Table of Contents
1. Introduction. 4
2. Types of Tankers and their Physical Characteristics. 6
a) Oil Tankers. 6
b) Chemical Tankers. 8
c) Gas Carriers. 10
3. Shipping and International Trade. 11
3.1. Changing Patterns of World Trade. 12
3.2. Arguments for Protectionism.. 13
3.3. Inter-Industry Trade. 14
3.4. Absolute Advantage of International Trade. 15
3.5. Comparative Advantage of International Trade. 15
c) Natural Gas. 27
3.6. Calculation of Oil Company Tonnage Requirements. 28
3.7. The Role of World Trade. 29
4. Competitive Markets of Tankers. 30
5. Recent Changes in Tankers Fleet and Fluctuations of the Freight Market Indices. 37
7. Chartering of Tankers. 38
7.1. Calculation of Charter Rates. 41
8. Role of Companies in the Shipping Industry. 42
8.1. Ship Brokers. 42
8.2. Insurance Companies. 43
8.3. Financial Institutions. 44
9. Tanker Transportation Economics. 45
10. Evaluation of Logistic Options. 47
10.1. Transshipment 47
10.2. Lightering. 48
10.3 Use of Tankers as Floating Storage. 49
11. Issues Associated with Controlling Tanker Ttransportation. 49
11.1. Commercial Issues. 49
11.2. Contractual Issues. 50
11.3. Legislative Issues. 50
11.4. Environmental Issues. 51
12. Investment in Tankers. 52
12.1. Investment in Tanker Construction. 52
12.1.1. Impact of Environmental Legislation on Tanker Construction. 53
13.Tanker Safety Regulations. 54
9. Conclusion. 55
Works cited. 58
International waters refer to the open seas of the world outside territorial waters that are under jurisdiction of maritime states. From the legal point of view, territorial waters are the waters that board a nation and all the territories that a nation recognizes as its sovereign property. International waters play an essential role in the development of the globe (Davenport & Davenport 47). Oceans and seas are a source of livelihood for many anglers (Stopford 19). Marine transportation is one of the most important activities in international waterways. It involves the transportation of goods using international waterways. Environmentalists support the use of marine transportation since it helps in saving fuel (Culliane 29). Compared to railway and air transport, marine transport uses less fuel. The hull of tankers is designed to carry the maximum amount of cargo and use minimum fuel. Since tankers use less diesel compared to other modes of transport, they produce less gases emission, which lead to the greenhouse effect (Lun 42).
It is also economical to transport bulky goods using marine transport. Tankers carry huge amounts of cargo using minimum fuel, thus, helping shipping companies to incur fewer costs (Song & Panayides 42). Tanker transportation is also more efficient compared to transportation of oil using road networks since it is less affected by traffic congestions. Political analysts also argue that water transport helps to improve the international relations of counties since it promotes international trade (European Renewable Energy Council 59). When countries engage in international trade, they formulate policies that promote good relations between them. It helps countries to support each other in their economic growth. Water transportation is also cheaper since it does not require high costs for infrastructure maintenance. Roads and railway networks require to be constantly repaired in order to decrease the number of accidents. On the contrary, waterways are natural, and they do not require repairing or maintaining.
Tankers are one of the means of transport that are used to deliver goods by international waterways. Examples of classes of tankers that are used include Panamax, Suezmax, ULCCs, VLCCs, Handysize, and Aframax. Tankers are mainly used to transport oil from the Middle East countries to other countries around the globe. This is because it is cheaper to transport crude oil using tankers compared to other forms of transportation, such as pipeline transportation (Lougani, Cohen & Joutz 105). Tankers are also used in the transportation of petrochemical products. The main tankers that are used in this form of transportation are the chemical tankers. Natural gas is also transported using tankers known as liquefied natural gas (LNG) tankers. The demand and supply of tankers is mainly influenced by the supply and the world prices of oil (Huber & Marton 86). Since tankers contribute significantly to the global economy, it is important to study the economy of tankers. While researching the economy of tankers, it is critical to study the competitive markets in which tankers are engaged. As the market of tankers keeps on changing, it is necessary to observe its trends.
The relationship between tankers and dry markets
Dry markets mainly concentrate on the supply of dry goods, for example, clothes and vehicles. This is needed in order to ensure that dry markets do not negatively influence the tanker market. The knowledge of tanker chartering is also important while studying the economics of tankers. Most ship owners rent their ships to charterers so that they can earn some fees in return. This paper mainly deals with the economics of tankers. It explains the different types of tankers and their physical characteristics. In addition, it explains the role that tankers play in the international trade. It also reveals different types of charters that a ship owner may sign while chartering his ship. A ship owner may consider signing long term, short term, and medium term charters. It also shows how charter rates are calculated. The paper also explains the role that different companies play in the tankers industry. Examples of such companies include financial institutions and insurance companies. It also explains how a person can invest in tankers industry. Some shipping companies sell their shares to private investors. Investors can then receive dividends from the profits that the shipping companies earn. In addition, companies can invest in ship construction industry. This industry produces promising returns (Pallis 51). The first part of the paper deals with the types of tankers and their physical characteristics.
