Hormuz and surrounding waters: Energy Threats to the World: Oil, LNG, shipping markets digest new risks after Strait of Hormuz attack

3 hours ago, Jan van Eck said:

If the shipowner cannot get insurance coverage, his ship is not going in that Gulf and is not doing the run.  Period.  Nobody is going to risk his $50 million tanker and another $100 million cargo trying to sail past the lunatic fringe of the world, considering that the place is swamped with weaponry and people routinely do suicide blasting at each other.  

You might get some older, much smaller tankers that will try to sneak through; the problem is, the owners of the oil are reluctant to ship in those old tubs, due to liability issues if the oil cargo spills.  Those lawsuits result is serious hurt. 

I had stated in this Forum earlier that when the first tankers got his with light damage, it was obvious (to me) that the purpose was to send a signal to the underwriters at Lloyd's London:  we can and will sink your insured's tankers whenever we want to.  The insurers are taking that very seriously. 

When the insurers stop writing policies, that is the end of that oil trade. 

https://www.france24.com/en/20190517-lloyds-raises-gulf-insurance-risks-after-ship-attacks

Share this post


Link to post
Share on other sites

This is an interesting historical reading material:

 

January 16, 1991,  The New York Times Archives

It is 11:50 A.M., and as war clouds gather over the Persian Gulf, a line of insurance brokers forms at the second-floor desk of Christopher W. Rome in the Lloyd's of London building on Lime Street.

The first broker to approach Mr. Rome, the head of one of Lloyd's 400 underwriting syndicates, is seeking $8 million in insurance for a small Saudi Arabian tanker bound for the Saudi gulf port of Jubail, where the vessel plans to load a cargo of fuel oil later this week. His customer wants coverage for the two days the ship will be within the likely war zone.

"That's right in the thick of it," Mr. Rome said of Jubail, about 130 miles from Kuwait. "And fuel oil burns very nicely. That is not true of crude oil, which is very difficult to set fire to," he added, noting that some crude-oil tankers received direct hits in the Iran-Iraq war and did not catch fire. Painful Losses

There were $1 billion in claims from that war and several Lloyd's syndicates, , including Mr. Rome's, suffered painful losses.

He offers to accept 20 percent of the requested coverage, a substantial portion since splitting the risk among the syndicates is the rule rather than the exception. His rate is 3 percent of the value of the ship and 2 percent of the value of the cargo because the ship is at risk longer than the cargo.

That rate, which comes to $38,000, is good only for today. On Wednesday, if shooting starts, it will be another story: Rates might easily triple or quadruple, hitting the 10 to 15 percent levels to which they soared at the height of the Iran-Iraq war. And Mr. Rome wants the premium paid within 30 days.

Mr. Rome is head of one of the half-dozen or so underwriting syndicates in the Lloyd's insurance market that "leads" or makes the first quote on insurance for ships and planes against damage or seizure in war.

For a ship traveling to a safe port like New York from London, the insurance rate yearly, not just for a few days, is 0.0275 percent of the value of the cargo and 0.05 percent of the value of the ship. And customers might be given three months to pay.

Gulf-related business -- or war risks, as they are called in the trade -- has been coming in spurts, said Mr. Rome, who at 53 has been in the business for 35 years.

There are now about 100 merchant ships in the Persian Gulf bound for or docked at the main Saudi ports of Jubail and Ras Tanura, about 160 miles south of Kuwait, and there are 33 in the Red Sea near or at the Jordanian port of Aqaba, according to shipping industry estimates. Stephen Merrett, chairman of the Lloyd's marine underwriters association, said there were several hundred merchant ships in the gulf, including those carrying supplies for the United Nations military forces.

The next broker is shopping for insurance for the charterer of a large Brazilian tanker destined for Kharg Island, the Iranian oil terminal in the gulf opposite Kuwait. The charterer wants coverage to protect his commission.

Plans call for the ship to go through the Straits of Hormuz and enter the Persian Gulf at 7 A.M., Greenwich mean time, on Wednesday. The United States deadline for Iraq to withdraw from Kuwait or risk war is 5 A.M., G.M.T., Mr. Rome notes. "The ship would almost certainly hug the Iranian coast," he said. "It'd probably take a week to get into the gulf and out again." He quotes a rate of 5 percent of the commission.

 

The next request is for insurance for an oil-drilling platform that is laid up in Dubai. Since the United Arab Emirates is not expected to be a battlefield, "terrorism is possibly the greatest risk," Mr. Rome said. "It's inevitable there will be a lot of terrorism."

He offers a rate of 0.5 percent of the platform's value for 14 days of coverage. Three months ago, he might have insured it for 0.1 percent.

Then there is a pause in gulf-related business. There are requests for insurance for a $184 million satellite before it is launched, for the revenues a company would lose if four small cruise ships it has on order were delivered late and for a shipowner's liability if helicopters he plans to carry from New York to South Korea are damaged in transit.

Then Mr. Rome's attention is back on the gulf and an Indian general cargo ship that is bound from India to the Black Sea via the Suez Canal. The Turkish charterer wants coverage against the canal being shut during a war. The ship could be stranded in the canal or have to travel around the Cape of Good Hope, which would add 30 to 33 days to its journey, Mr. Rome said. He recalls that the canal was shut in the 1967 and 1973 Arab-Israeli wars and offers a rate of 7.5 percent of the amount insured. Helping to Offset Claims

Why is the rate higher than the rate for protection against damage or seizure? Not all ships insured for damage or seizure will suffer from either problem if there is a war. That means the overall risks to Mr. Rome's syndicate are lower because the premiums earned from the unaffected ships will help offset the claims. But if the canal is closed, every shipowner or operator with canal-closure insurance will make a claim.

And he thinks there is a significant chance that the canal will be closed, especially if the Iraqi President, Saddam Hussein, carries out his vow to attack Israel if the American-led forces attack him. "His main card is the Israeli card to bring the other Arabs to his side," Mr. Rome said.

Some governments typically offer war-risk coverage for most or all of the value of their flag ships.

