New shipping rule to hit oil tanker segment

New shipping rule to hit oil tanker segment
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First Published: Fri, May 30 2008. 01 09 AM IST
Updated: Fri, May 30 2008. 01 09 AM IST
Mumbai: Indian shipping firms will meet a global deadline to phase out all single-hull tankers by 2010, but their inability to reinforce fleet numbers may lead to supply constraints in the next few years, industry officials said.
In 2005, a legislation by the International Maritime Organization, a United Nations body for ship safety, made it mandatory that all single-hull tankers be replaced with double hull by 2010 to check pollution.
A double hull ship, in which the bottom and sides have two complete layers of watertight hull surface, is considered a safer bet against oil spill during underwater damage or collisions.
Great Eastern Shipping Co. Ltd, the biggest player in India with 31 tankers, is converting two of its 10 single-hull tankers to double hull. “And the rest would be scrapped out or sold between now and 2010,” a spokewoman said.
The company has four product carriers on order and has no plans to buy crude tankers due to higher cost of the vessel now, she said.
Ship builders are demanding 15-30% premium over last year for tankers, forcing firms to delay purchases, an analyst with Dolat Capital said. “All shipyards are full till FY11 and they’re mostly building dry bulk carriers. So, if you order a tanker today, it will be delivered only by 2011, which doesn’t make sense,” said Dolat’s Kapil Yadav.
“Availability is a problem now,” said an official with Mercator Lines Ltd. The official did not wish to be named.
Mercator, which has eight tankers and one on order, is converting one of its single-hull tankers to a dry cargo bulk vessel, the official said.
“The other three, we may convert to FPSOs.” A floating production, storage and offloading vessel, or FPSO, is a type of floating tank system used by the offshore oil and gas industry.
Of the 39 tankers that the state-run Shipping Corp. of India (SCI) has, around 30% are single hull, but the company is yet to decide on them, director Umesh Grover said. SCI has 16 tankers on order.
According to industry estimates, capacity additions in the tanker segment is at 6.8% year-on-year, compared with 11% in the dry bulk segment.
A bulk carrier is designed to transport unpackaged bulk cargo, such as grains, coal, ore, and cement. Tanker transports oil and oil products.
Industry players expect the supply gap to widen as it is not feasible for companies to replace their single-hull tankers on a one-to-one basis, leading to higher tanker freight rates.
Gains in crude oil, which is hovering near $130 (Rs5,564) a barrel, and lower oil inventory are also likely to support the uptrend in tanker freights, analysts and officials said.
“Now that they have to replace all single-hull tankers with double hull, there’s going to be a big gap. We are anticipating the market will be firmed up in oil tankers because the single hull is phasing out slowly,” the Mercator official said.
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First Published: Fri, May 30 2008. 01 09 AM IST