2. Types of Tankers and their Physical Characteristics
A tanker refers to a cargo ship equipped with tanks used for carrying bulk liquids. Tankers are mainly used to carry crude oil or other liquid petroleum products. Tankers are classified based on the cargo that they can carry and their physical size. Small tankers mainly carry clean and unrefined liquid products. Examples of such products include jet fuel, gasoline, and diesel. In contrast, large tankers mainly carry cargoes that contain crude oil or black oil. The capacity of tankers is measured using barrels (BBL) or cargo dead weight (DTW). Types of tankers include:
a) Oil Tankers
Oil tankers are mainly designed to deal with the transportation of oil and its products. The first oil tanker was built in 1860, and it was propelled using wind power. This was after entrepreneurs started seeing that crude oil extraction was a profitable venture that was not fully utilized. Oil tankers are classified into two main categories. These categories include crude tankers and product tankers. Product tankers are smaller compared to crude tankers. The main function of product tankers is to move petroleum products that are already processed to the end markets. In contrast, crude tankers mainly deal with the transportation of raw and unrefined oil from the oil extraction points to the refineries. Several classifications of oil tankers exist considering their size.
Table 1 is showing types of tankers and their deadweight in tones
Type of Tanker
Deadweight in tones
10,000 to 60,000
60,000 to 80,000
Ultra Large Crude Carriers
One of the types of tankers classification is Seawaymax. The largest Seawaymax can only fit in the canal locks of St. Lawrence Seaway. The length of such vessels is 226 meters, a draft of 7.92 meters, and a width of 24 meters. The maximum amount of tonnage that any Seawaymax vessel has ever carried is 28,502 tones. Seawaymax vessels have a DWT that ranges from 10,000 to 60,000 (Branch 51).
Another category of oil tankers is Panamax. Panamax refers to all the vessels whose maximum size passes through the locks contained in the Panama Canal. Panama Canal Authority sets the limits that define the requirements that all the Panamax vessels should fulfill. Panama Canal has two lanes that contain locks limiting the type of ships passing through it. In 2006, the citizens of Panama held a referendum in order to vote on the expansion of this canal. The referendum passed, and the construction of a third lane has already started. The length of all the Panamax ships is about 294.13 meters. The depth of these vessels is 12.04 meters in the tropical fresh waters. The width of these vessels is 32.31 meters. Panamax vessels have a DWT ranging from 60,000 to 80,000 (Branch 47).
Aframax is another category of oil tankers. Most Aframax ships operate in the basins of the North Sea, China Sea, Mediterranean, and Black Sea. They mainly carry cargo ranging from 80,000 to 120,000 DWT.
Suezmax is also a type of oil tanker. Suez Canal does not have locks, and the only factor that controls the type of ships passing through this canal is a depth of this canal. The maximum draft of Suexmax vessels passing through this canal is 16 meters. The DWT of these ships is 150,000 tones. These ships mainly operate in the Atlantic Basin. They carry cargo moving the Atlantic Basin to the North Sea and West Africa (Branch 29).
The last categories of oil tankers include Ultra Large Crude Carriers (ULCCS) and Very Large Crude Carriers (VLCCS). These vessels mainly carry cargo with DTW of above 200,000. They carry crude oil or petroleum products from Arabian Gulf to Western Europe. Such vessels also pass through Asia, United States, and the Cape of Good Hope.
b) Chemical Tankers
Chemical tankers refer to vessels that are designed to transport mainly bulk chemicals. These takers are designed to carry both toxic and non-toxic chemicals throughout the global waterways. The key feature of chemical tankers is that they have many safety measures helping in ensuring that no transporting chemicals cause harm to the environment. One of the precautions to ensure that they transport hazardous materials is that they are coated with specialized materials. Such materials include zinc paint or phenolic epoxy. These materials help in protecting the steel used to manufacture these vessels from the effects of chemical corrosions. Chemical tankers carry many types of cargo. The cargoes that such ships carry are mainly categorized into five main groups. They include petro-chemical products, heavy chemicals, animal and vegetable oil, coal tar products, and the derivatives from different types of carbohydrates (Branch 109). The design and size of a chemical tanker depends on the type of chemicals.