The United States Government insures at its own expense merchant ships of any flag that are have been contracted by the Defense Department to carry military cargo. It can also offer war-risk insurance at a rate below that available from the commercial market for merchant ships of any flag that are serving the economic or defensive interests of the United States. So far, the Maritime Administration has had about a half-dozen requests for such insurance but has not yet acted on them or decided what premium to charge, a spokesman said in a telephone interview from Washington.

But Lloyd's insurers will continue to offer coverage for those who need it. Lloyd's is even prepared to stay open weekends if there is a war.

The last time Lloyd's operated on a Saturday was in 1965, after Hurricane Betsy devastated portions of the United States. And in its 303 years, Lloyd's has never been open on a Sunday.

"At the moment," Mr. Rome said, "it looks like I could be working this weekend."

  • Like 1

Share this post


Link to post
Share on other sites

(Bloomberg) — The cost of insuring tankers to ship Middle East crude looks set to jump after a second spate of attacks on vessels in the region in just over a month underscored escalating tensions in the oil-exporting region.

A so-called “additional premium” that owners pay when sailing to the Persian Gulf is likely to rise with immediate effect, the Hellenic War Risks Club, an insurer, said in a notice on its website. Two oil tankers were attacked in the Gulf of Oman, just 32 days after four other carriers were targeted nearby. The region was designated as a listed area after those incidents, a classification that gives underwriters room to charge more.

 

 

Nobody has so far taken responsibility for the incidents, which happened near the Strait of Hormuz, the world’s most important oil chokepoint, handling about 35% of the global seaborne trade. The U.S. suggested that Iran, which is under tough American sanctions, was linked to last month’s attacks.

Some owners appear to be “taking a breather” when it comes to accepting charters from the Middle East while they evaluate the risks of lifting oil from the region, according to Halvor Ellefsen, a shipbroker at Fearnleys in London.

 

 

Shipping companies should consider diverting vessels from the area where the two vessels were attacked, industry group BIMCO, the largest international shipping association for owners, said in a security advisory to its members. Tensions in the Strait and the Gulf are now at the highest they can be without an actual armed conflict, the group said in a separate statement.

Intertanko, the biggest trade organization for oil tanker owners, said it is “extremely worried” about the safety of crews in the region. It also said two of its members suffered explosions at or below the water line in what the group described as an attack.

 

 

 

oil-infographic-Bloomberg.png

Rare disruptions

Escalations that disrupt Middle East oil supplies are relatively rare. The Iran-Iraq war coincided with a big slump in OPEC oil output in the first half of the 1980s. That conflict saw tankers destroyed as the two countries tried to damage one another’s economies.

By contrast, Iraq’s 1990 invasion of Kuwait, and the Gulf War that followed, were a long way from Hormuz and had a relatively small impact on flows through the Strait, with Saudi Arabia replacing much of the lost Iraqi and Kuwaiti crude.

In the short-term the rates for chartering ships in the Middle East could rise as some owners consider avoiding the region, lowering supply, JPMorgan Chase & Co. analyst Noah Parquette wrote in a report.

Share this post


Link to post
Share on other sites

They like to speak from both sides of their cheek.

 

______

Iran will maintain Strait of Hormuz security if its oil exports not impacted: top military official

Iran's top military official on Monday said the Strait of Hormuz would remain open to traffic as long as the country, which is struggling under US sanctions, is allowed to export its oil

But he warned that Iran maintains the ability to shut down the strait completely, and if it did so, it would not shy away from announcing it publicly.

"The Islamic Republic has announced that as long as someone has not caused any problem for the Strait of Hormuz security, we will keep it safe," said Major General Mohammed Hossein Bagheri, who serves as chief of staff for Iran's armed forces.

"And as long as the Islamic Republic's oil is exported, the others' oil will be exported securely. If the Islamic Republic has the intention or determination to block the strait, it will announce it and it will do it with full strength and completely."

The UK is sending 100 marines to the Persian Gulf, according to a report in The Sunday Times, to police the Strait of Hormuz, a key oil and gas shipping chokepoint which has become a flashpoint in the last few weeks.

Two oil tankers were attacked last Thursday in the Gulf of Oman just outside the strait, with the US, UK and Saudi Arabia blaming Iran, just one month after a similar incident in nearby waters off the eastern UAE port of Fujairah. Iran, which previously threatened to shut down traffic through the strait if its oil exports were blocked by US sanctions, has denied responsibility.

Saudi energy minister Khalid al-Falih on Monday said in Tokyo that Saudi Arabia would "do all that is necessary to ensure safe passage" of oil shipments.

Saudi Arabia has also accused Iranian-backed Houthi rebels of being behind a drone attack on a key Saudi Aramco pipeline carrying crude to the Red Sea port of Yanbu last month.

Iran has criticized its longtime geopolitical rival Saudi Arabia coordinating with the US on sanctions targeting Tehran. The US withdrew in November from the nuclear deal with Iran and reimposed sanctions aimed at bringing Iranian oil exports to zero, allowing waivers granted to some key buyers of Iranian crude to expire last month.

The White House has trumpeted reassurances it has received from Saudi Arabia and close ally the UAE to prevent any oil supply squeeze.

Share this post


Link to post
Share on other sites

Why oil vessels are attacked in the Gulf?

 

The attack on two oil tankers in the Gulf of Oman, which connects the Arabian Sea with the Strait of Hormuz, a critical choke-point in one the world’s busiest shipping routes, has raised tensions between the U.S. and Iran. The crisis has also pushed up global oil prices as well as the cost of shipping insurance. Within hours of Thursday’s attack on the vessels, one is Japanese-owned and the other Norwegian, the U.S. has blamed Iran for the incident. The U.S. Central Command, which is based in the Gulf, has also released a video footage that the U.S. claimed showed men on an Iranian boat removing a mine from one of the tankers.

This was the second time in two months oil tankers have come under attack in the region. On May 12, four vessels, owned by Saudi Arabia and Norway, were targeted off the UAE coast, just outside the Strait of Hormuz. The U.S. had blamed Iran for that attack as well. Tehran has denied any role in the incidents. Whoever is responsible for these attacks, they are actually weaponising the Strait of Hormuz and the Gulf of Oman, both vital spots on the Gulf-Arabian Sea trade route.

