The Tanker Chartering Market

The Tanker Chartering Market

Students

Cristian TaranuAndrei BelehuziIonut-Robert PanciuNella Kazakevicha

1

Introduction

The main source of energy for humanity it is represented by oil.

2

Introduction

Oil has been used from many thousands of years for many purposes.

Its real commercial value was put in value in the second half of the 19th century.

This happened in the USA where starting with 1859 was an “oil rush”.

The oil rush began in Titusville, Pennsylvania, in the Oil Creek Valley.

3

Introduction

A Pennsylvanian oil field in 1862 4

Introduction

The biggest interest at that time for oil was for use him in lighting (kerosene).

After the extraction of kerosene from oil there are some residues remaining which at that time were just burnt in furnaces.

On the other hand the other light constituents of oil, like gasoline were kind of a problem.

5

Introduction

Oil become very important with the apparition of internal combustion engines.

Thereby prospection for oil in USA proceeded in a rapid way and for many years, USA dominated the oil production market.

The British and Dutch joined this “race” also.So a plenty of oil fields were being developed

in South America and South East Asia; Russia also discovered important amount of oil reserves.

6

Introduction

The dominance of the USA, UK and Netherlands end in the 1930s because of the discovery of important oil deposits in the Middle East.

Nowadays the Arab nations dominate the oil supply market.

OPEC - Organization of the Petroleum Exporting Countries (Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela). 7

Introduction

Top 20 countries which produce oil 8

Introduction

However the largest oil companies are not Arabic. They are originary from USA.

9

The development of tankers and the tanker market

In the beginning of oil industry the demand of oil was small enough that it could be accomplished by transporting it in metal receptacles packed in wooden crates.

The first specially constructed tank steamer was the “Glückauf” (“Good Luck”) with a DWT capacity of 2307 tons and built in 1886 at Newcastle-on-Tyne, in United Kingdom.

“Glückauf” had a German flag and was in service until 1893 when it ran aground at Fire Island in New York. 10


“Glückauf” 11


“Glückauf” 12


From the beginning oil refining took place near to where oil was extracted.

Because of political and economic considerations was wiser to place oil refineries near to the place of consumption instead of its place of extraction.

So, this means that the oil would be “carried twice”. 13


Political consideration because a trend was progressing for some countries which holds important oil fields to grant them to western nations for exploration, extraction and refining of oil and then to nationalise these goods with minimal compensation.

14


Economic consideration because, processing oil in vecinity of the area of high consumption makes distribution of oil products much easier then in the other way.

Another economical advantage is that having refineries near consumption area rather than near production area means that is not such a problem if another area of production become more important than the other.

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Therefore when oil was discovered in the North Sea, countries like Norway, Netherlands and UK which are oil producers as well as oil consumers, the existing oil refineries had no problem in adapting.

The significant advantage of carrying crude oil instead of oil products is that it permits maximum economies of scale in terms of the ships used to transport it.

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Tanker market as every chartering market fluctuates.

Thus a Worldscale of 75 means a Worldscale of 75 %.

Market strength or weakness is not the only factor which have an influence on the rate at which a ship may be fixed.

The calculation of scale depends on every ship.We must take into consideration the size, the

speed and the consumption of the ship and in this way the rate depends on every ship.

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The usage of Worldscale is not important only for chartering single voyages, but also have a great importance for the use of Contracts of Affreightment.

Contracts of Affreightment permit a long term commitment and gives to charterer flexibility as time charter gives with no responsabilities for delays and no gaps in supply in case of breakdown.

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Nowadays oil companies do not owns so big fleets and the independents take advantage of this.

The independents have their own dedicated association – INTERTANKO (The Independent Tanker Owners Association).

INTERTANKO gives to independents a unified voice and they also designed their own standard charterparty, the INTERTANKVOY.

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Major oil companies like EXXON (USA), BP (UK) or SHELL (UK & Netherlands) have their own fleet and they usually refine and sell their own refined products.

There are also many smaller oil companies, some of them privately and some of them state-owned.

These companies and countries prefer to sell their crude oil to oil traders.

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Oil traders buy the oil and charter the ships in their own names and then they are selling it to an oil company which pay the best price.

