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Russian Oil Companies Don't Need Their Own Tankers
// Tanker shipments
For the last several years, freight deliveries by tanker have tripled on average. More than $5 billion were spent on shipping Russian oil by tanker in 2004. But Russian oil companies are still less than enthusiastic about entering the shipping business. A proposed law approved by the administration two weeks ago to create a Russian international (second) ship register may change this situation. But the oil companies have to decide fast – a sell-off of Russian ships may begin this year.
Around the World by Tanker
Worldwide, there are two established attitudes toward tanker shipment by oil companies. One is to include sales within the strategic interests of the energy company, which either has its own fleet of tankers or makes a long-term agreement with an outside shipping company.
Four of the “big five” oil and gas companies (ExxonMobil, Royal Dutch/Shell, BP and ChevronTexaco) have their own tanker fleets. BP owns or operates 42 vessels and has 43 more on time-charter, that is, long-term rental. (For comparison, Sovkomflot's tanker fleet consists of 35 vessels.) The only company not to have its own tankers is Total. It mainly has time-charter deals with shipping companies.
The oil companies insure their own tankers and those they rent for long or medium terms against sharp changes in the cost of freighting, which has tripled on average in the least three years. According to Intertanko, an international association of independent shippers, freight on a tanker of the Suezmax type traveling from West Africa to the United States in 2002 cost $16,000 per day and, in 2004, $62,500 per day. By shipping their oil and petroleum products themselves, the oil companies created added value and increase their incomes.
Vessels owned by international oil companies, or those rented and operated by them, are, as a rule, in addition to the requirements of national and international supervisory bodies, subject to strict corporate standards of safety and ecology. The transport of hydrocarbons is the most risky aspect of the oil business and even the legal immunity of energy companies does not save from hits to their images when there is a large accident.
Intertanko has noted a reduction in the number of scale of oil spills and an increase in the safety of oil transport between 2003 and 2005. In particular, on April 5, new International Maritime Organization (IMO) requirements came into effect to ban the use of single-hull tankers with deadweight of more than 20,000 tons that are more than 23 years old. A retirement schedule has been set up for other single-hull vessels to eliminate them by 2010. In addition, all single-hull vessels with deadweight 5000 tons or more are banned from transporting heavy types of fuel. According to SSY Research, there were 455 supertankers (with deadweight of more than 200,000 tons) in the world as of October 15, 2004, and 173 of them were single-hull. Although those will be gradually withdrawn from service, they will become much less profitable in comparison with newer tankers because of rising insurance premiums. The cost of insuring vessels has risen within Russia as well. Andrey Kleimenov, vice president of the Volgotanker-AMC Co., told Kommersant that the average cost of insurance for the company has risen 5-10 percent in the last year.
According to Russian Ministry of Transport statistics, five Novoship [a state-owned shipping company] tankers with total deadweight of 340,000 tons were retired before April 5, in keeping with IMO requirements and 33 single-hull vessels of various ages remain. They include the supertanker Belokamenka, with deadweight of 360,700 tons, which has been rented by Rosneft from a Norwegian company for 20 years with a subsequent purchase option and is kept outside of the port at Murmansk. Vladimir Voevoda, head of the Rosneft information department, noted that that tanker is now used exclusively as a floating storage tank and the IMO requirements do not apply to it.
How to Accompany Ships
Russian oil companies work with tankers differently. The Russian oil companies questioned by Kommersant said that do not see the shipping business as a central interest. Gazprom and Rosneft, which have the shipping subsidiaries Gazflot and the Far Eastern Naval Shipping Co., respectively, carry only geological and drilling equipment on their own ships. Until 2000, YUKOS controlled Volgotanker, Russia's largest river tanker company. Then its stock was bought out by the management.
Nearer the Western model is the approach taken by LUKOIL. In 1999, it decided to establish its own fleet so that it could ship its oil independently. The company financed the building of 11 river-sea tankers and ten tankers reinforced for ice. At that time, according to a LUKOIL source, the company bought a controlling stock package in the Murmansk Naval Shipping Co. However, former director of the LUKOIL-Arctic-Tanker Co. Nikolay Kulikov received real control over the company.