Why Strait of Hormuz is important?
The Gulf (also known as the Persian Gulf or the Arabian Gulf) lies between Iran and the Arabian Peninsula. Besides Iran and Saudi Arabia, Oman, the UAE, Qatar, Bahrain, Kuwait and Iraq also share the Gulf coastline. As all these countries are energy-rich, the Gulf naturally emerged as a major trade route through which most of the oil exported from these countries flow out. Strait of Hormuz is a choke-point between the Gulf and the open ocean. With Iran on its northern coast and the UAE and an Omanian enclave on the south, the Strait, at its narrowest point, has a width of 34 km. The Strait opens to the Gulf of Oman which is connected to the Arabian Sea. A third of crude oil exports transported via ships pass through the Strait, which makes it the world’s most important oil artery.

According to the U.S. Energy Information Administration, a record 18.5 million barrels a day of oil passed through the Strait in 2016, a 9% jump on flows in the previous year. Besides oil, nearly all the exported liquefied natural gas (LNG) from Qatar, the world’s second largest LNG exporter, pass through the Strait of Hormuz. If the Strait is closed or if the flow of oil and gas is disrupted, it would have serious impact on global energy stability and thereby on world economy. Last time when there was a tanker war in the Gulf, it lasted for years and caused a major rise in prices and drop in commercial shipping.

The last Tanker War
In the 1980s, when Iran and Iraq were locked in a protracted conflict, both sides targeted each other’s energy vessels in the Gulf and on the Strait of Hormuz. Iraq started the Tanker War by targeting ships carrying Iranian fuel in 1981. Three years later, Iran started attacking vessels carrying Iraqi fuel turning the Gulf waters into a war zone. While Iraq largely attacked ships using missile-armed jet aircraft, the Iranians developed multiple ways to target tankers. They used speedboats, sea mines; anti-ship cruise missiles and traditional naval gunfire, among others. According to a report by the U.S. Naval Institute, in total, 340 ships were attacked and more than 30 million tonnes of shipping damaged in the Gulf between 1981 and 1987. It also caused over 400 seaman deaths. The conflict gradually subsided after the U.S. naval intervention in 1987, but only after Iran developed and demonstrated capability to attack any vessel that passes through the Strait of Hormuz. Among the ships severely damaged was the USS Samuel B. Roberts of the U.S. Navy, which was hit by an Iranian mine in 1988.

What’s next?
With ships again coming under attack in the Gulf region, memories of the Tanker War are being revived. If Iran is actually behind the recent attacks, it may be playing a risky game, demonstrating what it can do in the Gulf in the event of a war. If Iran is not behind the attacks, some other powers are using the Gulf trade lanes to stoke further tensions. Either way, the weaponisation of the Strait of Hormuz is a dangerous game. In the 1980s, the tanker war was largely a war of economic attrition. Also, the conflict was between Iran and Iraq, two relatively similar powers. This time, there are other risks. Given the existing tensions, more attacks on shipping vessels could trigger an all-out war, besides the economic costs of such attacks. Second, this time, conflict is between the U.S. and Iran. The scope of a direct war will be much bigger than what it was in the 1980s.
 

Share this post


Link to post
Share on other sites

Risks rise in key oil chokepoint Strait of Hormuz

 

An alleged attack Thursday on two oil tankers near the Strait of Hormuz may increase levels of risk in the Middle East’s key crude supply and shipping artery.

The Front Altair and the Kokuka Courageous were carrying cargoes including naphtha when the incident occurred. Television footage later showed one of the tankers engulfed in flames.
The incident follows last month’s attack on four tankers near the bunkering port of Fujairah on May 12.

US Secretary of State Mike Pompeo blamed Iran Thursday for the attack on the two tankers, as well as attacks a month earlier on pipelines in Saudi Arabia and on ships in nearby waters off Fujairah. Pompeo said the US would raise the attack to the United Nations’ Security Council.

“The details remain unclear at the time of writing, but the attacks fit Iran’s recent pattern of reacting to tightening US sanctions,” said Paul Sheldon, chief geopolitical adviser with S&P Global Platts Analytics.

pon_20190614_tanker_attack-003-.jpg

“A direct US/Iran conflict (or shutdown of the Strait of Hormuz) both remain long shots, due to Iran’s fear of US military action and the US administration’s clear aversion to foreign entanglements. But the risk of miscalculation in the Middle East is clearly rising, which will increase the demand for inventory as oil balances tighten in 2H19,” he added.

TRADE FLOWS
**The 21-mile wide Strait of Hormuz is the key maritime transit route for Persian Gulf oil exporters.

**The EIA estimates 18.5 million b/d of all seaborne oil exports passed through the strait in 2016, mainly to customers in Asia. Japan, China, India and South Korea are the biggest buyers of the heavier sourer — or high sulfur — crudes that Middle East producers tend to supply.

**Iran has issued threats to close the strait in recent months, prompting the US to deploy warships and military aircraft.

**Only Iran and Saudi Arabia have alternative access routes to maritime shipping lanes. Saudi also has access to the Red Sea via the Yanbu Port. Saudi’s King Fahd crude export terminal has a loading capacity of 6.6 million b/d.

**Saudi Arabia operates the Petroline (East-West Pipeline) which has a capacity of 4.8 million b/d, a throughput of 1.9 million b/d and an unused capacity of 2.9 million b/d, according to the EIA. This services Yanbu Port. The UAE operates the Abu Dhabi Crude Oil Pipeline, which has a capacity of 1.5 million b/d, a throughput of 0.5 million b/d and an unused capacity of 1 million b/d, the EIA notes.

**The strait is crucial for LNG shipments from Qatar.

**Qatar exported about 6.6 million mt in April, equivalent to about 23.5% of global LNG supply, according to Platts Analytics.

**Qatar supplied some 2.8 million mt to Europe, representing about 40% of its total exports, while the bulk of the remaining 3.8 million mt was exported to Asia.

**Current LNG demand is subdued on limited demand from Europe and Asia for power generation and restocking, following a mild winter which has left healthy storage inventories.

PRICES
**Brent crude futures climbed almost 4% immediately after the attacks on Thursday. ICE Brent eventually settled $1.34 higher at $61.31/b.