The design of chemical tankers is unique compared to other ships in several ways. It mainly uses slow-speed diesel engine to propel it. This speed is mainly chosen to help in ensuring that the chemicals are not spilled into the water. Its operating speed ranges from 12 to 16 knots. Their cargo handling systems design is also unique. It uses flexible cargo pumping and piping systems. This helps in ensuring that each cargo tank in a particular vessel is independent and separated from the other cargo tanks. A deep well cargo pump is installed in most chemical tanks in an attempt of ensuring cargo flexibility. A hydraulic or electric motor located at the top of the tank drives a deep-well cargo pump. The deep-well cargo pump is submerged in the fluid that it pumps from the chemical tanker using an impeller located at the top of the tank.
It is also critical for a chemical tanker to have cargo monitoring and control systems. Such systems help in ensuring that the chemical cargo under transportation is in good condition that will prevent any spillages. One of the control systems that are installed in most chemical tankers are tank gauging systems. Such systems help to gauge the levels of a particular chemical in order to determine whether their levels are safe for transportation. The control systems also have high-level alarm equipment. This equipment alerts whenever there is a leakage in the tanks holding the chemicals. It helps in preventing accidents while chemicals are under transportation in the chemical tankers. Chemical tankers also have temperature measurement systems. These systems help in determining cargo temperature. Some chemicals require transportation in low temperatures, and the temperature systems help in ensuring that the last are maintained on a stable level (Eyres & Bruce 33). Other control systems present in chemical tankers include pressure measurement systems and overflow control systems.
Chemical tankers are placed in several categories. These categories include inland chemical tankers, coastal chemical tankers, and deep sea tankers. Inland chemical tankers carry cargo that ranges from 500 to 4000 DWT. The main function of inland chemical tankers is to load cargoes from larger tankers and transport this cargo to inland industrial facilities. Such tankers operate mainly in the Northwestern Europe region. Coastal chemical tankers carry cargo ranging from 3000 to 10000 DWT. They mainly operate in Southeast Asia region, South America, and some parts of Europe. Such tankers transport chemicals along the coastal area of countries and into ports that large tankers cannot reach. Deep-sea tankers have a range of 10,000 to 50,000 DWT (Eyres & Bruce 39). They operate in the South American, European, Middle East, and Asian markets.
Modern classification of chemical tankers includes sophisticated parcel chemical tankers, products chemical tankers, and specialized chemical carriers. Essberger Tankers is an example of companies owning chemical tankers. This company owns most chemical tankers that operate within the European waterways. Currently, it has a fleet of about 26 chemical tankers operating within trade areas, such as Europe-Baltic, Europe-Mediterranean, and the North Sea regions. Nordic Tankers also owns and operates of about 130 chemical tankers. Most of its tankers have a DWT that is below 25,000.
c) Gas Carriers
Gas carriers are tankers that are designed to transport gas. These tankers deal with the transportation of liquefied natural gases (LNG) and liquefied petroleum gases (LPG). These tankers are designed to carry gases in their liquefied form under a high compression. In addition, the liquefied natural gas is transported at temperatures that are below -162 degrees Celsius. Liquefied petroleum gas carriers mainly carry gasses such as propylene, propane, butane, and butylene. Maritime economists classify gas carriers into three main categories. These categories include fully pressurized, fully refrigerated, semi-pressurized and refrigerated.
Fully pressurized tankers carry gases mainly to a volume of about 3,500 m3. The minimum temperature that these carriers use while transporting gas is -45 degrees Celsius. The maximum pressure in the cylinders transporting gas in these tankers is 17.5 kg/cm2. These tankers are not used to transport gas over long distances since they are heavy. The walls of these tankers are thick and made of steel in order to withstand the high gas pressure. Semi pressurized and semi refrigerated ships transport 5,000 m3 of natural gas (Eyres & Bruce 73). Tanks of these ships have cylindrical forms in order to withstand the pressure that is used to store gases. The pressure that is used to transport gas in these containers is held at 8.5 kg/cm3. In addition, they require a minimum working temperature of about -10 degrees Celsius. Fully pressurized ships carry gas ranging a volume from 15,000 to 85,000 m3. They transport gas at a minimum temperature of about -50 degrees Celsius. In addition, their maximum working pressure is about 0.28 kg/cm2. They transport gases such as propane, butane, and Ammonia.
3. Shipping and International Trade
3.1. Changing Patterns of World Trade
The global trade is changing significantly due to the new trends. Economists argue that global trading patterns have changed since the end of the Second World War. One of the factors that have caused the change in global trade is the rise of regional trading blocs. One type of such blocs is the Preferential Trade Area (PTA). In the PTA, countries within some geographical region agree that tariffs and other barriers on goods trade will be removed. Countries may also consider using a common market. In a common market, countries agree to trade freely using all the economic resources that they may have. All the barriers to the free exchange of goods, capital, services, and laborers are eliminated. In addition, countries in a common market agree that they will follow similar policies that will help in ensuring that they achieve the maximum economic development (Stopford 21). Some countries are adopting the trend of forming trading blocs since it helps in promoting foreign direct investments. It is cheaper to set up operations in foreign countries when the countries are in a trading bloc agreement. Moreover, trading blocs help in enhancing economies of scale. Regional blocks help in creating a large market for the goods produced. It makes it cheaper for a country to produce a large number of goods. Regional blocks also promote competition among member states. It helps in ensuring that a country produces goods that are of a high quality (Culliane 34).
