Oil Companies International Marine Forum

EUROPEAN COMMISSON PROPOSAL FOR A REGULATION OF THE

EUROPEAN PARLIAMENT AND OF THE COUNCIL AMENDING REGULATION
(EC) NO 417/2002 ON THE ACCELERATED PHASING IN OF DOUBLE HULL
OR EQUIVALENT DESIGN REQUIREMENTS FOR SINGLE HULL OIL
TANKERS AND REPEALING COUNCIL REGULATION (EC) NO 2978/94

SUPPLEMENT TO THE OCIMF CAPACITY STUDY

INTRODUCTION

On 19th November 2002, the oil tanker “Prestige”, carrying 77,000 metric tonnes
of heavy fuel oil, broke in two and sank off the northwest coast of Spain, 6 days
after initially suffering hull structural damage. The resulting spillage of oil
contaminated beaches along some 200 kilometers of the Galician coast and parts
of the French coastline as well.
Reacting to the “Prestige” incident, on the 20th December 2002, the European
Commission announced new measures aimed at reinforcing the EU and
International maritime safety rules that were agreed in the aftermath of the
“ERIKA” incident in December 1999.

One of the new measures announced by the Commission was a prohibition on the
transport of heavy crude oil, heavy fuel oil, waste oils, bitumen and tar to or from
EU ports in single hull vessels of 600 tonnes deadweight and above, irrespective
of flag.

A “Capacity Study” carried out by OCIMF, to assess the impact of the various
changes proposed by the Commission, concluded, inter alia, that a prohibition on
the transport of heavy fuel oil, waste oils, bitumen and tar (hereinafter referred to
as heavy fuel oils) to or from EU ports in single hull vessels, as it affects vessels
of 5,000 deadweight and above, is unlikely to cause significant disruptions to oil
supply if introduced at a European level only. (Note: The Capacity Study
considered “heavy” crude oil as a separate issue and that is therefore specifically
excluded from the above conclusion).

OCIMF cautioned however that: -

• There are specific size ranges (notably 10,000 to 40,000 dwt.)

where the potential for replacing single hull vessels with double hull
vessels is limited;

• The proposed measures would cause segmentation of the markets

and changes in trading patterns; and

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 • There were likely to be some delays due to lack of availability of a
“EU suitable” ship of the right size in the right place at the right
time.

The “Capacity Study” can be downloaded from the OCIMF website at

www.ocimf.com.

This Supplementary Paper assesses the likely impact if other Governments or

regions were also to impose similar bans on the transport of heavy fuel oils in
non-double hull tankers of 5,000 deadweight and above.

Based on the findings of this supplementary study it is concluded that,

should the USA mirror the EU proposals, there would be a high probability
of substantial supply dislocation in Europe. Any further extension of
similar regulations beyond the EU and USA would make the supply/demand
balance untenable with consequent serious supply disruptions.

(Note: The proposed measure, if implemented in full, would equally apply to

vessels between 600 and 5,000 tonnes deadweight. OCIMF concluded in the
original Capacity Study that including ships in this size range in the ban, at
European level, would be hugely disruptive, quite possibly resulting in a cessation
of operations and in an inability to maintain supplies to locations that depend on
sea transport for their oil).

METHODOLOGY

For the purpose of this exercise, it was assumed that the measures are
implemented not only at European level only but also in the United States. This
would have global implications since it would materially affect single hull tankers
trading heavy fuel oils to/from other regions (Middle and Far East, Africa and
South America) since they would no longer have ports in Europe and the US as
an option for loading or discharging.

Data sources were Clarkson’s and Poten and Partners’ spot tanker fixture
databases. (Both data sources were used independently and yielded very similar
results). The analysis was carried out by OCIMF. The methodology mirrored that
used for the original Capacity Study, namely: -

Step 1: Establish the number of ship equivalent units in each vessel size range
that would be required to replace the non-double hull tanker equivalents currently
carrying heavy oils (excluding crude oil) in Europe and in the US but which would
be banned from trading in Europe and the US if the measures were implemented
by both.

Step 2: Compare this number with the number of double hull ships with heating
coils currently not trading in heavy oil products in Europe or the US, and therefore
theoretically available to replace the non double hull ships displaced, to give an
estimated percentage vessel substitution by size range.

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CONCLUSIONS

Note: Numbers in square brackets [ ] are from the Capacity Study i.e. without the
US.

In summary, banning the transport of heavy fuel oils in non-double hull tankers
bound for or leaving both European and US ports would require a theoretical
minimum of 230 [150] additional double hull tanker equivalent units to replace the
non-double hull ships that would be displaced. Since the total number of heavy
fuel oil capable double hull tankers (i.e. those with heating coils) that are
potentially available and not currently trading in Europe and the US is around 670
[700], in simple numerical terms there would appear to be sufficient capacity to do
this without interrupting supply.

BUT
o In the 10 – 25,000 tonnes deadweight range the number of ship
equivalent units required is 35 [16] against a number of ship
equivalent units potentially available of 20 [20].

o In the 50 – 80,000 tonnes deadweight range the number of ship

equivalent units required is 99 [42] against a number of ship
equivalent units potentially available of 27 [60];

In both of these cases the number of ship equivalent units required exceeds the
number of ships not already trading in Europe and the US and therefore
potentially available. Replacing single hulls with double hulls on a “like for like”
basis is therefore not feasible in these size ranges.

o In the 25 – 40,000 tonnes deadweight range the number of ship

equivalent units required is 56 [55] against a number of ship
equivalent units potentially available of 62 [62].