**The LNG market was not affected by the incident on Thursday. The Platts JKM was assessed at $4.412/MMBtu at the Thursday close in Singapore, down $0.002/MMBtu from Wednesday’s close in London. LNG ships were going through the maritime transit route as usual on Thursday, according to Platts trade flow software cFlow.

**Ship owners are watching the situation closely, but none have reported any changes in daily operations or freight rates yet.

INFRASTRUCTURE
**The Front Altair was scheduled to carry a naphtha cargo from the Persian Gulf to Japan, shipping sources said. Taiwan’s CPC Corporation said the 75,000 mt naphtha feedstock cargo was loaded at the UAE’s Ruwais port on June 11 and that the company bought it from state-run ADNOC. The cargo was on a CFR basis, according to CPC. ADNOC couldn’t be reached for immediate comment.

**BSM Ship Management said the Kokuka Courageous was carrying methanol and had been damaged in the incident, 70 nautical miles from Fujairah in the Gulf of Oman and about 14 nautical miles from the coast of Iran but was not in the danger of sinking.

**Due to the Fujairah attacks in May and the latest attacks Thursday, the Norwegian Maritime Authority has urged Norwegian ships to exercise extreme caution in the region.

Share this post


Link to post
Share on other sites

Tanker earnings jump after attacks

 

Ocean shipping has a unique appeal to a certain breed of risk-reward investor for two primary reasons. First, global shipping rates are completely unregulated. There’s no one with the authority to declare that a rate is too high or too low. The market decides.

Second, rates can gyrate wildly due to global events that are largely unpredictable. A ship owner can wake up one morning and suddenly find himself well on his way to being either rich or broke, through no fault of his own.

World events are now coming to the fore in ocean shipping. The crude oil tanker market has become heavily contingent on the outcome of geopolitical tensions between Iran and the U.S., while the container market will go one way or the other based upon the outcome of trade tensions between the U.S. and China.

Geopolitical risks support tanker rates

As predicted, the tanker attacks in the Gulf of Oman on June 13 had an immediate and highly positive effect on rates for very large crude carriers (VLCCs). These tankers each carry two million barrels of crude and they are the vessels of choice for Middle East exports.

Clarksons Platou Securities reported that VLCC rates, as of June 18, averaged $22,100 per day, up 63 percent week-on-week, while third quarter VLCC rates in the forward freight agreement (FFA) market were $25,000 per day.

Deutsche Bank shipping analyst Amit Mehrotra noted that “charterers need to pay a premium to bring vessels into the Arabian Gulf.” VLCC spot rates jumped 100 percent in the Middle East region and 26 percent overall last week, said Mehrotra.

According to Randy Giveans, shipping analyst at Jefferies, “Owners will start demanding some form of hazard pay when operating near the Strait of Hormuz, and VLCC FFAs jumped on fears that vessel supply in the region will tighten, as several operators temporarily halt Middle East Gulf operations.”

Ben Nolan, the shipping analyst at Stifel, pointed out how rising dangers in Middle East waters could slow down tanker operations. The more inefficient operations become, the more that capacity is effectively reduced, a tailwind for rates.

Nolan cited the possibility that “there would need to be increased international protection for ships transiting the region, with some possibility of escorted convoys. This could slow the tanker logistics for loading and unloading.

“We expect at most it would add an additional one to two days in transit time, similar to convoys around the Horn of Africa to avoid pirates,” said Nolan. He estimated that this would equate to a 2-3 percent increase in transit time.

Taking into account the portion of the fleet that does not trade in the Middle East, he said it could equate to a 1 percent decrease in the effective capacity of the world’s VLCC fleet – a plus for rates, albeit a small one.

Public companies with spot VLCC exposure: Euronav (NYSE: EURN), DHT (NYSE: DHT), Frontline (NYSE: FRO), International Seaways (NYSE: INSW)

LPG rates continue their ascent

In the global transportation sector for liquified petroleum gas (LPG), the long-haul routes to Asia are dominated by 84,000-cubic meter very large gas carriers (VLGCs).

As of June 18, Clarksons Platou Securities estimated that VLGCs were averaging $64,100 per day, up 21 percent week-on-week.

“VLGC rates continued the march higher, breaking $60,000 per day, a new cycle high,” said Noah Parquette, shipping analyst at J.P. Morgan. “Momentum seems strong,” he asserted, noting that the “east/west arb” is supporting shipments out of the U.S. Gulf to China. In other words, Asian pricing for propane exceeds U.S. pricing to a degree that provides traders profits even after paying for transport.

“In the LPG market, earnings ended [last week] at over $60,000 per day on the Baltic-quoted Middle East Gulf-Japan route,” said Clarksons Platou Securities analyst Frode Mørkedal.

“From the U.S., the situation is much of the same and fixing windows are being pushed further in advance, now looking for vessels for end-July,” Mørkedal said, referring to the extended time in advance vessels must be chartered for future voyages, a market dynamic that results from demand exceeding vessel supply.

Speaking at the Marine Money conference in New York on June 17, J. Mintzmyer, lead researcher of Value Investor’s Edge, commented, “In the broader [investment] market, shipping is always looked at as a monolith, but it’s important to differentiate between the sectors. Right now, if you look at the headlines, you see ‘Shipping is down.’ But what about LPG? VLGC rates are now at five-year highs.”

Shipping stocks are notoriously averse to responding to rate moves by the listed companies’ fleets, but VLGC rates are now so high that Wall Street investors are beginning to take notice. “The share price of Dorian [NYSE: LPG] is finally starting to respond,” said Mintzmyer.

Public companies with spot VLGC exposure: Dorian LPG (NYSE: LPG), BW Gas (Oslo: GAS)

Containers hang in the balance

Container shipping rates remained steady over the past week, as trade tensions between the U.S. and China continued to cast a long shadow. U.S. tariffs on an additional $300 billion in imports from China are being actively considered, and are increasingly seen as likely.

Over 600 companies, including Walmart (NYSE: WMT) and Target (NYSE: TGT), sent a letter to U.S. President Donald Trump last week. “We remain concerned about the escalation of tit-for-tat tariffs. An escalating trade war is not in the country’s best interest, and both sides will lose,” warned the letter’s signees. Hearings on the next wave of tariffs are being held in Washington, D.C. this week.