Another change in trading pattern is the fall in the manufacturing sector of countries, such as the United Kingdom and the United States. The manufacturing sector in the United States is not performing strongly as it used to be (Lun 61). According to Lun (62), the decline of performance in this sector is mainly due to the high cost of manufacturing goods. The ship building companies in this region are experiencing low returns. Due to this, companies in the United States are outsourcing their production departments to other countries, such as China and India, where the cost of production is lower. Factory activity in the United States has been experiencing decrease. Its poor performance in the United States has been caused by a weak demand on goods manufactured by industries in the country (Lun 64) The United Kingdom is concentrating on other spheres rather than the manufacturing sector. Banks in the United Kingdom have experienced greater growth compared to the manufacturing sector in this region (Lun 64).
The collapse of communism became a reason of the significant improvement of some former communist nations’ economies. China is one of the nations that have caused a change in worlds trading patterns. In 2010, China’s exports increased by about 28 percent. In addition, its imports rose by 22 percent proving that the trade in this country is strong (Reuvid & Jim 71). The strong growth in China’s trade has led to a growth in the global trade. The main reason that has caused an increase in China’s trade is its focus on industrialization and urbanization. China has improved its exports since it is cheaper to produce goods in this country. There is a steady supply of both skilled and unskilled labor in China. This has helped in boosting the production from China. The strong growth in China’s economy is the main reason that the shipping companies are being established in this region (Song & Panayides 106).
3.5. Comparative Advantage of International Trade
Comparative advantage refers to the ability of a country to produce particular services or goods at a lower opportunity cost and lower marginal cost compared to other countries. The theory of comparative advantage puts into consideration several assumptions. One of such assumptions is that the market has perfect occupational mobility of all the factors of production. It means that all the resources that are used in one industry can be switched to another industry without losing their efficiency. In addition, production methods should have constant returns to scale. The transportation costs between countries are also ignored when determining the comparative advantage of a country. Several factors make a country have a comparative advantage over other countries. One of such factors is the quality and quantity of the production that a country has. If a country has high quality labor and a large stock of capital resources, then it will be able to expand all its industries compared to other countries. High investments in research and development may also make a country have a higher comparative advantage compared to other countries. This is because a country will be able to produce high quality goods. Changes in the value of exchange rates may also make a country have a comparative advantage compared to its neighbors. If the exchange rate of a particular currency increases, the exports from this country will be expensive. It gives an opportunity for an exporting country to earn significant revenues from such exports. The rates of inflation may also bring comparative advantage in producing certain types of goods for a country compared to its neighbors.
Tankers are involved in the trade of:
Oil is the main source of global energy. The main countries producing oil in the globe include Algeria, Qatar, Libya, Saudi Arabia, United Arab Emirates, Nigeria, Iraq, Indonesia, Iran, Venezuela, Kuwait, and Angola. All these countries are members of the Organization of the Petroleum Exporting Countries (OPEC). It was formed in 1960 by the main oil producer countries with a mission of controlling the global prices for oil. Other oil producing nations include Russia, China, and Canada. Oil producer countries are mainly located within the Gulf and Caspian region. It determines the need for an efficient system of transport that links the oil producing nations with the rest of the globe. Crude oil is either transported using oil tankers or pipelines. Most countries prefer to transport oil by tankers instead of pipelines, because pipelines are vulnerable to terrorist attacks (Lougani, Cohen & Joutz 47). In addition, it is expensive to lay down pipelines since some terrains do not favor the construction of pipelines on them.
According to statistics released by economists in 2012, about 75% of the global reserves are located in the Middle East (European Renewable Energy Council 41). For instance, Saudi Arabia has the largest oil reserves, which comprises about one fifth of the total proven oil reserves (European Renewable Energy Council 42). In addition, this country is the largest exporter and producer of the global petroleum liquids. The total oil production of this country is about 11,153,020 barrels of oil per day in June 2012. Saudi Arabia heavily relies on oil for its economic growth. About 90 % of Saudi Arabia’s income is from petroleum products (Islam, Khan & Chhetri 88). In addition, more than 75 percent of government revenue comes from oil exports. Currently, United States of America mainly relies on Saudi Arabian oil. It imports more than 20 percent of oil from this country (Lun 78).
