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Transporting Oil by Sea

07/08/2010

Most oil transported around the world travels on specially built ships called tankers. These ships

carry large quantities of crude or refined oil to the areas where it is needed, often following thesame routes. Oil transport is governed by very strict safety measures that oil companies,

shipowners, and the states where they are registered must respect.

Significant Oil Freight

Huge quantities of oil are transported by ship between production sites,refinineries,and points

of consumption. In 2008, the equivalent of 54 millionbarrels1

- i.e. about 7.2 million tons of oil

- were shipped via maritime routes daily. This means that 2.6 billion tons of oil were transportedby sea in 2008 alone, compared to 500 million in 1960 and 100 million in 1935.

Thus in order to meet ever growing demand, oil freight(crude oil,fuel, and basicpetrochemicalsproducts) is also constantly increasing. In 2008, it accounted fora third of total maritime trade

worldwide2.

In 2008, 2.6 billion tons of oil were transported by sea.

The oil is transported on specially built ships calledtankers. In 2007, total world tonnage was

380 million tons3, shipped in thousands of tankers. This rose by 35% between 2000 and 20074,because more and more ships were commissioned during this period and because tanker capacityincreased as well. Tankers vary in size, and therefore can hold different amounts of liquid cargo,which is measured in tons of crude.

Supertankers are up to 400m long (as long as 17 tennis courts)! They can transport up to

500,000 tons of crude5.

Smaller tankers are 200m long and can contain up to 50,000 tons of crude6.

The Main Oil Routes

Tankers often follow the same routes between producing and consuming countries. Refinedpetroleum products (gasoline, diesel, and kerosene) are mainly transported within Europe,

between Europe and Asia, Europe and the US. The most frequented routes forcrude oil start inthe Middle East. They pass through the Bab el-Mandeb Strait or the Strait ofHormuz, the

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world's main oil shipping lane. After this, they travel to:

The US and the rest of North and South America via the Cape of Good Hope

Asia via the Malacca Strait between Sumatra and Malaysia (this route leads to Japan and

China, where oil demand has grown signigicantly since 2000).

Europe via the Suez Canal. Larger tankers cannot take this route because the Suez canal is

too narrow. These tankers pass the Cape of Good Hope to reach European ports. Thus, large oiltanker takes 2 weeks to one month to reach Western Europe from OPEC countries (Organization

of the Petroleum Exporting Countries) in Africa, South America, the Arabian Peninsula.

Moreover, oil freight transiting through the Panama canal has increased considerably due

to growing demand in Asia.

Oil transport costs are called charter costs, which vary according to demand. Costs can doubledepending on the time of year for the same journey and the same tanker. These costs account for

5-10% of oil's added value7.

Who Transports Oil?

After the 1973oil crisis, a number of oil companies lost control of the management ofhydrocarbonresources to state-run companies in countries wishing to control their oil reserves.

At the same time, these companies lost control of crude oil transport. Thus, they shut down

subsidiaries that managed this shipping of crude oil and refined petroleum products.For historical reasons, most tankers operating today do not belong to oil companies. Oil

companies only own the tankers' cargo. Instead, they outsource maritime shipping to

specialized shipowners (carriers who outfit the ships and operate them commercially).

When a company wishes to transport oil to arefineryor point of consumption, it contacts the

shipper to book a tanker. However, the ship is not chosen at random, because it must meet very

strict safety and security standards.

Transport Safety - A Key Issue

Whether oil travels by sea or by land, the safety and security of operations is key. Every oilcompany sets its own quality, safety and security criteria for maritime shipping. These criteria

include:

The tanker's construction conditions and features.

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Tankercondition and maintenance

Crew Recruitment, training, and management

Planning routes and the journey itself.

Shipowners are responsible for ensuring that their ships meet these criteria. Independent

certification organizations inspect ships on a regular basis and issue sailing permits.

From time to time, oil companies also appoint specialized inspectors to make sure shipowners

comply with regulations. Oil companies share the information gathered by inspectors in acomputerdatabase such as SIRE (Ship Inspection Report Exchange), set up in 1993. In 2004-

2005 for example, SIRE contained an additional 10,000 reports on 4,000 ship inspections.

Before choosing a tanker for shiping crude, the oil company checks all the information availableon it. If it believes that the tanker is not reliable enough, it may refuse to use it.

It may also exclude ships that are too old and that have received negative inspection reports, orturn down a crew that it believes has not received sufficient training.

Oil companies and shipowners are solely responsible for the safety of maritime oil transport.

