Recently, in October 24th Genesis Energy L.P acquired the M/T American Phoenix tanker for $157 million from Mid Ocean Tanker Company; whose hull was bought at a bankruptcy auction. This acquisition will augment Genesis Energy’s existing marine operations with its inland barge business with 62 barges and 24 push/tow boats.
The M/T American Phoenix
Image Courtesy of www.marinelog.com
The M/T American Phoenix itself had a controversial history when it was built where initial plans were on a “virtual shipyard;” a software program that simulates all dynamic complexities of ship construction and operation. Along with this, several yards on Gulf Coast were constructing large individual modules; resulting in failure later on and thus left the vessel with an incomplete hull which was later bought at a bankruptcy auction.
Tankers are popular vessels in the commercial and energy maritime sphere where their market demand, especially the twin-hull variety/ the trait of the American Phoenix. The presence and evolution of drilling and extraction technology has opened up more crude oil and natural gas reservoirs therefore warranting transport logistics; further increasing the necessity of tankers.
However, as essential as these vessels are, there exist obstacles on all important fronts of the maritime sphere from legal to financial and technical difficulties. One example is the consideration of the American government to lift its ban on export of liquified natural gas (Wall Street Journal, 2014) which will not only increase marine traffic but increase competition to take advantage of this nuance; changing patterns and traditional shipping routes.
According to Harry Vafias, chief executive of StealthGas Inc tanker operator with 22 crude oil tankers employed, (2014) prices of used tankers rose by 15% since November 2014 after a steady 4 year decrease years back. This increase will also gives incentive for tanker operators to sell their used vessels; however with the increase there will be little competition as not all operators can afford to make purchases therefore increasing likelihood for monopoly of the market which itself is dangerous for the industry.
So what goes inside a legit tanker and what it demands? Firstly, according to IMO, (2014) tankers weighing above 5000 DWT are required to have double hulls with existing vessels required to be converted or taken out of service. This could be due to the Exxon Valdez disaster in 1989 where the titular oil tanker ran aground in Alaskan waters; spilling 10 million gallons of crude oil/20% cargo; making fortification of the hull a logical step. Statistically, large spills comprise only 3% of incidents while accidental spills dominate with 95% where groundings are the primary cause.
Exxon Valdez spill
Image courtesy: www.wikipedia.com
Leading back to the main issue, a double hull is basically, 2x layers of steel separated by a 2x meters wide and is used as a ballast tank when not carrying cargo. The purpose of a double hull essentially, is to absorb impact from a collision or grounding where the first layer absorbs the initial impact while the 2nd layer remains untouched. However the vessel remains vulnerable if the momentum is strong enough and therefore capable of breaching both; making the concept more solid against weaker momentum. Another issue which associates with collisions as well as the building and operating a tanker are the attached costs of pollution and consequences of a possible accident where public relations are also a factor.
Starting the financial breakdown, the retro-fitting of an average 30 year old U.S-built tanker will cost $1.5 million; constituting a major conversion with new safety requirements. Tankers vary in sizes where the smaller vessels (40,000 DWT) and are used to transport refined petroleum products such as gasoline and jet fuel. Medium vessels (80, 000 DWT) used for carriage of imported crude oil and refined oil products. Large vessels (240,000 DWT) used for primary carriage of crude oil.
Below is the approximate cost breakdown of conversion and operations in terms of vessel size and maintenance where the latter represents repairs, administrative costs, fuel and port costs, manning, supplies and routine maintenance.
- Small vessels cost $34.00 million single and $39.40 million double hull conversion with operation costs being $3.07 million for single and $3.28 million for double annually.
- Medium vessels cost $49.70 million single and $58.20 million double in conversion with operation costs being $4.08 million single and $4.33 million double annually.
- Large vessels cost $89.60 million single and $105.70 million double in conversion with $6.29 million single and $6.65 million double annually.
(Data courtesy of National Research Council)
Obviously, double hull vessels are more expensive in conversion and maintenance where costs add exclusively from maintenance and repair as a double hull increases inspection area of the vessel itself along with the amount of steel surface of layers is prone to corrosion and fatigue; increased by 3% and more likely increase costs of replacement.
According to Drewry Maritime Research, (2014) about 52.7 million DWT of vessels (739 vessels approx.) will be required to be fitted with double hulls. The existence of the space/cofferdam between the double hulls also tends to decrease cargo capacity by 2.6%; less than a comparable single-hull vessel therefore warranting an increase the vessel, miles and voyage count by 2.7%. (National Research Council, 2014) Therefore, resulting in 20 additional vessels and 0.8 million miles operated yearly. Along with this, considering pollution again, double hulls maybe more efficient at preventing spillage but with the more regular travel, exposure is increased to incidents due to requirement more vessel miles.
Tankers, after the above analysis are vessels that have many attached costs thus making those vessels a burden to own; however that is not the case since in the end a tanker is an essential transport vessel therefore warranting justification of owning it. Firstly, while the requirement of going double-hull would have to be met, it is still beneficial to the vessel as well as its environment. Double-hulled tankers are more crew-friendly as there is currently no evidence of fatalities or injuries, which occur due to explosions and fires upon collision; making a double-hulled vessel safer.
Another positive factor, which relates to a double-hull tanker hauling less cargo is the increased vessel mileage. Currently, tankers operate 14.5 million miles annually in a loaded state; after adjustments to the cargo hauled the mileage will increase to 14.8 million miles yearly.