Congress has been trying to reduce its reliance on Saudi Arabian oil imports. This is because there are fears of military conflict occurring in this region. Saudi Aramco is the company given the task by the Saudi Arabian government of exploring and producing oil and natural gas in Saudi Arabia. On October 08, 2012, it doubled the number of crude tankers that shipped oil to the Gulf of Mexico (Lun 102). It wants to add eight new Very Large Crude Carriers to this route so that it can reach a target of 16 million barrels a month (Islam, Khan & Chhetri 92). Saudi Arabia uses tankers to transport oil from its refineries to other countries. National Shipping Company of Saudi Arabia is one of the companies owning tankers that transport oil exports. It manages and owns 10 Very Large Crude Carriers. The deadweight of these tankers is about 300,000 tons.
According to the statistics carried out by the European Renewable Energy Council in 2012, Venezuela has the second largest amount of proven oil reserves compared to the other global countries. British Petroleum also conducted a research in 2011 and found out that Venezuela has oil deposits of about $296.5 billion barrels (Culliane 87). Oil contributes significant revenue to the economy of Venezuela. In the fiscal year that ended in 2011, oil contributed about 80 % of the total export revenue of this country (Islam, Khan & Chhetri 158). It shows that oil is important for the gross domestic product growth of this country.
Venezuela exports most of its oil to the United States (Lorange 71). However, its oil exports to United States have been on a decline. In August 2012, the oil exports from Venezuela to the United States were 932,000 barrels per day. It is a 17.5% increase compared to the 793,000 barrels per day that it exported to the United States in July (Islam, Khan & Chettri 166). Venezuela has started concentrating on China as one of its chief importers of oil. According to Rafael Ramirez, the Minister for Oil in Venezuela, Venezuela exports around 640,000 barrels of oil to China each day (cited in Islam, Khan and Chhetri 134). Chavez, the president of Venezuela, states that he plans to increase the current oil exports so that they reach a million barrels per day by 2015 (Lun 110). Petróleos de Venezuela Marina (PDVSA) is the state owned company that manages the tankers that transport oil from Venezuela to its importer countries. PDVSA signed an agreement with a company from Iran known as Sandra for the construction of four Aframax tankers (Lun 86). Each tanker will have a capacity of carrying about 113,000 tons of crude oil. Venezuela ordered these tankers in order to boost its oil exports. Since Chavez was elected the president of Venezuela in 1998, the economy of Venezuela has been depending heavily on oil exports as the main source of revenue for this country (Lun 87).
Kuwait is also a big producer of oil. It is the fourth largest producer of oil in the Middle East (Orszulik 79). Financial analysts project that this country has a huge potential for petroleum exports since Kuwait Petroleum Corporation (KPC) has ensured efficient production, processing, and transportation of oil from this country to other countries around the globe (Orszulik 94). Kuwait holds about 9% of the global oil reserves. It produces over 2 million barrels of oil each day. 90% of the income in this country comes from its oil exports (orszulik 79). In addition, 75% of the total revenue that the government earns comes from oil. The chief importers of Kuwait’s oil include Netherlands, Japan, and Italy (Orszulik 81). It shows that oil contributes significantly to the economic growth of this country. The Supreme Oil council sets all the oil policies in Kuwait. The Ministry of Petroleum is responsible for investigating whether corporations follow all the required policies while extracting oil in this country.
The main company involved in the transportation of oil from Kuwait to other countries is Kuwait Oil Tanker Company (KOTC). This company is involved mainly in the management and ownership of tankers that transport crude oil, liquefied petroleum gas, and petroleum products to other countries. The main mission of this company is to become the leading corporation in the transportation of oil and gas using the sea. It owns Very Large Crude Carriers and product carriers that are used in the transportation of petroleum from Kuwait to its main oil importers.
United Arab Emirates
Oil was discovered in United Arab Emirates in 1950. Before the discovery of oil, United Arab Emirates mainly depended on fishing and pearl industry as its main sources of income. Currently, oil is the main export earner for this country. However, the government tries to diversify the economy of this country by looking at alternative industries that would help in boosting the economy of this country. Oil exports account for about 30 percent of the total gross domestic product of this country (Lougani, Cohen & Joutz 102). It shows that this country should use efficient mechanism for the delivery of oil from its refineries to its markets since its economy is heavily dependent on oil. Since 2002, crude oil exports from United Arab Emirates have increased by 31 percent (Islam, Khan & Chhetri 97). According to Islam, Khan & Chhetri (98), the main target of the United Arab Emirates is to reach 4 million barrels per day by 2020. This will be 40 percent increase of its global oil exports. This country has invested about $ 7 billion to improve the infrastructure for the supply of oil. It has renovated its ports so that oil tankers can effectively transport oil to its main export countries. In 2002, Abu Dhabi launched plans of building Khalifa Port in Tawaleeh Area. UAE has incurred about $ 7.1 billion in building this facility (Pallis 121). The port is being built in order to provide UAE with the latest technological equipment for handling tankers transporting crude oil. The company managing tankers that transport oil from United Arab Emirates is known as Abu Dhabi National Tanker Company (ADNATCO). This company was established in 1975 for the transportation of petroleum products. It operates a fleet of carriers, oil tankers, and roll on- roll off vessels. This company expanded its fleet by acquiring 15 new ships between 2010 and 2011 (Culliane 92). This was in an attempt to increase its supply of bulk oil to countries seeking oil imports. Among such countries are United States, Japan, and China. Japan and China are the largest consumers of oil since they rely on heavy industries. They, therefore, need a good source of energy for driving their industries.
