Bangalore: State-run Shipping Corp. of India Ltd, or SCI, has asked for bids to buy four oil tankers, which currently cost $160 million (about Rs780 crore) each, to meet rising demand to carry crude into the country.
Tonnage security: A file photo of a very large crude carrier manufactured by Universal Shipbuilding Corp. The expansion plans of many refineries in India is also driving the need for more super tankers. Bloomberg
Each of the so-called super tankers can carry up to 318,000 tonnes of crude oil. SCI currently owns two of these.
“Unlike other shipping segments, the tanker market is firm,” said T.V. Shanbhag, former head of Transchart, the Central government’s ship chartering division, and now adviser to India’s largest ship broking firm, Mumbai-based Trans Ocean Agency Pvt. Ltd. “There is a huge requirement for very large crude carriers for the Indian market.”
A super tanker currently rents out at about $90,000-95,000 a day on the spot market. When hired out for a year, it can fetch daily rentals of between $70,000 and $75,000. The large size of the tankers is attractive to refiners, who can cut freight costs.
India depends heavily on imported crude for its energy requirements, bringing in 67% of its annual requirement of about 150 million tonnes, or mt. “This will only grow because India, along with China, is one of the lowest consumers of oil,” said SCI chairman and managing director S. Hajara.
SCI’s move to buy the tankers comes on the heels of a request to the Directorate General of Shipping, or DGS, by state-run refiner Indian Oil Corp. Ltd, or IOC, for a change in rules to allow it to hire foreign super tankers for up to five years.
Local entities now can only hire foreign ships for up to two years after they receive permission from DGS. Foreign ships also must obtain a no-objection certificate from the local industry body, the Indian National Shipowners Association. Hiring India-registered ships does not require this cumbersome process.
IOC spends some Rs1,400 crore a year as freight cost to import about 40mt of crude. “In future, we have decided to hire very large crude carriers for longer periods to transport crude to cut our freight bill. This will give some kind of shipping tonnage security to IOC and insulate us from spot market risks,” said an IOC executive who declined to give his name as he is not authorized to speak to media.
Refinery expansions are also driving the need for more super tankers, with companies such as Reliance Industries Ltd, IOC, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd planning to ramp up production. BPCL and HPCL currently import about 12mt crude oil each. “There should not be any restrictions on the period for hiring of ships,” R.L. Pai, president, shipping, RIL, told an industry meet held in Mumbai recently. “Considering crude price trends, refiners prefer hiring ships for longer periods as a hedge to reduce logistics costs and improve margins.”
Pai had also pointed out that since the Organization of the Petroleum Exporting Countries, or Opec, sets crude prices, companies can only cut costs on logistics. “A difference of one cent per barrel in delivered costs will translate into a saving of $2 million per annum for Reliance.”
Mukesh Ambani-owned RIL hires about 120 super tankers from the spot market every year to transport 33mt of crude oil for its Jamnagar, Gujarat, refinery. It will need twice as many tankers next year, when the refinery is expected to double capacity.