As we know the oil market is growing and the dominant centre it is located in Rotterdam.

Regarding to this fact oil traders represent a very important part of the tanker chartering market.

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Oil Tanker

Oil Tanker (also known as a petroleum tanker) is a merchant ship designed for the bulk transport of oil.

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Oil Tanker

Fig : Commercial Oil Tanker

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Type of Tankers

Crude CarriersProduct CarriersChemical CarriersParcel TankersGas MarketsOther Liquid Cargoes

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Crude Carriers

Crude , as its name implies, is the oil just as it comes out of the ground.

In the natural state , it is a complex mixture ranging from heavy, dark coloured substances which are virtually solid at normal temperatures at one end to very volatile gases at the other.

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Crude Carriers

After a series of refining processes, the crude oil is transformed into :

• Gasoline ( Petrol ) • Kerosene ( Paraffin Oil ) • Diesel Oil • Fuel Oil • Chemical Liquids

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Crude Carriers

Gasoline is a transparent, petrolium-derived liquid that is used primarily as a fuel in internal combustion engines.

Fig : A jar of gasoline27

Crude Carriers

Kerosene is a combustible hydrocarbon liquid widely used as a fuel, in industry, and in households.

Fig : Kerosene28

Crude Carriers

Fuel Oil is a fraction obtained from petroleum distillation , either as a distillate or a residue.

Fuel Oil is made of long hydrocarbon chains, particularly alkanes, cycloalkanes and aromatics.

Diesel Oil is a type of Fuel Oil.

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Crude Carriers Crude Oil vary considerably depending upon their origins like :

Crude Oil from Middle East is very thick and heavy that if allowed to cool it becomes almost a solid.

Crude Oil from offshore, such as North Sea, is lighter in colour and freely pourable at normal temperatures.

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Crude Carriers

The Crude Oil is transported in the largest tankers such as VLCCs and ULCCs.

Fig : Crude Oil Tanker31

Crude Carriers

VLCC ( Very Large Crude Carrier)• Between 160.000-319.999 DWT

Fig : MV Sirius Star32

Crude Carriers

ULCC ( Ultra Large Crude Carrier)• Between 320.000-549.999 DWT

Fig : MV Hellespoint FairFax33

Crude Carriers

VLCCs and ULCCs are ‘relatively straightforward’ in their construction because there is no requirement to take elaborate precautions against contamination.

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Crude Carriers

The words ‘relatively straightforward’ were used to describe the construction of crude carriers , but they still include a fair amount of complex machinery and instrumentation.

For example: ‘Each tank must have its own set of pipelines with accompanying system of valves and instruments to allow the right combination of tanks to be selected.’

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Crude Carriers

For many years, tankers were constructed with single plating, that is to say just one skin of metal between the cargo and the sea.

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Crude Carriers Some catastrophic instances of pollution o of the

sea and the sea shore through tanker accidents has led to increasing anti-pollution controls.

The most stringent of these was the USA Oil Polution Act of 1990 ( OPA90 ) which required all tankers operating in USA waters to have ‘double hulls’.

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Crude Carriers

This requirement has also been internationally adopted under the MARPOL convention so all new tankers are built with double hulls and an enforced scrapping programme means that by 2015 no single hull oil and chemical tankers will be trading.

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Crude Carriers

Fig : Double Hull39

Crude Carriers

Each tank must have its own set of pipelines with accompanying system of valves and instruments for loading and discharging its own cargo.

The method of getting the heavy residues away from the sides of the tanks when discharging is known as ‘ Crude Oil Washing ’ ( COW).

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Crude CarriersCOW

Crude Oil Washing ( COW) is a system which comprises devices somewhat like huge, inverted lawn sprinklers which spray oil from the ship’s own cargo around the insides of the tanks to wash the residues down.