Data tracking shipping rates for containers originating in China does not yet show any evidence of a surge in U.S. cargo demand as importers move to beat the tariffs.

Since May 1, the Freightos Baltic Daily Index (Global) is basically flat, down 2 percent. It fell in late May but rebounded to early May levels in early June, and has remained steady at that higher level throughout this month.

The two largest individual trade lanes show differing patterns during this period. The index tracking container rates between China and North Europe (FBXD.CNER) was up slightly in May, and has been flat to slightly lower in June, and is down 2 percent since May 1.

In contrast, the index tracking rates between China and the U.S. West Coast (FBXD.CNAW) fell sharply in late May and rebounded in June, and has remained flat throughout this month, but it is still down 9 percent from May 1.

In essence, the weakness of the trans-Pacific route pulled down the global average in the second half of last month and improved rates on the trans-Pacific brought the global average back up this month, while the Asia-Europe route has continued to outperform the trans-Pacific in terms of rate trends.

Share this post


Link to post
Share on other sites

Asian shipowners maintain heightened security levels on Middle East transits

 

Asian tanker and LNG shipping companies remain cautious on Middle East transits after last week’s tanker attacks, and have stepped up safety measures including tighter security of seaborne vessels and full-speed navigation in the Gulf of Oman, the companies said Monday.

Last week’s attacks on one oil product and one chemical tanker had resulted in several owners of clean and dirty vessels holding back spot charters for Middle Eastern cargoes on Friday, which triggered war risk premiums for vessels willing to undertake the voyage, and pushed up freight rates for immediate fixtures.
“Tanker owners and charterers alike are observing the situation before they commit to more cargoes and ships in the region,” tankers analyst Erik Broekhuizen of shipping brokerage Poten & Partners said in a report.

“The longer-term implications for the tanker market are dependent on what happens next,” Broekhuizen said, adding that geopolitical tensions have already risen to a very high level and further attacks or proven involvement of state actors could result in a significant escalation of the conflict.

Broekhuizen drew parallels with the Iran-Iraq tanker war of the 1980s, and said the key difference is that in the 1980s the main destination for Middle East oil was the US and Europe, but now more than 80% of exports from the Persian Gulf are headed for Asia, in particular China. Asian shipowners said they were watching the situation closely.

Japan’s NYK Group, one of the world’s largest shipowners, said its president Tadaaki Naito had opened its crisis-management center on June 13 and it was collecting as much information as possible.

NYK Group has no plans to suspend calling at Middle Eastern ports and none of the group’s vessels were damaged, a company spokesman said, adding that it was unable to disclose the positions of its vessels or detail its security measures.

“Vessel navigation (both ways) continues with more vigilance than usual, including full-speed navigation in the area of concern,” the spokesman said. NYK controlled 833 ships, of which 355 were fully or partly owned and 478 were chartered, according to its 2019 factbook. Out of this 63 were tankers and 70 were LNG carriers.

Singapore-based BW Group, one of the largest LNG fleet owners, also said it had stepped up security levels.

“We are following the events in the Strait of Hormuz with concern and have asked all of our vessels to proceed with additional vigilance following all the appropriate security protocols in place,” a company spokeswoman said.

“We wait to see any official statements in relation to the cause of the explosions which took place,” she added.

LNG IMPORTERS ON WATCH
The Strait of Hormuz is a critical chokepoint for LNG transits, especially since the world’s largest LNG exporter Qatar ships its cargoes to Asia through the region.

“If the strait were to be blocked, then Qatari cargoes will be affected. But if it is just a few vessels being targeted, the impact is minimal,” an executive with Japanese utility Kansai Electric said. He said the latest attacks may prevent oil and gas prices from falling by putting a floor on the market amid the uncertainty.

The S&P Global Platts JKM for July cargoes was assessed at $4.4/MMBtu last Friday on steady pricing indications, and Asia Pacific shipping day rates were at $48,000/day.

An executive with Tohoku Electric said that the Japanese utility had run several simulations, including future procurement timings and vessel routes.

“However, since LNG vessels haven’t been affected thus far, there is no additional buying from us or other utilities as far as I know,” the person said.

“I haven’t heard of any impact so far. There might be some buyers on the move after the attack,” a Tokyo Gas executive said.

Share this post


Link to post
Share on other sites

Iraq looking at options in case Gulf oil route cut: spokesman

 

Iraq is looking at contingency plans in case spiralling US-Iran tensions cut off its oil exports through the Gulf, a ministry spokesman said Monday, as observers warned a rupture would be “disastrous”.

The US has accused Iran of attacking two oil tankers last week in the Gulf of Oman, sparking concerns that global shipments through the key waterway could be threatened.

Iraq, the second-largest oil producer among the Organization of the Petroleum Exporting Countries (OPEC), is drawing up an action plan in case of further escalation, according to oil ministry spokesman Assem Jihad.

“There is no replacement for the southern port and our other alternatives are limited. It’s a source of anxiety for the global oil market,” Jihad told AFP on Monday.

Lawmakers have also called for an emergency session with Iraq’s ministers of oil, trade, planning and transport to “prepare to confront the possible dangers”.

A third of the world’s seaborne oil supply passes through the Strait of Hormuz, a narrow channel bordered to the north by Iran that links the Gulf with the Gulf of Oman.

Iran has repeatedly threatened to block the passage in the event of a conflict with the US, but Secretary of State Mike Pompeo vowed Sunday that Washington would guarantee continued shipments through it.

The channel is vital for Iraq.

In May, federal authorities used the southern Basra terminal to export 3.4 million bpd compared to just 100,000 bpd from the northern Ceyhan terminal through Turkey, according to the Iraq Oil Report.

“A vast majority of our oil is exported through this crossing. If there are clashes between boats or (over) oil, we’ll be hurt,” said Mudher Saleh, financial adviser to Iraqi premier Adel Abdel Mahdi.

“It would be a disaster for Iraq.”

So far, there have been no changes to Iraq’s production and exports as a result of recent developments, said spokesman Jihad and ClipperData, which tracks tankers in the region.

Iraq is currently the fifth-largest oil exporter worldwide, and the government’s budget is funded almost exclusively by oil revenues.

“Losing the oil revenue, even for one day, would be disastrous,” said industry analyst Ruba Husari.