Iraq is also a big exporter of oil. Statistics released by the Ministry of Oil in this country revealed that it produced an average of 2.565 million barrels per day in August 2012 (European Renewable Energy Council 71). It gave an opportunity for this country to earn the largest amount of revenue from oil exports in a period of three decades. In August 2012, Iraq earned $8.442 billion from oil exports since the price for a barrel of oil stood at $106 (European Renewable Energy Council 84). About 2.252 million barrels of the total barrels that Iraq exported were passed through the Persian Gulf. 313,000 barrels of oil exports from this country were passed through Ceyhan Port located in Turkey (Islam, Khan & Chhetri 129). Iraq has the world’s fourth largest oil reserve that stands at 143.1 billion barrels (Herold 17). The main reason for the increase in Iraq’s oil export is the strong energy policy that this country has put forward (Herold 18). In addition, foreign companies are offering financial assistance for the expansion of Iraq’s oil projects. Between 2008 and 2010, Iraq signed long term contracts with such companies as Royal Dutch, Exxon Mobil, and Royal Dutch Shell. These companies offered their support to improve its oil exports. Lukoil of Russia and Total France also offered to support the expansion programs of this country. This has resulted in an expansion of the Iraq’s oil outputs. In addition, Iraq has invested in rebuilding its hydrocarbons industry.
The company that operates and manages tankers for the transportation of oil in Iraq is known as Iraqi Oil Tankers Company. In 2007, it loaded its first oil tanker. This was in an attempt of boosting the transportation of oil through international waterways. Currently, it operates about 22 vessels that are involved in the transportation of oil (Herold 22). The largest tanker of its fleet has a capacity of ferrying 115,000 tons while the smallest vessel has the carrying capacity of 1,500 tons. On April 2012, Iraq offered tenders for the construction or purchase of crude oil tankers with a capacity of 6,000 metric tons or more (Herold 23). Iraq wants to increase the number of its state owned tankers to the amount of 30 units.
Qatar is also a big exporter of oil. Exports from oil contribute a significant portion to the economic growth of this country. According to the statistics released by Qatar Central Bank, oil exports contributed to about 57 percent of the total gross domestic product of Qatar. In 2009, the contribution of oil exports to the GDP of this country was 46 percent. Maersk Oil Qatar is one of the companies that are involved in the exploration of oil in this country (European Renewable Energy Council 42). It helped in developing Qatar’s largest oil field known as Al Shaheen. This field produces about 300,000 barrels of oil products per day (Oszulik 221).
Qatar has signed several agreements to increase its oil production. Example of these agreements is the Al-Idd Al-Sharqi Northern Dome agreement. This agreement led to the production of about 95,000 barrels of oil per day in the Qatar Petrol Occidental (Lun 71). In addition, Qatar also signed another contract with companies from Japan to facilitate the Karkara oil field. It helped in rising oil production in this country. Qatar heavily relies on tankers for the transportation of its oil. It invested about 1 billion dollars to upgrade tanker handling facilities in October 2011 (Lun 73). In addition, some of this money was used to hire engineer experts handling maintenance of tankers passing through this country since Qatar wants to develop its exports further.
The above analysis shows that tankers play a significant role in the oil trade. Tankers help in transporting petroleum from the countries producing oil to countries that demand oil for their energy needs. This is the main reason why countries in the Middle East are investing many funds in the construction and acquisition of tankers for the transportation of oil (Culliane 86). In addition, oil-exporting countries are also investing funds to hire qualified engineers so that they ensure all the tankers operate efficiently. It suggests that oil trade cannot succeed without the help of transportation from tankers. The economy of countries has improved significantly due to the oil trade. This is because the global demand for oil is increasing. Countries, such as China, are becoming heavily industrialized. The manufacturing sector in these countries is experiencing a boom since most countries are outsourcing their manufacturing activities in there as it is cheaper to produce goods in these countries (Lorange 46). The next section of this paper shows how tankers have helped in facilitating trade in petrochemicals.