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Crude CarriersCOW

Stage One: The limits to cover the top of the cycle would need to be adjusted to be pointing upwards. Where portable drive units are employed these would have to be initially fitted and limits set accordingly ;

Stage Two: The second stage starts when one-third of the tank is discharged and the washing jet will only be allowed to travel down to a point where the jet strikes the bulkhead just above the level of the oil in the tank. At this stage the machine completes 11⁄2 cycles and must therefore be adjusted, up again, before the start of the next stage;

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Crude CarriersCOW

Stage Three: The third stage is where the machine washes where two-thirds of the tank has been discharged and between one- and two-thirds of the tanks structure is washed.

Last Stage: The final stage washes the last third and the bottom of the tank with the jet pointing in the downward position.

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Crude Carriers

44Fig : COW stages

Crude Carriers

Many types of crude oil are extremely viscous and would even become almost solid if cooled down, therefore crude carriers are equipped with ‘heating coils’.

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Crude Carriers

‘Heating coils’ is a system of pipework in the tanks through which steam may be pumped to keep the oil at a pourable temperature.

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Crude Carriers

Another set of pipelines is involved in providing the ‘inert gas system’.

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Crude Carriers

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Fig : IG System

Product Carriers

Petroleum Products are divided into two categories:

Clean products Dirty products

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Product Carriers

Clean products : gasoline,kerosene,gas oil and diesel oil.

Dirty products : heavy oils such as the different types of fuels oils especcialy the so-called residual oils which are now the main type of bunker fuel of ships

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Product Carriers

Tankers carrying clean products have to be meticulous in their cleanliness and cargo segregation because their cargoes are for use.

Heavy fuel oils are not so sensitive but even so have to arrive in a satisfactory condition for immediate use.

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Product Carriers

Product carrier for clean cargoes are usually in the 40.000 tonnes range while the dirty product carrier can be any size even up to 150.000 tonnes.

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CHEMICAL CARRIERS

A chemical tanker chemical tanker is a type of tanker ship designed to transport chemicals in bulk.

As defined in MARPOL Annex II, chemical tanker means a ship constructed or adapted for carrying in bulk any liquid product listed in Chapter 17 of the IBC Code.

Example of Chemical Carrier

Chemical Tankers are much more complicated than ordinary tankers. They usually have more tanks, more valves, more pumps, more blanks, more lines.

They may have many different kinds of cargo onboard at the same time.

About 30% of liquid trading cargoes are carried by chemical tankers.

By the type of hazard that can produce, cargo can be divided into:

Corrosive CargoesFlammable CargoesPoisonous and Toxic CargoesReactive CargoesVegetable and Animal Oils

CARGO TRANSPORTATION

Total gross tonnage of chemical tankers worldwide is approximatelly 16.3 million and there are 3 main types of Chemical tankers:

Type 1 Ship-Specialised Chemical Carrriers*

Type 2 Ship-Complex Parcel Chemical Tankers

Type 3 Ship-Product/Chemical Tankers

CARGO STORAGE

Around 70% of cargo tanks in the global fleet are constructed from mild steel. In In order to protect these tanks from corrosion order to protect these tanks from corrosion and from the carriage of often very and from the carriage of often very aggressive cargoesaggressive cargoes, a coatingcoating is applied on them.

Cargo tank coatings can be categorized into two main groups:

Inorganic coatings- zinc silicates and ethyl silicate types

Organic coatings – epoxy and modified epoxy systems

Typical coating system can be categorized as Zinc and Epoxy coatingZinc and Epoxy coating.

The coating must:create a separation barrier to avoid direct

contact between the mild steel and the corrosive cargo substance

have smooth/slippery surface to provide easy tank cleaning operation

have low absorptionnot contaminate the cargo

LIQUEFIED GASES

Liquefied gases carried by sea are liquids with a vapor pressure exceeding 2.8 bar absolute at a temperature of 37.8°C.

Gases are always liquefied for transportation in bulk because more cargo can be fitted in a given volume.

TYPES OF LGsPrincipal LGs are:Liquefied Natural Gas(LNG)Liquefied Natural Gas(LNG)Natural Gas Liquids(NGLs)Liquefied Petroleum Gas(LPG)Liquefied Petroleum Gas(LPG)AmmoniaEthylenePropyleneButadieneVinyl chloride

LNGLNGThere are two distinct types of gas regularly

carried in ships, LNG&LPG.Natural gas occurs as a mixture of gaseous

minerals, including both hydrocarbon and non-hydrocarbon gases, in reservoirs beneath the earth’s crust.