“If Iraq loses the ability to export its crude via the Mideast Gulf, it will be totally strangled… The Gulf waterways are its lifeline,” she told AFP.
Source: AFP

 

 

Share this post


Link to post
Share on other sites

On 6/15/2019 at 2:56 PM, ceo_energemsier said:

I dont believe Iran is going to declare an outright war at this time or anywhere in the near future. They will continue with their proxy schitt and incidents here and there. The USN is already there but things are developing fast and others may show up soon.

The Saudi's have a pipeline to haul crude across the desert from the East coast to the West Coast, there is also a UAE pipeline that bypasses the Strait.

https://www.bloomberg.com/news/articles/2019-05-14/saudi-pipeline-attack-highlights-risk-to-middle-east-oil-exports

 

https://www.arabianbusiness.com/saudi-aramco-expand-capacity-of-east-west-pipeline-by-end-2018-633580.html

 

image.png.ed9fda1abdf14166abc5c499abf3a1e0.png

 

image.png.0c8be76fdc53aa1a09a0bcc705ee020d.png

 

image.png.87ee6f0a974b881afe7c83678c940321.png

image.png.3770a897aa61ab77d891bbb88bc1caba.png

The Saudi pipeline and pumping stations were droned last month. But it can move substantial amount of crude oil to the West coast. KSA also have "reserve emergency" barrels stored at .................................

The West coast will need a lot of protection and the Red Sea waters will be needing a lot of patrolling as well.

I think the best way to do the "policing" is by having the countries who have their flags on the vessels getting involved and or the countries whose buyers are the bulk importers of said goods provide naval protection for their buyers goods ad chartered and or owned vessels.

30% of the world's energy (fossil) needs come out of that Strait, today the world is lot more intertwined into the oil need than it was in the 80s, even with the push and desire to get away from it and to go along with renewables. If there was a total shut down of the Strait , it was have disastrous consequences for the economies of the West and the growth of economies in 3rd world and developing nations. Most of the people in the 3rd world and developing nations wont be as affected by the modern luxuries and goodies afforded by all the oil derivatives, they are lucky if they have an actual toilet and clean water. I am not saying they wont be affected but it wont be in the same context that other nations will feel the changes or cuts needed to make it through.

 

Based on the new routes for the UAE, Oman, Quatar, Kuwait and KSA then if the Iranians want leverage by using the Straights of Hormuz they will have to take advantage of this window. 

Lots a closure threats over the years which worked as there was no alternative but now with Iran being forced on sanctions and losing the credibility of threats with SOH, now would be the best time for them to act on this asset which may well disappear.

Nuclear still a good threat option also.

Food for thought.

  • Upvote 1

Share this post


Link to post
Share on other sites

Persian Gulf clean product outflows may slow as shipowners weigh risk premiums

The volume of clean oil products flowing from the Persian Gulf into Asia could see some drops in the coming weeks as Asian traders and shipowners have become cautious about buying and loading cargoes from the region following the oil tanker attacks last week, market sources said this week.

 

The traders and shipowners are assessing the risk premiums and potential rise in freight costs after the attacks near the Gulf of Oman, they added.

Persian Gulf refineries typically export gasoil and jet fuel cargoes to Europe, Africa and East Asia, with naphtha cargoes mostly flowing into North Asia.

The apparent attack on two tankers has not resulted in a slowdown in chartering in the Middle East so far, several ship owners, brokers and charterers across Asia-Pacific told S&P Global Platts. However, chartering sources in Singapore noted that an additional war risk premium, or AWRP, will have to be paid by charterers if the loading is in listed areas for "hull war, piracy, terrorism and related perils", such as the Persian Gulf.

This premium is in addition to freight and will make the delivered cost of cargoes higher.

Shipowners would have to check with their individual Protection and Indemnity Clubs, their Hull and Machinery insurers and their security teams about the risk of each charter with regards to the port of call and voyage, market sources in Singapore said.

This delays the chartering process for vessels, and owners with vessels currently on subjects have pushed all further AWRP since Friday for the charterer's account.

"Prior to last week's attacks, shipowners would have to pay 0.02%-0.025% of vessel value for War Risk premiums. Today we have seen owner being asked to pay numbers from 0.1%-0.4%. These numbers represent a premium payable for only the Gulf of Oman/Arabian Gulf and are payable on top of existing Gulf of Aden War Risk premiums," said a shipbroker Tuesday. Arabian Gulf is more commonly known as the Persian Gulf.

The median range heard was 0.25% of the vessel's value, said shipping sources.

"For an LR1 tanker, the additional cost could go from zero to $175,000--it is very different for each ship. Greek owners have inflated their hull and machinery values, some underwriters are not charging much on top," a shipbroker said.

ASIAN BUYERS

While freight rates for moving barrels out of the Persian Gulf have not spiked, further attacks in the region, where a third of world's seaborne oil passes through, could see current assumptions change rapidly, traders said.

Term clean product supply contracts are being executed on schedule but some trading companies and end-users are scouting for alternative sources such as China, South Korea and West Coast India for spot cargoes, Asian market and trade sources said.

Major petrochemical producers from South Korea -- Asia's top naphtha importer -- including LG Chemical, KPIC, Lotte Chemical, Hanwha Total and Yeochun Naphtha Cracking Center said they will likely shift focus to consume domestic naphtha in the near term until the tensions in the Persian Gulf eases.

A source from one of the South Korean petrochemical makers said that costs to bring in naphtha and LPG from Persian Gulf suppliers will likely increase as insurance risk premiums spike, so the company would prefer to consume feedstocks domestically and from other regional Asian markets first.

"It is all going to be about [incremental] cost," a Singapore-based trader in a Middle Eastern trading house said. "If you simply isolate the freight and FOB differentials loading cost, than either differential comes off or freight eases."

OTHER OPTIONS FOR SELLERS

Middle Eastern refiners still have other options before reducing their FOB loading premiums, Asian traders said.

"Some refiners could potentially send their cargoes to storage or even reduce their run rates, before even considering lowering their sale price," the Singapore-based trader in a Middle Eastern trading house said.

According to data by the Fujairah Oil Industry Zone, clean oil product stocks have been lower since mid-May, when the first attacks began.