False. Each ship is registered in a country and sails under the flag of this country. Therefore, the

country in question is responsible for checking the ship's condition and on-board practices before

issuing its registration. Many countries take this responsibility seriously. However, some

countries register ships at very low costs but without carrying out strict checks on their condition- these are known asflags of convenience.

Despite the safety problems that may occur, maritime oil shipping accidents have fallen steadily.The number of major oil spills (i.e. over 700 tons) decreased eightfold

8between the '70s and

'00s. These encouraging results were made possible by the combined efforts of states, oil

companies and shipowners. In fact, almost all the oil transported by sea arrives safely without ahitch.

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Transporting Hydrocarbons

07/08/2010

View of the Norwegian tanker Hanne Knutsen (260 meters, 123,000 tons) being unloaded at

wharf No. 7 in the Donges refinery (France, December 2005).

Total / Dufour Marco

The main oil and gas deposits are located in emerging or developing countries. Once domesticdemand is met, these countries export most of theirhydrocarbonproduction to industrialized

regions. Europe, North America, and East Asia have strict energy requirements but are not self-

sufficient enough in terms of oil and gas supplies.

Thus, production areas are often far removed from the areas where the oil and gas is needed. This is why large quantities

of hydrocarbons havebeen transported all over the world for decades.

Transporting Oil by Sea

Tankers are huge ships that carry oil to all four corners of the planet, following specific maritime routes. This type ofshipping is governed by strict safety regulations that oil companies, states, and shipowners must respect.

Transporting Hydrocarbons by Land

Oil is transported via pipelines that are several thousand kilometers long. Geopolitical issues must be taken into accountwhen these pipelines are being built. Gas can also be transported via pipelines.

Storing Hydrocarbons

Once at their destination, oil and gas are not always used immediately. In this case, they are stored in highly securecenters specially designed for this purpose.

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Oil Logistics

07/08/2010

From the refinery to the consumer, various modes of transport are used to distribute

hydrocarbons. Pending delivery, they are stored in depots subject to strict management rules.

These rules set out strict safety and security requirements to protect surrounding soil, water and

air.

Pipe from the Donges refinery arriving at the oil storage depot in Le Mans(France, June 2004) Total / Dufour Marco

How Is Oil and Gas Distribution Organized?

Every day, each of us uses petroleum products to meet ourdomestic needs - for example todrive a car or motorcycle. Similarly, the industry, agriculture and transport sectors and public

authorities and services have substantial oil and gas requirements.

So, oil companies have to deliver the right product at the right time, to the right location and at

the best price, under optimum safety and security conditions to protect the environment. Theseare the aims ofoil logistics, which coordinaterefineries, storage depots and a distribution

networkto deliver petroleum products to the consumer.

Petroleum products must be delivered at the right time and place, in optimum safety and securityconditions.

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Oil Storage Depots

Each country only has a few refineries and some countries don't even have any. That is whythere are storagedepotsfor storinghydrocarbons. These intermediate storage depots help meetlocal demand quickly. Companies don't have to carry out multiple journeys between refineries

and the locations where the products are to be delivered.

Oil storage depots are only used to manage the distribution of petroleum products in a given

region.False. In Europe, these storage centers also contain oil reserves. All EU countries have an

obligation to store enough additional oil to meet national demand for three months - these areknown as strategic stocks.

This oil can be used if there is a break in supply- either because of a delay in delivering crude to

a refinery or a refinery shutdown that prevents the delivery of finished products over a longerperiod.

Petroleum products are delivered from refineries to depots using what are known as mass

transport methods, such as:

Pipelines Rail tankers Inland barges

Ships

Each oil storage depot:

Has 10-30 steel reservoirs that can take up to 60,000m3 of liquid

Can take 10,000-300,000m3

of miscellaneous petroleum products (fuel, gasoline, diesel, and

kerosene).

In France, the major oil companies own about sixty main storage depots. They supply service

stations and a large number ofsecondary storage depots, which are smaller and generally run

by independent dealers.

Road tankers - which can hold 10-30 tons of liquid- deliver to customers. Some of these trucks

have compartments, so they can deliver a number of different products in one load. Each large

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storage depot has 3-12 loading bays where petroleum products are loaded onto the trucks- which

then set off to deliver their cargo.

Products are checked as they go through the distribution chain, to guarantee that the consumergets the highest quality.

Safety and Security - Key Issues

Petroleum products are dangerous and carry a risk of fire or explosion. Ensuring the safety andsecurity of storage depots and of the distribution chain is therefore crucial.

In Europe, refineries and oil storage depots are subject to very strict regulations. Authoritiesinspect them on a regular basis. These safety regulations are defined in theSeveso IIdirective

1.