Denis Dolgov, LUKOIL press secretary, told Kommersant that the company has now decided not to expand its tanker business and is not likely to acquire more vessels even in connection with their possible privatization or stock sales. “Five years ago, the tanker shipping market was unstable and everything had to be done yourself.” Dolgov explained. “Today, that is unnecessary.” In 2004, LUKOIL sold all of its river-sea tankers but, Dolgov said, it does not intend to part with its ice vessels. In 2004, LUKOIL also converted from CIF sales (Cost, Insurance & Freight, under which the cost of delivery is included in the price of oil) to FOB sales (Free on Board, under which the buyer is responsible for the transport).
In the overwhelming majority of cases, it is not Russian or international oil companies that ship oil out of Russian ports, but specialized companies that are usually registered offshore. The Prestige, which sank off the coast of Spain, was being operated by a Swiss subsidiary of Alfa Group, one of the stockholder in which was TNK, now TNK-BP. After the formation of TNK-BP, the English company began conducting a check of the tankers carrying its oil. LUKOIL soon followed suit.
Unpatriotic Shippers
Since Russian oil companies do not have their own shipping force, their loads are carried by both Russian and foreign companies. Russian companies often register their vessels under flags of convenience, and their ships work in Russia, the CIS and abroad, including in the Persian Gulf and Caribbean Sea. Experts consulted by Kommersant differed in their estimates of the share of Russian oil in the activities of Russian tanker firms. Those estimates ranged from 20 to 50 percent.
According to Russian Transport Ministry statistics, the volume of shipping from Russia for foreign trade has risen from 204 million tons in 1998 to 450 million tons in 2004. The value of that shipping has risen correspondingly, from $4 billion in 1998 to $7.5 billion in 2004. Kommersant estimates that more than $5 billion of that fund goes on oil and petroleum product shipping. The Transportation Ministry reports that Russian shipping companies received $300 million last year, which is no more than 5 percent of the total volume of freight shipped from Russia.
It is not only lack of desire and experience that the failure to expand export on a CIF basis and import by FOB by Russian shippers, especially oil companies, can be attributed to. Under existing Russian tax legislation, investing in the building of tankers is ruinous. According to Transportation Ministry statistics, of the 211 ships built in Russia between 1992 and 2004, more than 90 percent of them sail under foreign flags. When vessels acquired abroad are registered in Russia, Russian shippers run up against the requirement of paying both tax and duties at the same time, which add up to 24.2 percent of the cost of the vessel. But oil companies, which have been trying in recent years to make their activities more transparent to the state and their shareholders can hardly register their vessels offshore.
Russia is not the only country where problems of this type arise. Other countries have dealt with it. For instance, Australia and Canada do not have large trading fleets. The United States taxes its ships heavily, but subsidizes about a quarter of its ship owners (their fleets fly under the American flag). Great Britain, Norway, Denmark, Portugal, Turkey, Brazil and Greece have introduced an international (second) registry in which it is specified that a certain number of vessels will operate with tax benefits. As a result, in many of those countries, ships have been almost fully reregistered under their national flags.
Internal Naval Offshore
After five years of interagency coordination, the proposed law to introduce an international ships registry was approved by the Russian administration without comment at its April 7 session. The financial and economic agencies were the most difficult to reach agreement with, since the register will create a type of free economic zone for a specific type of activity, which is a precedent that may be demanded next by aviation companies and other industries.
The bill will be introduced into the Duma in the near future and, experts speculate, it has a good chance of going through all three readings before the fall session. Transportation Minister Igor Levitin noted at the administration meeting on April 7 that the step will allow Russia, in the log term, to enlarge its fleet by 750 vessels, on which 183.6 million tons per year of Russian exports may be shipped per year. The cost of shipping received by the Russian ship owners may be $2.3 billion. Mikhail Romanovsky, president of the Union of Russian Ship Owners, said that not all vessels can return from offshore, because many of them were built with credits from Western banks. But new vessels will be built under new conditions and it will become more profitable to build a fleet in Russia.
Thus Russian oil companies will have the opportunity to reconsider their naval policies to increase dependability and flexibility and increase their added value. But they have to decide quickly.
In 2005, the privatization of 20 percent of Volgotanker was announced and, considering the possible sale of the remaining 80 percent to private shareholders soon, the company may completely change hands. The privatization of Novoship and, they hope, Sovkomflot is also being eagerly awaited. These three key companies are in good financial shape and there are investors with real interest in them. In particular, Sergey Generalov's Industrial Investors Group, which controls the Far Eastern Naval Shipping Co., confirmed for Kommersant that it was interested in acquiring other shipping companies and expanding its tanker business.
Ivetta Gerasimchuk
All the Article in Russian as of Apr. 19, 2005
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