class agenda – owners, builders, flag states or class managers ?Example coatings standards (IMO – DE discussion)

Challenges for Classification Societies

Tripartite Dialogue on Newbuilding Standards

IACS

Joint Tanker Project

Common Structural Rules 2005

Tanker Fleet by Flag

Source: SSY Consultancy & Research Ltd

0

10

20

30

40

50

60

70

80

90

100

1946 1950 1960 1970 1980 1990 2000

pe

rce

nta

ge

USA UK Norway Panama Greece Japan Liberia Bahamas Other

The good, the bad and … all legitimate

Flag State Guidelines- industry advice

• Meeting Society’s expectations ( “ our licence to trade”)- including the environmental challenges

• Maintaining International versus Regional and Local legislation

• Overhauling the governance structure of the industry:- Class, Flag, Port State Control

• Reversing the trend to increased criminalisation

Key issues for Tanker Owners

Increasing Criminalization

• Imprisonment of seafarers (Captain Mangouras et al)

• Detention of Tasman Spirit crew and salvors

• EU Directive on Criminal Penalties (including accidental damage)

Should this man have been detained for more than two years without trial ?

• Meeting Society’s expectations ( “ our licence to trade”)- including the environmental challenges

• Maintaining International versus Regional and Local legislation

• Overhauling the governance structure of the industry:- Class, Flag, Port State Control

• Reversing the trend to increased criminalisation

• Ensuring the commitment of all stakeholders to continuous improvement

Key issues for Tanker Owners

Designers Shipbuilders Equipment Suppliers

Class

Charterers Operator/Manager

Financiers / Guarantors

Owner

Commitment to Continuous Improvement by all stakeholders in the maritime businesses

Cargo Owners BrokersP&I Hull insurers

Ports & Terminals

Coastal StatesWaterways authorities

Flag states

Bunker suppliers Pilots Tug operators Labour providers

Salvers RepairersPaint Suppliers Agents

Spill Response Ship Breakers

Oil Shipping Today

Tanker incidents: 1978-03

Source: LMIS, Informa, press, INTERTANKO

Number

0

200

400

600

800

1000

78 80 82 84 86 88 90 92 94 96 98 00 02

Grounded

War

Misc

Hull&Machinery

Fire/Expl

Collision

Development of tanker oil spills

Source: ITOPF. Number of spills above 700 tonnes.

Accidental oil pollution from tankers and tanker trade

Source: ITOPF, Fearnleys

1000 bn tmm ts spilt

0,0

0,7

1,4

2,1

2,8

3,5

1970s 1980s 1990s PR00s

0

22

44

66

88

110

132

m ts spilt

'0000 bntonne-miles

Port State ControlPercentage of inspected ships detained

0 %

2 %

4 %

6 %

8 %

10 %

12 %

14 %

200410m

2003200220012000199919981997

0 %

2 %

4 %

6 %

8 %

10 %

12 %

14 %

of which tankers

All ships

2004 10 months: Paris and Tokyo MoU only

Fleet by hullpercentage

622

6074

83

9478

4940

2617

49

0

20

40

60

80

100

1991 1997 End 02 End 03 End 05 End 10

SH* share (%)

DH share (%)

End 05, all tankers built 1982 and earlier goneEnd 10, all tankers built 1987 and earlier gonetrading beyond 2010 subject to administrations

“Oil should travel first class”- that is the aim of the oil shipping industry

Vision for the tanker industry:

“ A responsible, sustainable and respected industry able to influence its own destiny.”

Key industry goals- effective regulation

• Regulatory environment which supports safe shipping operations, environmental protection and adherence to internationally adopted standards and procedures

• Properly considered international regulation of shipping

• Global regulation for a global industry, adopted and implemented uniformly

www.shippingfacts.com

INTERTANKO Publications

• Guide to bunkering of ships for the purposes of Annex VI to MARPOL

• A Guide for correct entries in the Oil Record Book

• A Guide to Crude Oil Washing and Cargo Heating Criteria

• Tanker Bills of Lading - A Practical Guide

• Guiding Principles to Emergency Management and Crisis Communications

INTERTANKO Publications

• Tanker Specification Awareness Guide

• A Guide to the Vetting Process, 5th. Edition

• A Guide to Tanker Charters (2001)

Thank you www.intertanko.com

www.shippingfacts.com