Floating Oil Storage Better Prospects For The Unemployed?
Since the start of the tanker crisis at the end of 1973, many ideas have been suggested for mopping up the large volume of tanker tonnage which is now surplus to requirements. One of these ideas is the use of tankers for oil storage. For some time (even before the tanker crisis broke), tankers have been used for storage at offshore oil production sites where it was not feasible to lay a pipeline to shore.
However, the idea of using tankers for storing oil in the oil importing areas is a comparatively new one. Various international organizations have considered the idea, such as IMCO, INTERTANKO, and IMIF. In addition, certain countries have examined the idea, notably the United States and Japan.
In the United States, there is a Strategic Petroleum Reserve Plan, the aim of which is to build up a store of 500 million barrels of crude oil by the end of 1980 to be used as a strategic reserve.
As part of this plan, the Federal Energy Administration (FEA) examined the possible use of tankers for storing these reserves. The FEA's conclusion was that the use of tankers in this way would involve severe environmental hazards, liability to sabotage, and major operational requirements.
Furthermore, the FEA concluded that the cost of storing oil in tankers would be much greater than the cost of storage in saltdomes and existing mines. For these reasons, floating oil storage does not form part of the Strategic Petroleum Reserve Plan of the United States.
Japan does not have the same access to underground storage, and there is concern over the availability of suitable land sites for the storage of increasing oil stocks. For this reason, as well as the fact that there are a large number of Japanese-flag VLCCs having difficulty in finding employment, floating oil storage is seen in a more favorable light than in the U.S. The Japanese Shipowner's Association (JSA) has submitted an outline of an oil storage plan using tankers to the Ministry of Transport, the Ministry of International Trade and Industry (MITI), and the ruling Liberal Democratic Party. At the end of September, it was reported in the "Kaiji" that the Liberal Democratic Party has adopted a policy to support the use of tankers as floating oil storage, and last month a Japanese VLCC obtained a five-year charter for storage.
In 1976, MITI estimated the annual cost of floating oil storage to be 7,000 yen per kiloliter (about $22 per ton), compared with only 5,500 yen per kiloliter (a little over $17 per ton) for land storage.
In the JSA plan submitted to MITI, a charter rate of 400 yen per DWT/month was suggested for VLCCs to be used as floating storage. This is equivalent to a little under $1.50 per DWT/month, or about $19 per ton per year. This is still apparently more expensive than land storage, even before allowing for any other costs beyond the hire rate for the tanker. It may be that the plan is being seriously considered, because the annual cost of providing additional land storage would be higher than the $17 per ton indicated in the 1976 analysis.
In fact, some tankers have already been used as floating oil storage. Whereas the JSA plan is for tankers to be used for longterm strategic storage, the recent charters are either (1) to solve a specific short-term problem such as the charter of the "British Resolution" to provide transshipment at Balboa at the western entrance to the Panama Canal, or (2) to provide short-term storage at a time when land-based tanks are full.
Charters have been fixed for periods ranging from 30 days to two years and on both a timecharter and a daily basis. Charters for short periods have recently been fixed at a rate of about $10,000 per day for VLCCs.
This represents an annual storage cost of less than $16 per ton, which appears to be competitive with the estimated cost of land storage (apart from where saltdomes are used), and less than the rate suggested by the JSA.
Ships chartered for storage on a longer-term basis have received a time-charter rate of about $0.75 per dwt per month. VLCCs fixed for longer periods on a daily basis have tended to obtain slightly more than the $10,000 per day for short period fixtures, and by comparing daily rates with timecharter rates it can be estimated that the cost of using a VLCC for storage at today's charter rates would consist of about $6,000 per day for hire, to cover crew and insurance, etc., as well as capital, and about $4,000 per day for other costs (fuel, etc.).
At today's spot rates of about Worldscale 22, an owner's total daily revenue would be about $13,200. His voyage costs (for fuel and port charges) would be about $11,200, assuming that the ship was not slow steaming. Thus, on the spot market the owner's net revenue to cover operating and capital costs would be about $2,000 per day. From a shortterm charter of a VLCC for storage, on the other hand, the owner's net revenue would appear to be about $6,000 per day. Thus, floating oil storage would appear to offer tanker owners the more profitable method of employment for their ships.
In most of the developed economies throughout the world, there are plans to increase the level of oil stocks for security reasons. At the same time, the availability of conventional land oil storage is either limited or is becoming expensive. The plight of the world's shipowners is wellknown, with many of them having large numbers of VLCCs for which they are unable to find profitable employment. The use of tankers as floating oil storage would appear to offer advantages for both the oil importing nations and the distressed tanker owners.
For the former, tankers would provide increased storage capacity fairly quickly and at economic costs, and for the latter the use of tankers as floating oil storage would provide more profitable employment than the traditional tanker market.
However, whether or not part of the existing tanker surplus can be absorbed in this way may not depend solely on economic considerations.
The FEA study pointed out some of the hazards which may be associated with floating oil storage, and indeed the JSA plan recognizes these, and recommends certain precautions which should be taken and certain operational methods which should be adopted when using tankers for storage. There may be environmental dangers to the sea through spillage and to the atmosphere through gas venting. However, it would not seem unreasonable to assume that if tankers are suitably sited and properly operated, these dangers can be avoided.
For additional information on floating oil storage, write to A.B.
Carpenter, H.P. Drewry (Shipping Consultants) Limited, 34 Brook Street, Mayfair, London W1Y 2LL, England.
Other stories from November 1977 issue
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- Cayman Energy Ltd. Reports On Activities page: 22
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- Stanley Stiansen Elected By ABS page: 49
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