They were drawn up after an industrial accident in 1976 in a pesticide and herbicide plant in

Seveso, Italy; and were amended in 2003.

Consequently, a wide range of safety measures have been implemented in oil storage depots.

Safety valves are installed on each reservoir and floating blankets placed inside the tanks.

These are covers that prevent volatile products from dispersing into the atmosphere.

Tanks and pipes are also fitted with alarms, hydrocarbon detectors, and automatic shut-off valves to detect and stop any leaks.

Fixed and mobile fire safety systems (sprinkler systems, water screens, and, water and foam

cannons) are installed in storage depots to put out any fire that may break out.

Moreover, fire safety drills are carried out monthly and there is an annual fire drill with the fire

department.

Similarly, the distribution network's safetey is ensured in various ways. For instance:

Delivery truck drivers must have a special permit for hydrocarbon transport.

Trucks and equipment are regularly inspected. Oil companies also check that securityconditions are met at delivery points, even if they do not own them.

Special Measures to Protect the Environment

To avoid any pollution, each storage depot has a number of facilities, like:

A vapor recovery unit to recover emissions in truck loading bays to protect ambient air

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Retention pondsaround the reservoirs to recover any leaking liquid

Containment ponds to recover equipment washing discharge or rainwater that falls on thestorage depot (this hydrocarbon-containing water is then filtered through separators and settlingtanks to remove pollutants

A waste collection skip (for oily rags and mud from the bottom of tanks) that is then treated

by specialist companies.

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Storing Hydrocarbons

07/08/2010

Industrialized countries accumulate oil and gas reserves for strategic reasons.

This provides them with energy resources in the event of political upheaval threatening theirsupply. Storing hydrocarbons means that supply can be adjusted to fluctuating consumer demand

in real time and that crude oil can be stored while it awaits refining.

View of a storage container at the Provence refinery in La Mde (France, September 2007)

Total / Dufour Marco

Why Are Oil Reserves Built Up?

Oil has been a highly strategicresource for industrialized countries since the 20th century. Thissource of energy has enabled them to develop and has become indispensable to the running of

their economies. This is why they make sure they have sufficient stocks ofcrude oilandfinished petroleum products.

These reserves provide a measure ofautonomy, so that if for example, their oil imports suddenly

stop for political reasons, they have something to fall back on.

EU countries need to store the equivalent of three months' worth of oil imports.

In 1968, the European Commission imposed a requirement on member states to maintain the

equivalent of 65 days' worth of oil imports in reserves. In 1972, against the backdrop of the oil

crisis, this was increased to 90 days. In addition, as of 2012 all EU member states will berequired to publish a report on their reserves

1. In France, regional supplies are built up to

ensure 10 days' worth of premium grade gasoline and 15 days' worth of fuel and diesel.

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In industrialized countries, oil is stored for purely strategic reasons.

False. Freshly delivered crude oil can be stored not just for strategic reasons, but also simply

pendingrefining.

Depending on the country, storage depots for petroleum products are managed by

state-run companies, private companies or both working in tandem. In France, there are over

fifty storage depots. Petroleum products are stored in tanks of variable size, sometimesunderground. In the UK, there are about 80 storage depots, most of them managed by the GPSS

(Government Pipelines and Storage System)2.

The organizations that manage these storage depots must ensure that a number ofsafety and

security standards are upheld. The two main risks that must be guarded against are:

fires

land and water table pollution caused by leaks. To prevent this type of pollution, the tanks

are regularly inspected and the extent ofcorrosion(i.e. their level of wear and tear) isexamined, Over time, acid gases contained in the oil (CO2andhydrogensulfide) can attack and

pierce the tanks.

Where is Natural Gas Stored?

Natural gas consumption varies according to the season and differences in heating needs. Forexample, the French consume 8 times more natural gas in Winter than in Summer.Therefore, natural gas must be stored in order to match supply to demand in real time. However,

since this energy source is a gas, it takes up considerable volume.

There are two storage methods that take this factor into account:

The gas is accumulated in giant tanks in liquefied form. When cooled to -160C, gas turns

into liquid. This liquefied natural gas (LNG) takes up 600 times less space than unprocessednatural gas.

Gas can also be stored in a natural underground reservoir, a little like an artificialdeposit.To do this, an enclosed reservoir measuring several billions of m

3is needed. This should be

located no more than 500 meters underground, otherwise injecting the gas would take too much

energy. Geological sites with these features are rare. However, in 2009, there were 638

underground sites with total capacity of 328.9 billion m3

of gas, equivalent to 10.7% of annualglobal consumption

3. Most of these reservoirs are located in the US (395 sites) while Europe has

129, including 47 in Germany, 15 in France, and 10 in Italy.