Most of the world’s crude oil fields have deposits of natural gas associated with them.

Example of LNG carrier

Like all other fossil fuels, the origin of natural gas lies in the decaying plant and animal life over millions of years.

Natural gas my be found in:Underground wells(non-associated gas)Condensate reservoirsLarge oil fields(associated gas)

LNG ADVANTAGES

Principal advantages of LNG are:High calorific valueClean burning characteristicsClean burning characteristicsLow costReady availability

LNG USAGE

LNG has big importance in:Residential/CommercialHousehold appliances,water and space heatingIndustrial UsesGlass,ceramic,baking IndustriesPetrochemical IndustryFertilizers,plastics,adhesivesVehicle and Aircraft Fuel

LNG COMPOSITION

LNG composition varies according to where it is found, but methane is the predominant constituent, ranging from 70% to 99%.

Pentanes and other heavier hydrocarbons must be removed from the natural gas.

Gas with large amounts of pentanes is called “wet gas” and gas free of heavier hydrocarbons is called “dry gas”.

LNG PRODUCTION

After removing impurities,the main gas flow, mostly methane is liquefied into the end product.

There are 3 basic liquefaction processes to lower the temp. of methane to about -162°C:

Pure refrigerating cascade processMixed refrigerating processPre-cooled mixed refrigerating process

LNG TRANSPORTATION

LNG is carried by LNG carriers LNG carriers at sea.LNG carriers must comply with the

standards set by the IMO in the Gas Gas CodesCodes and with all safety and pollution requirements common to other ships.

LNG STORAGE

Cargo tanks are constructed in order to protect the ship’s hull structure from coming into contact with the LNG at -162°C.

Containment systems are divided into 2 general categories:

Free-standing(Self-supporting)Membrane type(Non-self-supporting)Cargo tanks accounts more than 25% of

the total vessel cost.

LNG&LPG CONTAINMENT

Containment types:Prismatic Free-Standing TanksSpherical Free-Standing TanksCylindrical Free-Standing TanksMembrane TanksSemi-Membrane Tanks

In order to carry extremely cold gas, thedesigners must provide a suitable environment for the gas by using distinct types of materials.

Tank Materials:• Low Nickel Steel• Nickel Steel >9% Ni• High Nickel Alloys• Austenitic Stainless

Steel• Aluminum

Tank Insulation:• Balsa• Polyurethane Foam• Perlite• Polystyrene Foam Internal Insulation• Polyurethane Foam• Polyphenylene Oxide Foam

NATURAL GAS RESERVES

Total world reserve is 187,300.The world’s largest reserves of natural gas are:Russia- 48,700Iran-33,600Qatar- 25,100Turkmenistan-17,500United States of America-9,460Turkey-6• Values are dating from 2013 and are expressed in billion cubic meters.

LNG MARKET

As of December 2013, the LNG existing fleet comprised of 387 ships and the orderbook stood at 114 ships.

The total capacity of the global LNG carrier fleet doubled since 1970, rising from 75 000 m3 to 150 000 m3.

• Shipments of LNG grew by 10,3% in 2011,taking the total volume to 330,8 billion cubic meters.

• In 2020 is expected that West Africa will lead the exports.

• Norway and Russian Federation will be driving LNG exports in 2030.

EVOLUTION OF THE GLOBAL LNG FLEET

LNG CHARTER PARTIES

Since most of the ships now in existence are carrying for their owners, there is not a huge charter market for them and when them are chartered it is usually on time charter or bareboat terms.

LNG POLLUTION• If there's a leak or spill from a tank or

pipeline the LNG would convert back to a gas. As it diluted with air, the natural gas/air mixture could become potentially explosive if the concentration of natural gas in air reached between 4% and 17%.

• Nitrogen oxide emissions create acid rain, which harms waterways and fish and creates smog, which causes respiratory problems for children and the elderly.

LPGLPG

The other gas, regularly carried in ships is LPG.

The LPG gases comprise propane, butane and mixtures of the two. These products can be obtained, in pressurized form, from the refining of crude oil coming from underground reservoirs.