Stocks of middle distillates in Fujairah averaged 2.095 million barrels in the first two weeks of June, down 14% for the same period in May when it stood at an average of 2.434 million barrels, data showed.

During the same period, stocks of light distillates in Fujairah declined by 6% to 9.994 million barrels in the first two weeks of June, or down from 10.617 million barrels in first half of May.

Share this post


Link to post
Share on other sites

On 6/15/2019 at 12:56 PM, ceo_energemsier said:

I dont believe Iran is going to declare an outright war at this time or anywhere in the near future. They will continue with their proxy schitt and incidents here and there. The USN is already there but things are developing fast and others may show up soon.

The Saudi's have a pipeline to haul crude across the desert from the East coast to the West Coast, there is also a UAE pipeline that bypasses the Strait. 

https://www.bloomberg.com/news/articles/2019-05-14/saudi-pipeline-attack-highlights-risk-to-middle-east-oil-exports

 

https://www.arabianbusiness.com/saudi-aramco-expand-capacity-of-east-west-pipeline-by-end-2018-633580.html

 

image.png.ed9fda1abdf14166abc5c499abf3a1e0.png

 

image.png.0c8be76fdc53aa1a09a0bcc705ee020d.png

 

image.png.87ee6f0a974b881afe7c83678c940321.png

image.png.3770a897aa61ab77d891bbb88bc1caba.png

The Saudi pipeline and pumping stations were droned last month. But it can move substantial amount of crude oil to the West coast. KSA also have "reserve emergency" barrels stored at .................................

The West coast will need a lot of protection and the Red Sea waters will be needing a lot of patrolling as well.

I think the best way to do the "policing" is by having the countries who have their flags on the vessels getting involved and or the countries whose buyers are the bulk importers of said goods provide naval protection for their buyers goods ad chartered and or owned vessels.

30% of the world's energy (fossil) needs come out of that Strait, today the world is lot more intertwined into the oil need than it was in the 80s, even with the push and desire to get away from it and to go along with renewables. If there was a total shut down of the Strait , it was have disastrous consequences for the economies of the West and the growth of economies in 3rd world and developing nations. Most of the people in the 3rd world and developing nations wont be as affected by the modern luxuries and goodies afforded by all the oil derivatives, they are lucky if they have an actual toilet and clean water. I am not saying they wont be affected but it wont be in the same context that other nations will feel the changes or cuts needed to make it through. 

One of your graphics says the UAE pipeline has a 1.5MMbpd capacity; the other says it's closer to 6MMbpd. 
One says 17MMbpd - 17% of world consumption - traverses the Hormuz daily.  Another says 30%. 

Would you clarify and put this into perspective for us:
1)  How many barrels actually traverse the Strait of Hormuz daily?
2)  How many of those barrels could be moved by pipeline?
3)  How many of those barrels could be moved by rail?
4)  If the Hormuz were closed, how would the world make up lost oil?  E.g. would we tap reserves?  Would we permanently reduce demand?  Would we fast-track oil projects elsewhere? 

Share this post


Link to post
Share on other sites

India warships sent to strategic Gulf waters

New Delhi (AFP) - India has sent warships and stepped up aerial surveillance in strategic Gulf waters, the Press Trust of India reported on Thursday, with global tensions rising in the region.

"INS Chennai and INS Sunayna have been deployed in the Gulf of Oman and the Persian Gulf to undertake maritime security operations," the navy said, quoted by PTI.

The aim is "to re-assure the Indian-flagged vessels operating/transiting through the Persian Gulf and the Gulf of Oman, following the maritime security incidents in the region," the navy said.

US President Donald Trump on Thursday said Iran made a "big mistake" by shooting down a US spy drone. The Pentagon said the downing occurred in international air space but Iran's Revolutionary Guard Corps said the drone had violated Iran's air corridor.

Washington had already accused Iran of carrying out attacks on tanker vessels in the Strait of Hormuz area, which links the Gulf and the Gulf of Oman, and through which much of the world's oil passes.

"Aerial surveillance by IN aircraft is also being undertaken in the area," India's navy said, according to PTI.

India's ambassador to Washington said in May that his energy-hungry nation had ended all imports of oil from Iran, in response to threatened US sanctions.

Share this post


Link to post
Share on other sites

6 hours ago, BenFranklin'sSpectacles said:

One of your graphics says the UAE pipeline has a 1.5MMbpd capacity; the other says it's closer to 6MMbpd. 
One says 17MMbpd - 17% of world consumption - traverses the Hormuz daily.  Another says 30%. 

Would you clarify and put this into perspective for us:
1)  How many barrels actually traverse the Strait of Hormuz daily?
2)  How many of those barrels could be moved by pipeline?
3)  How many of those barrels could be moved by rail?
4)  If the Hormuz were closed, how would the world make up lost oil?  E.g. would we tap reserves?  Would we permanently reduce demand?  Would we fast-track oil projects elsewhere? 

Take a number that suits your needs LOL

Here are some IEA and others.

2) Saudi can probably move 5-5.5mil bpd by pipeline ,UAE past that zone of Hormuz, I think I posted it somewhere should be 1.4mil-1.5 bpd

3) None by rail , although there was (should be still) a very good rail network from the Eastern province to the Central province in KSA in the 90s.

4) Canadian oil would be in great demand if it can  be  moved and it maybe very well by rain and even truck down south to the US and via pipeline to the USGC . US oil companies would ramp up production, DUCs will be the flavour of the day. Brazil will try to ramp up, and every country in OPEC and non opec will do the same. Reserves maybe tapped in many countries including CHina and Japan, Japan has already drawn some barrels out of their "reserves" . The world needs more of the sour lower API , higher sulphur crude which is the majority of production worldwide, the US LTO producers would benefit greatly selling through the right channels to get max value for their LTO as straight LTO and or blended LTO with other heavy, medium sour crudes. Lot of complexities but demand and supply and the time frame will create market opportunities. Also many OPEC producers maintain crude oil storage across the world eg Saudi and UAE in India, CHina, Japan, US, EU , so the companies would be able to draw from those to supply their customers.

