EU tanker ban to have dramatic impact on market in short term

A ban on single-hulled tankers carrying fuel oil through European waters could lead to gridlock at Russian ports and push shipping fees up by as much as 40 %, costing exporters hundreds of millions of dollars, oil traders say.
"The new rules will block both loading and discharging. It will be a big problem for us to transport products out of the Baltic Sea," said Andrei Chirikov, director of Sibneft Oil Trade, the trading arm of No. 5 oil major Sibneft.

The European Union voted to ban all single-hulled tankers in response to last month's break-up of the 26-year-old Prestige, whose lone hull cracked in a storm three weeks ago, leaking tens of thousands of tons of fuel oil that continue to lay waste to large swathes of Spanish coastline. Authorities have blamed the disaster on the ship's weak design, which is less sturdy than more modern double-hulled vessels.
Some 25 mm tons of Russian fuel oil have been shipped out of Baltic Sea ports this year and another 9 mm have exited the Black Sea.Traders and shipping brokers say the majority of Baltic shipments were carried by single-hulled tankers, which are older and therefore cheaper. About half of all tankers in use worldwide are single-hulled.

Traders say the ban, which will come into force in the next few weeks as soon as EU member governments publish it in their official newspapers, will likely lead to a short-term deficit of double-hulled tankers available for Baltic Sea duty. Until the move, single-hulled tankers were to be gradually phased out worldwide by 2015 under a program of the IMO, the United Nations body that governs world shipping.
"The availability of tankers is going to be restricted. If the ban is implemented right away it will block terminals and refineries," Chirikov said. The only exit out of the Baltic Sea is through the Danish Straits. The Prestige was chartered by the Swiss-based Crown Resources, which is controlled by Mikhail Fridman, the chairman of Russia's vast financial industrial group Alfa.

Crown has come under intense criticism from environmentalists because soon after the Prestige disaster it chartered another 26-year-old single-hulled vessel, the Byzantio, to ship fuel oil from the Estonian port of Muuga to Rotterdam. Greenpeace activists demonstrated against the ship's departure from Estonia and at its arrival in The Netherlands, and eco-warriors from the organization daubed the halls of Crown's head office in Zug, Switzerland, with crude oil.
"We are extremely sensitive about this," said Ian Kilpatrick, head of energy at the company's head office. "We are completely reviewing our chartering policy. There may well be some disruption and price increases in freight charges [as a result of the ban]," he said, adding, however, that the disruptions would probably be short-lived as the global supply of double-hulled vessels was great enough to ensure shipments.

Michael Aishford, partner at major shipping brokerage Simpsons, Spence and Young, also said there would be enough double-hulled vessels to meet demand, but in the short-term he said he expected a 40 % increase in freight charges as demand for these vessels soared. "The move will have a dramatic impact on the market in the short term," Aishford said.
Russian traders currently pay about $ 11 per ton for short-haul trips from the Baltic through the waters of northern Europe to Rotterdam. For longer trips, such as the St. Petersburg to Singapore route, the cost is $ 27.50 per ton.
"The freight hike will impact both sides: consumers and oil companies," Chirikov said. "Somebody will have to pay for it."
"This is pretty drastic," said Stephen Dashevsky, oil and gas analyst at Moscow brokerage Aton. "The most immediate impact is going to be higher costs, but it's not clear who is going to have to pay -- consumers or oil traders."

In announcing the ban, Danish Economy Minister Bendt Bendtsen said, "We will no longer accept single-hull tankers in our waters. We must get rid of them as soon as possible." Bendtsen's statement was echoed by EU Transport Commissioner Loyola de Palacio. "We want to avoid these ecological bombs being able to sail in our waters," she was quoted as saying.
The EU will also phase in a total ban on single-hulled vessels over 15 years old, which will likely come into force in 2010, according to de Palacio. The 15-nation block plans to set up "safety zones" that will be off limits to dangerous ships, and enforce a blacklist of 66 ships judged particularly dangerous that will be immediately prohibited from entering EU ports.