Example of LPG carrier

LPG ADVANTAGES

Principal advantages of LPG are:Economical source of fuelIt is not water solubleBurns with low combustive emissionsHas a high octane rating

LPG USAGE

LPG is most used as:Main fuel for vehiclesRefrigerantDrying processesMatter for producing electrical energyRaw material in Plastic IndustryHousehold appliances, space heating

LPG PRODUCTION

LPG can be produced in 2 ways:Natural gas processingNatural gas processing-source of 60% of the

LPG worldwideCrude Oil refiningCrude Oil refining-source of 40% of the LPG

LPG TRANSPORTATION

There are 3 types of carriers that transport LPG at sea:

Fully refrigerated shipsFully refrigerated shipsSemi-pressurized and refrigerated shipsSemi-pressurized and refrigerated shipsPressurized shipsPressurized ships

LPG MARKET

Total number LPG carriers at the start of 2014 was 1269.

The number of LPG carriers on order at the start of 2014 was 171.

Approx. volume of LPG moved by sea in 2013 (mt) was 64 millions.

Most of the gas supplies are controlled by the same major energy companies that produce crude oil, and since the ships required to carry it are highly specialized and hugely expensive to build, they are not build speculatively.

Worldwide LPG consumption has increased by an average of 2.4% annually since 2000 to over 250 million tonnes in 2010 and reached 270 million tonnes in 2012.

LPG CHARTER PARTIES

There is one voyage charter party form “Gasvoy 2005Gasvoy 2005” published by BIMCO used for the LPG, ammonia and liquefied petrochemical gas trades, without LNGwithout LNG.

LPG POLLUTION

Burning LPG releases carbon dioxide, a greenhouse gas.

The reaction also produces some carbon monoxide.

LPG does, however, release less CO2 per unit of energy than does coal or oil.

INERT GAS SYSTEM

Inert gas is used on gas carriers to maintain positive pressure in hold and interbarrier spaces.

For inerting holds and interbarrier spaces, the shipboard generation of inert gas is a requirment of Gas Codes.

Gas carriers do not use the ship’s main boilers for generating inert gas.

Only pure N can be considered inert.

WORLD SEABORNE TRADES IN CARGO TON-MILES

GAS PRODUCTION &CONSUMPTION 2011

PARCEL TANKERS Chemical parcel-tanker means a vessel that has: a cargo-carrying capability consisting of individual cargo tanks for bulk

chemicals that:• are a permanent part of the vessel• have segregation capability with piping systems to permit simultaneous

carriage of several bulk chemical cargoes with minimum risk of cross-contamination

has a valid certificate of fitness under the International Maritime Organization Code for the Construction and Equipment of Ships Carrying

These ships have a significant proportion of the cargo tanks made with stainless steel, allowing maximum flexibility to carry cargoes that need their quality safeguarded.

LIQUID CARRIERSGenerally, the liquid carried by sea is:PetroleumGasolinLNGChemicalsChemicalsVegetable oilsVegetable oilsJuiceJuiceWineWineMolassesMolasses

• There is a separate market in edible liquids including vegetable oils,molasses, juice and wine.

• Area of production is much more difficult to define that with oil and gas.

• The ships does not follow the same design basics that apply to oil tankers.

Tanker Charter Parties

Tanker Charter Parties have some similar lines as dry cargo forms, but with several significant differences which can be found in the ‘Shellvoy’ form.

Tanker market has its own standard forms with two exceptions, these forms beeing devised by the oil companies themselves.

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Tanker Charter Parties Important differences of standard form

A) Heating system is a system of heating coils through steam

can be passed; The reason for their presence is because

many crude oils would become solid and un-pumpable if allowed to cool to the sort of low ambient temperatures.

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B) Tank-coatingRefers to the liquid chemical cargo

C) Winches or cranes to handle the hoses required for cargo

handling

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D) Capacity of the ship’s pumpsThe shore installation pumps the cargo in

and the ship pumps it out.Pumps are very good at ‘pushing’, but not

very efficient when ‘sucking’.