Now back to your 1)

 

image.png.b8d79049514797c28ba0efba4deb98a8.png

 

The Strait of Hormuz, located in the area where Iran shot down a US military drone, is a strategically important waterway for the world's oil transits, which lies at the heart of regional tensions.

Iran warned on Friday it would "decisively defend its territory" against eventual US retaliation, while the airlines KLM, Lufthansa, Malaysia Airlines, Qantas and Singapore Airlines said they were suspending flights over the strait.

Some background:

- Gateway to the Gulf -

The Strait of Hormuz links the Gulf to the Gulf of Oman and is situated between Iran and Oman.

It is vulnerable due to its narrowness -- some 50 kilometres (30 miles) -- and its depth of no more than 60 metres (200 feet).

The corridor is dotted with sparsely inhabited or desert islands, which are strategically important, notably the Iranian islands of Hormuz, Qeshm and Larak.

- Oil transit hotspot -

The strait is a vital corridor connecting the petroleum-rich states of the Middle East with markets in Asia, Europe, North America and elsewhere.

According to the US Energy Information Administration (EIA), in 2018 nearly 21 million barrels of crude a day transited the strait.

That represents around 21 percent of world oil consumption and one-third of total global seaborne oil transit.

A quarter of global liquefied natural gas trade also transited Hormuz, the EIA said.

Around 76 percent of the crude transiting the strait was destined last year for Asia, mainly China, India, Japan and South Korea.

While Saudi Arabia and the United Arab Emirates have established a network of pipelines that can use alternative routes, they only allow the export of limited amounts -- around three million barrels a day in 2018, with a total capacity of 6.8 million.

These pipelines too are vulnerable, as shown by the attack on a Saudi pipeline in May by Yemeni rebels.

Recent attacks on two tankers in the Gulf of Oman, and the shooting down of the US drone by Iran, have raised the prospect of significant disruptions to shipping and destabilisation of the world oil market: oil prices soared more than six percent Thursday in New York.

For consumer countries it would be difficult to find an alternative in volume and quality terms to Gulf crude. So-called light crude produced by the United States is not a substitute for the Middle East's heavy crude.

The United States, the world's largest global crude oil producer and exporter, imported around 1.4 million barrels per day of crude which had transited the Strait of Hormuz, seven percent of its consumption.

- Zone of tension, conflict -

Iran's Revolutionary Guard, the ideological army of the Islamic republic, controls naval operations in the Gulf.

Tehran repeatedly criticises the presence of foreign powers in the region, notably the US Fifth Fleet stationed in Bahrain, and it has regularly threatened to close the strait if it comes under attack.

One of the major disruptions to oil transit came in 1984 during the Iran-Iraq war (1980-1988) when more than 500 vessels were destroyed or damaged in the so-called "Tanker War".

In 1988, an Iran Air flight from Tehran to Dubai, via Bandar Abbas, was shot down by missiles fired from a US Navy cruiser patrolling the strait. All 290 people on board were killed.

The crew of the USS Vincennes said they mistook the Airbus for an Iranian fighter.

In April 2015 the Revolutionary Guards boarded and took into custody in the strait a container ship flying the flag of the Marshall Islands.

The following month Revolutionary Guard sailors fired warning shots in an apparent bid to intercept a Singapore-flagged cargo ship in the Gulf.

Stoked by the US withdrawal in May 2018 from the landmark nuclear deal between Iran and world powers, and the reimposition of heavy US sanctions on Tehran, tensions have recently escalated in the Gulf region.

Washington has blamed sabotage and attacks on oil tankers in the Gulf in May and June on Tehran, which denies involvement.

__________________________________________________________________

 

 

image.png.79c39ab09a6c5c9c787961c06b99f9ff.png

 

 

image.png.e7710432611ec2a900820e8093877c57.png

 

image.png.b9e882fb307fdced7803989fea1d6c09.png

 

 

  • Upvote 1

Share this post


Link to post
Share on other sites

7 hours ago, BenFranklin'sSpectacles said:

One of your graphics says the UAE pipeline has a 1.5MMbpd capacity; the other says it's closer to 6MMbpd. 
One says 17MMbpd - 17% of world consumption - traverses the Hormuz daily.  Another says 30%. 

Would you clarify and put this into perspective for us:
1)  How many barrels actually traverse the Strait of Hormuz daily?
2)  How many of those barrels could be moved by pipeline?
3)  How many of those barrels could be moved by rail?
4)  If the Hormuz were closed, how would the world make up lost oil?  E.g. would we tap reserves?  Would we permanently reduce demand?  Would we fast-track oil projects elsewhere? 

A potential conflict between the U.S. and Iran could be far more disruptive for liquefied natural gas markets than to the world’s crude shipments.

About a quarter of the world’s LNG goes through the Strait of Hormuz, the narrow sea conduit that borders Iran and through which tankers carrying about one-fifth of the world’s oil transit, according to the U.S. Energy Information Administration. Major importers are also less prepared for LNG supply disruptions, because they hold a fraction of the inventories they do for oil.

Tehran has threatened in the past to halt fuel shipments through the vital passage. Tensions in the region are high after U.S. President Donald Trump approved and then later called off military strikes against Iran on Thursday night after Iranian forces shot down an American Navy drone over the strait.

“Whatever spike you get in oil, you will likely get twice the spike in spot LNG,” said David Hewitt, an oil and gas analyst at Macquarie Capital Ltd. “The market would be unable to” make up the full amount of shipments from the region if deliveries through the strait were halted, he said.

Most of Qatar’s gas shipments head to Asian nations and Japan, South Korea and India are among its top LNG buyers, according to the International Gas Union. Inventory levels and seasonal demand could also impact any disruption on global markets.

While most major importers don’t have as much storage for gas as they do for oil -- Japan had about 19 days of LNG imports on hand at the end of March versus enough oil in strategic reserves to cover 133 days of deliveries -- the startup of new export projects and mild weather have curbed LNG demand, leaving the market oversupplied.

Brent oil on Thursday jumped 4.3 percent, the most since January, after the U.S. drone was shot down and is now trading near $65 a barrel. Benchmark LNG Japan/Korea Marker futures, which have hovered near a three-year low, gained 1.4 percent to $4.615 per million British thermal unit the same day.

  • Upvote 1

Share this post


Link to post
Share on other sites