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Transporting Hydrocarbons by Land

07/08/2010

Oil can be transported by ship. But sometimes it is better to transport it by land for economic,

geographical, or political reasons. In this case, oil pipelines, which link ports, refineries, and

points of consumption are used. Similarly, gas pipelines form a network and are the preferred

mode of transport for natural gas.

Operators using a level to bend pipes while laying pipelines between the Provence refinery andthe Lavra site (France, June 2005)

Total/ Dufour Marco

Extensive Networks of Oil Pipelines

Pipelinesare large pipes through which tens of millions of tons of oil are transported every

year. The longest pipeline in the world is the Druzhba pipeline (5,327 km), which passesthrough eight countries - Russia, Belarus, Ukraine, Poland, Germany, the Czech Republic and

Hungary1.

To facilitate the circulation ofcrudewithin the pipeline, pumping stations located every 60-100

km increase pressure as the crude passes through. Inside a pipeline, oil travels 2 meters per

second or7km/h - the same speed as an elephant!

There are geopolitical and economic issues involved in the building of new oil pipelines.

Generally, the oil industry prefers to ship oil by seabecause this mode of transport is more

flexible. Unlike a pipeline, a ship does not have to follow the same route, which can therefore beadapted to meet demand. However, sometimes oil has to travel over land, for example to

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landlocked countries. In this case, it can be easier and less costly to use a pipeline than to

transport the oil by road or train.

In countries with huge land mass such as Russia, pipelines are useful to deliver oil to ports

for exporting by ship.

Western Europe has pipeline networks that transport crude from ports torefinerieslocated

further inland. These are also used to send the finished product from refineries to large

consumer centers(fueland raw materials for thepetrochemicalsindustry).

Whether transported by sea or by pipeline, the safety and security of operations is key. If a

pipeline is damaged by accident orsabotage, any leaks can be quickly detected because thesudden drop in pressure in the pipeline is registered. When the origin of the leak is located, the

oil flow is stopped as soon as possible at the pumping stations and any pollution is contained.

However, leaks due to pipecorrosioncan be major. Oil contains acidic gases such asCO2and

hydrogensulfide which, corrode metal pipes over time. To prevent such accidents, pipelinesmust be regularly inspected and replaced. In regions with harsh climates such as Siberia, oil

pipelines are highly subject to corrosion. Since these areas are difficult to access, they are notalways changed on time, and this causes leaks.

Finally, building new pipelines gives rise to intense negotiations because of the high geopolitical

and economic stakes at play in the regions through which these networks pass. For example, upuntil the mid-2000s, Russia controlled 80% of pipelines transporting oil from the Caspian Sea

which has estimated reserves of 17-33 billion barrels3. In May 2005, the Baku-Tbilisi-Ceyhan

(BTC) pipeline was opened, linking the Caspian Sea to the Mediterranean and putting an end tothis virtual monopoly. States in the region now sell over one millionbarrelsper day directly to

European countries. This oil transits via the BTC pipeline, which at 1,774km long4

is the second

largest pipeline in the world. The new pipeline is helping reduce Europe'senergy dependence

onOPECcountries (Organization of the Petroleum Exporting Countries).

Gas Pipelines, the Preferred Mode of Transport for Natural Gas

As their name indicates,gas pipelinesare similar to oil pipelines except that they transportnatural gas. There are two types of gas pipeline:

Some are underwater, such as those linking Norwegian gas fields to European terminals or

North Africa to Sicily.

Others are overland, such as those that make up the Russian network(the longest in theworld, at almost 160,000 km long

5). For safety and security reasons, these networks are buried

underground.

Inside the pipelines, gas circulates at high speed. Its pressure is increased by compressor plants

located at regular intervals along the network.

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Contrary to oil, natural gas is mostly transported by pipeline. This is because for the same

amount of energy, the volume of natural gas is 600 times higher than oil, which is liquid. Thismeans that it is far too costly to transport natural gas by ship.

All the gas that travels throughout the world circulates in gas pipelines.

False. In some cases, it is impossible to build gas pipelines because the terrain or climate is too

hostile. Sometimes, building this kind of infrastructure costs too much because of the distances

involved - for example when transporting Nigerian gas to Europe or Qatari gas to Japan.

In this case, the natural gas is cooled to -160C. At this temperature, gas becomes liquid and

takes up 600 times less space, which makes it much less costly to transport. It is then loaded onto

specially built LNG tankers, which keep it at a low temperature.

Once it arrives at its destination, the liquefied natural gas (LNG) is reheated and turned back intogas, before being injected into the distribution network