In this case the number of ship equivalents required is a very high proportion of
ships not already trading in Europe and the US and therefore potentially available.
Given that some of the ships that are theoretically available may already be
committed to other business it is probably true to say that there are unlikely to be
enough available double hull ships to replace the non-double hull ships that would
be replaced. It is certainly true to say that there is little or no scope for substitution
of ships in other size ranges from a surplus of ships in this size range.

In summary, if Europe and the US were to introduce a ban on the carriage of

heavy fuel oils to and from their ports in non double hull tankers there would not
be enough double hull ships in the 10 – 40,000 dwt and 50 – 80,000 dwt size
ranges to replace all of the non double hull ships in the same size ranges that
would be displaced by the measures.

This is shown graphically in Figure 1 over the page. The chart from the Capacity
Study (i.e. Europe only) is shown as Figure 2 for comparison purposes.

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Figure 1
Required substitution of Non-Double Hulled Tankers
trading Heavy Oils (excluding Crude Oils) in Europe & USA
Number of Ships
300
Non-Double-Hull Ships trading
Heavy Oils in Europe & USA 7% 267
250 Substitution %
Available Double-Hull Ships with Heating
Coils not Trading in Europe & USA

200 9%
1%
154
150 143
367%
90% 99
100
175% 56 62
50 6%
35 27
20 14 20 17
1 1
0
10-25 25-40 40-50 50-80 80-120 120-200 200+
Small Small Large Panamax Aframax Suezmax VLCC
Tankers MR MR

Vessel Size (Thousand Dwt)

Source Data: Clarkson Research Studies Analysis as at January 2003

Figure 2
Required substitution of Non-Double Hulled Tankers
trading Heavy Oils (excluding Crude Oils) in Europe
Number of Ships
300
Non-Double-Hull Ships trading 268
Heavy Oils in Europe 7%
Substitution %
250 Available Double-Hull Ships with
Heating Coils not Trading in Europe

200 9%
1%
156
144
150

89% 70%
100
80% 55 62 60
42 6%
50
16 20 14 19 18
1 1
0
10-25 25-40 40-50 50-80 80-120 120-200 200+
Small Small Large Panamax Aframax Suezmax VLCC
Tankers MR MR

Vessel Size (Thousand Dwt)

Source Data: Clarkson Research Studies Analysis as at January 2003

In some size ranges there does appear to be enough double hull ships to replace
the single hull ships that would be displaced. The question is however how much
of the short fall in size ranges where there is a deficit could be met from a surplus
in the others? There are a number of factors that will constrain steps of this kind.

• Some of the double hull ships identified as trading outside Europe and
the US will certainly be committed to other business and will therefore be
unable to relocate;

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 • The U.S is a large importer of South American heavy crudes, a large
proportion of which are carried in Panamax size vessels due to physical
constraints on ship size at one or both ends of the voyage. Some of those
cargoes require heating. It follows that some of the double hull ships with
heating capability, identified as being potentially available for fuel oil
cargoes, will be engaged in the crude oil trades for at least part of the
time. Therefore the already significant shortage of double hull ships in this
category is almost certainly understated;

• Ship owners with regional ties may not wish to relocate;

• Some cargoes that are carried in smaller ships will not be able to transfer
to larger ships due to dimensional restrictions (port and/or canal
limitations e.g.) and/or terminal constraints (shore tank capacity e.g.).
This will inhibit Aframax (80 – 120,000 dwt) vessels trading down into
what is traditionally Panamax (50 – 80,000dwt) business. Suezmax (120
– 200,000 dwt) vessels are in any case too big to trade to all but a very
few terminals in the U.S.;

• Although there appears to be a large surplus of ships in the 40 – 50,000

dwt size range, most of those ships will in practice be committed to the
clean oil trades and will therefore not be available for heavy fuel oil
cargoes;

• The data coverage for small ships (10 – 25,000 dwt) is very limited in
both of the data bases consulted. This means that the shortfall in this
sector is, if anything, under-stated. The analysis therefore represents a
best case;

• For the purpose of this study, ship numbers are expressed in “ship
equivalent units”. One ship equivalent unit implies one ship doing all of
the voyages, or several ships each doing some of the voyages, up to the
required number to make good any shortfall caused by one ship being
displaced. A ship equivalent unit is therefore the minimum number of
actual ships required.

Health Warning: This analysis specifically excludes all “heavy” crude oil because
we do not yet know what definition of “heavy” crude oil (i.e. crude oil that would
have to be carried on double hull vessels), will be adopted by the EU. If the EU
defines heavy crude as API<30 and if the US follows, OCIMF estimates that some
75% of crude imports from Mexico, Venezuela, and Colombia into the US would
be affected. If “heavy” crude oil is defined as API<20, the figure is likely to be
around 20%. Not all of these crudes will require ships with a heating capability
but some will. The choice of definition of “heavy” crude will therefore have a
considerable impact on the supply/demand balance for double hull tankers,
particularly in the U.S., but also in Europe, albeit to a lesser extent, and this is not
reflected in the analysis.

Given all of the foregoing, and in particular the magnitude of the shortfall in the
Panamax sector, it has to be concluded that the extension of the proposals to the
US would stretch the system almost to breaking point with a consequent risk of
supply dislocation and disruption. Consequently any further extension beyond

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Europe and the US would almost certainly result in supply disruption in Europe
and elsewhere.

The above analysis illustrates the dangers that are inherent in regional initiatives.
OCIMF will therefore continue to urge the Commission, and other decision making
EU Institutions, to focus on international solutions through the appropriate
international forum namely the IMO.

Further details can be obtained from:-

Oil Companies International Marine Forum

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