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Wednesday, September 26, 2018

POINTS OF VIEW - Suez Canal closure left the industry’s feathers unruffled

We are all getting used to how adverse weather affects oil shipments loading in the Black Sea, or moving through the Bosporus Straits, or coming down through the Baltic. But it is not often that bad weather strikes Egypt hard enough for the Suez Canal to be closed down.

This is what happened last Friday when the force of the wind, the height of the waves and the ferocity of the sandstorms caused the authorities to play a cautious hand and stop Suez Canal traffic. Almost 50 ships of all types were held up at Port Said and at Suez, waiting for the weather to improve.

By Monday, everything was back to normal. The incident did nothing to upset the spot market, say brokers, although there were a number of owners and charterers, for whom vessel arrival dates were critical, anxiously awaiting confirmation that the waterway had reopened.

Maybe the factor of a few weather days at Suez is neither here nor there. But there may be an element of all sectors of the tanker market simply getting hardened to the effect of delays – which have been severe of late. Tougher than usual ice conditions in the northeastern fingers of the Baltic leading up to Primorsk can put a temporary squeeze on tonnage supply, forcing rates to more than double to an unimaginable W500 for ‘proper’ ice-class tonnage. Weather conditions in the Black Sea (Novorossiysk in particular) can combine with the traffic bottleneck in the Bosporus Straits to squeeze even harder the already tight supply of suezmaxes and aframaxes.

The difference between the one-off Suez incident and the current Bosporus delays is that the latter are leaving a visible mark on tanker supply. Take what used to be a routine Novorossiysk to Fos run of 4-5 days laden/ballast plus four port days for a total of 13 days. That is now averaging a total of up to 40 days. Looked at on an annual basis, this means that each ship can effectively lift only nine cargoes instead of 28 cargoes a year. So shippers and refiners need three times as many tankers to lift the same amount of oil.

At the same time the volume of oil being exported by the Former Soviet Union is increasing steadily as FSU oil provides most of the increases demanded by growing global oil supply at a time when OPEC production is being held steady and any increases have to be provided by non-OPEC producers. FSU exports have increased from 3.9 mbd in 1999 to 7.1mbd end 2003 and are forecast to grow by another 0.8mbd in 2004.

With Black Sea exports constrained by Bosporus delays, Russia will be pushing more oil out of the Baltic: Baltic Pipeline Systems is on the way to nearly doubling its capacity to 30m tonnes. Lukoil subsidiary Kaliningrad Sea Oil expects its Baltic oil shipments to increase 36% this year to 4.5m tonnes or 88,000 bpd. Adding to Baltic tanker traffic, Lukoil has also started shipments from the new oil products terminal at Vysotsk, near St Petersburg, where the original start-up capacity of 2.5m tonnes a year will increase to 6m tonnes by the middle of this year, and up to 11m tonnes by 2005. Posneft is reported as having plans to build another terminal at Primorsk. Oiltanking and TNK-BP (Alfa+Access+Renova+BP) plan a new oil export terminal at Ust-Luga near St Petersburg.

With such trends, changes, and delays already being factored into tanker figures, no wonder a temporary Suez Canal closure left the industry’s feathers unruffled.