Petrochemicals refer to all chemical products that are obtained from petroleum. Scientists classify petrochemicals in two main classes. These classes include olefins and aromatics. Olefin is also known as alkenes, and it is made from unsaturated hydrocarbons arising from one or more pairs of carbon atoms linked by a double bond. The two common olefins include ethylene and propylene. Ethylene is mainly produced through a process known as thermal cracking. The global demand of olefin has been on the increase. This is because this product is used in the manufacture of plastics. One of the companies that are involved in the production of olefin is KBR. It produces mainly ethylene. Each year, it produces about 13 million metric tons of ethylene (Al-Qahtani & Elkamel 138).
The global demand for olefin products reached its peak in 2007. In that year, the demand for these products stood at 196 million tons. However, the demand for these products reduced to 186 million in 2008 (Al-Qahtani & Elkamel 169). This was mainly caused by the volatility of the global prices for naphtha. In addition, the global financial crisis caused the demand for olefins to start declining in 2008. Most industries demand olefin to manufacture olefin fiber. This synthetic fiber is manufactured from polypropylene or polyethylene. The main use of this type of fiber includes manufacturing carpets, wall coverings, slipcovers, and floor coverings. In addition, automotive companies demand olefins since they are used to manufacture interior fabrics of vehicles, armrests, parcel shells, and side panels.
KBR is among the global leaders in the extraction of olefins. It has managed to construct 15 new ethylene plants to increase the production of olefins in an attempt of meeting the global demand of this product (Loungani, Cohen & Joutz 102). It signed an agreement with ExxonMobil so that ExxonMobil would allow it to apply its technology while extracting olefins. Williams’ is another company that is involved in the extraction of olefins. One of its facilities is located in Giesmar, and it produces about 1.3 billion pounds of ethylene per year. In addition, it produces 90 million pounds of propylene.
Tankers are one of the transport means that is used to transport olefins from their production points to the markets where these products are sold. Tankers used to ship olefins should have several characteristics. One of the key characteristics is that they should have flexible compartments. Flexible compartments help the ship to carry the maximum amount of olefin cargo. In addition, such tankers should have adequate and functional refrigeration facilities. It helps in ensuring that these products are transported in the optimum temperature that is required for their transportation. Such tankers also need to have an efficient loading an offloading system so that the olefin cargo is unloaded efficiently when it reaches its target destination. It helps in preventing accidents that may occur during the unloading process of olefins.
The global trade of aromatic benzene is also strong
The major consumers of this product are the United States and China. Aromatic benzene is mainly produced in the Middle East (Al-Qahtani & Elkamel 103). The total production of aromatic benzene by the Middle East is about 455,000 tons per year. Eastern Europe produces about 129,000 tons each year (Al-Qahtani & Elkamel 104). Aromatic benzene is used to produce many industrial products.
The trade of aromatic xylene is also strong because of the many implementations that it has around the globe. It is used in manufacturing of terephthalic acid. This acid is used to manufacture other polymers. Xylene is also used to manufacture pesticides. Increase in the global demand for benzene and xylene pushed the Middle East and Asian countries to expand their production. In 2012, the global demand for benzene increased to 54 million tons (Al-Qahtani & Elkamel 126). The Northern American region is the main importer of these products.
Tankers play a key role in the transportation of both aromatics and olefins. One of the companies that own tankers used for the transportation of petrochemical products is known as Bakri Navigation Company. This company has tanker fleet that is able to carry between 5,000 and 120,000 tons of petrochemical products. It is able to ship around 100 million barrels of petrochemical products and oil each year. Per year, it makes more than 350 voyages. This company owns the largest fleet of tankers in the whole of the Arabian Gulf and the Red Sea. It transports petrochemical products to countries around the Mediterranean Sea, Indian Ocean, Far East, and Africa. The fleet structure of Bakri Navigation Company consists of:
Aframax size crude Tankers
80,000 – 120,000
20,000 – 45,000
8,000 – 45,000
4,000 – 5,000
Floating Storage Barges
5,000 – 37,000
500 – 3,000 bhp
Pilot Boats & others
300 – 500 bhp
Source: Bakri Navigation Co. LTD n.d.(retrieved from http://www.bakrinavigation.com/en/owners_operators_charterers_oil_petrochemical_tankers.asp).
The development in petrochemical trade has resulted in the development of many petrochemical tankers manufacturing companies.
