Bangalore: The country’s largest private shipping firm by fleet size and revenues, Great Eastern Shipping Co. Ltd, will be the biggest beneficiary of the Indian maritime regulator’s decision to set an age limit of 25 years for offshore vessels used in oil and gas drilling activities.
Great Eastern has the most offshore ships under construction among local shipping firms that own offshore vessels. Greatship (India) Ltd, the offshore subsidiary of Great Eastern, has ordered 17 new ships worth more than Rs2,200 crore. It currently runs a fleet of five new offshore ships.
On the other hand, more than 90% of the 165 ships that operate offshore India, mostly servicing oil and gas exploration firms, will reach the 25-year limit in one-two years. After that, these ships cannot be deployed in Indian waters because of the new age norms set by the Directorate General of Shipping, effective 15 May.
“Great Eastern’s new offshore ships will have an opportunity to work in India without any competition from older foreign ships,” said an executive with offshore ship owner Tag Sealogistics Ltd, who asked not to be named.
Great Eastern could not be reached for comment as the company was closed for the weekend.
The new norm is bad news for oil and gas exploration firms, which have always preferred older ships as these are available for hire at lower rates than newer ones. The age limit will now jack up costs for the exploration industry.
These firms are pumping millions of dollars to prospect for oil and gas under the ocean bed, attracted by the soaring crude oil prices, currently hovering at about $120 (about Rs5,000) a barrel.
Offshore vessels such as anchor handling tugs, accommodation barges, supply and support vessels, and pontoons play a key role in their hunt. But short supply has increased day rates for hiring. Indian ship owners have not been able to meet rising demand for supply vessels from oil explorers including Reliance Industries Ltd, Gujarat State Petroleum Corp., Hardy Oil and Gas Plc., Cairn Energy Plc. and Oil and Natural Gas Corp. Ltd, or ONGC.
Only 30% of the country’s supply vessel needs are met by Indian ship owners, and the shortage is expected to rise further as India drills more wells, estimated at 498 by 2012 by the directorate general of hydrocarbons. As a result, exploration firms have hired foreign ships, mostly old and at lower rates.
Local laws give preference to ships registered in India for operating off the country’s coast. Ships registered abroad can be hired only if there is a shortage of Indian ships, with the approval of the maritime regulator.
“With mature markets in the North Sea and the Gulf of Mexico requiring superior and modern vessels, foreign shipowners are diverting their older vessels to Asian markets, including India,” said an official at logistics and shipbuilding firm ABG Group, who did not want to be named.
The new age rules, however, will mainly deter older foreign offshore ships from operating in India as Indian registered ships are exempted from the new rules and hence can operate even beyond 25 years. This is a big relief for local offshore vessel owners such as ONGC Ltd, state-run Shipping Corp. of India Ltd and Great Offshore Ltd, who own vessels that are nearing 25 years.
The presence of older foreign ships had helped India’s largest oil explorer, state-owned ONGC, hire 30 offshore vessels for a new five-year contract beginning March 2007 at 30-40% below market rate. Some of these foreign ships that reach 25 years before the contract ends will have to be replaced with younger ships.
Greatship will face competition from foreign firms who have new offshore ships or have placed orders for new ones, and from local firms such as Garware Offshore Services Ltd, ABG Group and Tag Sealogistics that have a relatively young fleet. Tag Sea has ordered three new ships.
Great Eastern Shipping rose 4.79% to Rs513.50 at Friday’s close on the Bombay Stock Exchange.