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E) Residue after previous cargoesIf the ship is intended for loading clean

products, her previous cargoes could leave a small amount of residue and some products could be contamined by the merest trace of foreign matter.

F) COW and IG systems

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G) Running hours instead of lay timeThe agreed total length of time for loading

and discharging is 72 hours regardless of the size of the ship.

pumps works almost every day of the yearH) The tanker charters have no

provision for despatch money.

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TOVALOPmeans the Tankers Owners Voluntary

Agreement concerning Liability for Oil Pollution.

was a fund to which most tanker owners subscribed to ensure that there was always a huge sum of money available to deal with a major oil spill.

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Shell ITOPF ClauseOwners warrant that throughout the duration of this

charter the vessel will be :1.Owned or demise chartered by a member of the

International Tanker Owners’ Pollution Federation Limited

2.Entered in the Protection and Indemnity Club stated in the part 1(A) 1(xii) of SHELLVOY 5 as amended December 1996.

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The Civil Liability andFund Conventions

The 1992 Civil Liability Convention governs the responsibility of ship owners for oil pollution damage.

For ships carrying more than 2 000 tonnes of oil in bulk:

• The ship owner is obligated to maintain insurance to cover his liability under the 1992 CLC.

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The 1969 CLC has introduced the principle of strict liability ( i.e. liability even in the absence of fault) for tanker owners and creates a system of compulsory insurance.

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Claims for compensation for oil pollution damage (including clean-up costs) may be brought against the owner of the tanker which caused the damage or directly against the owner’s P&I insurer.

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The tanker owner is normally entitled to limit his liability to an amount that is linked to the tonnage of the tanker causing the pollution.

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The 1971 Fund Convention has provided for the payment of supplementary compensation to those who could not obtain full compensation for oil pollution damage under the 1969 CLC.

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1971 IOPC Fund was set up for the purpose for administering the regime of compensation.

Payments of the compensation and administrative expenses of the 1971 IOPC Fund were financed by contributions levied on companins in Fund Convention countries that received crude oil and heavy fuel oil after sea transport.


In 1992, a Diplomatic Conference adopted two Protocols amending the 1969 CLC and 1971 Fund Convention , which became the 1992 CLC and Fund Conventions which provide:

a) Higher limits of compensation;b) A wider scope of application than the

original Conventions.

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• In October 2000 the Contracting States approved a proposal to increase by 50 % ( $260 million) the amount of compensation available under the terms of the Conventions.

• This came into effect on 1 November 2003

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Negotiating the Charter

Negotiation by means of offer and counteroffer are similar to those for dry cargo with a few significant differences.

Reference has already been made to the way the majority of tanker fixtures, especially those for crude oil, are conducted according to Worldscale with the number being in line with the strength of the market at the time.

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In almost all cases there tends to be only one broker between the chartere and the owner, unlike the dry cargo market where there is usually a chaterer’s agent and an owner’s broker.

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Negotiating the Charter Why does negotiations in the tanker market tend to be far

brisker that in dry cargo?

The charterers and the owners specialise in oil business so that there are far fewer terms and conditions about which to ‘haggle’.

The single broker is dealing directly with decision-makers on both sides, the time limits on offers and counter offers can be very short.

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• Tanker brokers have always been specialists and they usually tend to confine that specialisation to one segment of the market so that those working in cruide oil are quite apart from those concentrating on refined petroleum products and chemical brokers are separate again.

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Conclusions

Oil is the main source of energy for humanity. Oil is carried in Oil Tankers. The words ‘relatively straightforward’ were used to describe the

construction of Oil Tankers. Tanker market has its own standard forms with two

exceptions. The 1969 CLC has introduced the principle of strict liability. Tanker Chartering always was essentially desk-based. Tanker Charters have no provision for despatch money.

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BibliographyInstitute of Chartered Shipbrokers, ‘Tanker

Chartering’ , 2012McGuire and White, ‘Liquified Gas Handling

Principles on Ships and In Terminals’ , Third Edition-2000

Michael Corkhill ,B.Sc. , ‘LNG Carriers.The Ships and their Market’,1975

www.wikipedia.com

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Documents

The Tanker Chartering Market