The above analysis suggests that the development of petrochemical trade has been facilitated by efficient transportation systems that are offered by tankers compared to other forms of transport, for example, road transport. This is because it is cheaper and safer to transport petrochemical products using tankers. Tankers have enabled the economy of countries in the Middle East to improve, because they are able to export the petrochemical products to other countries, such as China and United States that heavily relies on these products.
c) Natural Gas
Natural gas trade has also been increasing significantly across the globe. According to the statistics released by the United Nations, the consumption of natural gas in the United States and Asia hit a record of 111.9 cubic feet in 2010. This was a 7.4% increase in consumption compared to the previous year (Islam, Khan & Chhetri 79). One of the reasons that caused the consumption of natural gas to increase was that its global prices declined from 2010. On August 2009, the global natural gas prices reduced to below $ 3 per 1000 cubic feet. This was the lowest recored price since 2002 (Culliane 82). In South Korea, Taiwan, India, and China, the total consumption level increased by 20 percent (Cullinane 71). Increase in global gas consumption has facilitated the development of natural gas trade. United States is one of the main countries producing natural gas. Alabama is the state producing the largest amount of natural gas (Culliane 81).
Since 2006, the production of natural gas from the United States has been increasing (Culliane 81). Between 2006 and 2010, the volume of gas production in this country increased by fivefolds (Culliane 84). The large gas companies that are located in the United States have fueled the increase in natural gas production. Exxon Mobil is one of these companies. This company produces natural gas 50 times more compared to its closest competitor. It produces about 3.9 billion cubic feet of natural gas each day (European Renewable Energy Council 42). In 2010, it received revenues of about $ 370 billion from natural gas. It shows that natural gas is a profitable export product. Chesapeake Energy also operates in the United States, and it had helped in identifying new gas wells in this country. In 2011, it owned of about 38,900 gas wells (Islam, Khan & Chhetri 117). It produces about 2.6 billion cubic feet annually. It earned about $ 9.4 billion from gas production (Islam, Khan & Chhetri 117). One of the companies that own gas tankers moving from the United States to other countries is Gas Natural Fenosa. This company is the largest integrated electricity and gas company in Latin America and Spain (Orszulik 115).
The above analysis shows how tankers have facilitated the trade of natural gas. United States has earned significant revenues since it exports natural gas to such countries as China and South Korea where its demand is high. Tankers have enabled these markets to access natural gas, therefore, helping them to meet their local energy needs. Tankers play a big role in the international gas trade.
3.6. Calculation of Oil Company Tonnage Requirements
Oil company tonnage requirements are calculated using six methods. These methods include displacement tonnage, deadweight tonnage, standard displacement tonnage, gross registered tonnage, net registered tonnage, and lightweight tonnage (Lorange 42). Displacement tonnage measures the total weight of water volume that the ship carrying oil displaces when it navigates through waters. The only difference between the displacement tonnage measure and the standard displacement tonnage is that, in standard displacement tonnage, the weight of the fuel of the ship and any portable water carried in the ship is subtracted from the total weight of the water displaced (Eyres & Bruce 75). Lightweight tonnage measures the total weight of a ship when it was under construction in the shipyard. It eliminates the weight of consumables that may be present in a ship, for example, fuel that a ship uses to run its engine or water that might be present in a ship. Deadweight tonnage of a particular oil cargo is measured by considering the displacement tonnage of a particular vessel minus the light weight tonnage of this vessel.
3.7. The Role of World Trade
World trade contributes significantly to the development of the world. It helps to foster strong relations between countries. Trade between China and Venezuela has helped in improving the foreign relations between these countries. Venezuela exports oil to China, and this helps China to meet its increasing energy needs. China has reciprocated by supporting major infrastructural projects in Venezuela. It has helped in constructing roads and ports in this country. China also exports some of its industrial goods to Africa as there is a ready market for its goods in this continent. The good relationship between China and African countries has helped the first in participating in major development programs in these countries. Trade also helps to increase global job opportunities. The shipping industry plays an important role in the creation of new jobs. It helps to improve the standards of living of workers since they are able to obtain a constant source of income. Shipbrokers also earn commissions for every ship that they sell. Statistics from the Census Bureau in the United States revealed the world trade helped in 6 million jobs in the United States in the year 2008 (Stopford 144). This happened due to the fact that exports from the manufactured goods in this country totaled to about $ 1.2 trillion in 2008. World trade also helps to stimulate economic growth. International trade helps in transferring technologies from highly developed countries to countries that are less developed. This helps in stimulating the economic growth of the less developed countries.
Countries also earn foreign exchange gains due to the world trade. A country can use the foreign exchange gains to develop its own infrastructural projects. It helps in improving the overall economy of a country. The development of the world trade has also stimulated the formation of regional blocs in order to promote the exchange of goods and services between different countries. The formation of regional blocks helps in reducing cost of goods. Countries eliminate all the trade barriers that they may have when they form regional blocs (Stopford 98). It helps in achieving free flow of goods (Stopford 98). Companies are also able to increase their sales due to the international trade. An improvement in the profitability of a company helps it to get enough funds to support its research and development programs. Because of this, companies are able to increase their level of innovation, therefore, building their brand. International trade also helps a country to stabilize its seasonal market fluctuations.