Oil tanker trade growth is fastest in a decade

Oil tanker trade is growing at its fastest rate in a decade as the boom in US production forces exporters that in the past supplied the American market to seek new customers further afield.

The number of oil tonne-miles – a proxy for the global oil trade that captures both the volume traded and the distance travelled – surged last year by almost 10 per cent to a record 7.8tn tonne miles, according to Icap Shipping, a brokerage. The data covers the major oil importers, who account for 80 per cent of seaborne trade.
The sharp rise comes even as the volume of oil traded has flatlined, and reflects crude being shipped much longer distances as oil tankers sailing from West Africa and Latin America travel to India and China instead of the US.

The increase in seaborne oil trade will generate welcome additional revenue for major tanker companies such as Bermuda-based Frontline and US-based OSG. Tanker rates have fallen to a fraction of their 2008 peaks, as the market has had to absorb a wave of new vessels ordered before the financial crisis.

The changing pattern of the oil trade is putting pressure on key transit points to Asia such as the Strait of Malacca, a narrow maritime route leading to China, in a stark illustration of how the US shale revolution is creating new security dilemmas.

“The increase in US production is changing trade flows and causing increased pressure on some of the world’s major choke points,” said David Goldwyn, a consultant who was previously the US state department’s top diplomat for oil affairs. “For global energy security, that means increased vulnerability to piracy”.

The boom in US production is in particular forcing Venezuela, Nigeria and Angola, all members of the Opec oil cartel, to find new customers for their output.

Brahma Chellaney, a defence expert at the Center for Policy Research in New Delhi, said India had seized on reduced US imports from Latin America and West Africa to diversify its own supplies away from Gulf states.

But Mr Chellaney said this created new security dilemmas. “Diversification has only increased India’s susceptibility to supply disruptions … it is only a matter of time before we see Indian ships in the South Atlantic [to patrol the coast of West Africa],” he said.

Indian imports from Venezuela have increased threefold since 2011, according to Energy Aspects, a consultancy, and India is expected to displace the US as the primary destination for Nigerian crude exports as soon as this month.

China has been attempting to reduce its dependence on seaborne oil, through pipelines from Kazakhstan and Russia, with another proposed from Burma. But even though Chinese oil imports increased by a relatively modest 6 per cent last year, its tonne-miles jumped 13 per cent as Beijing bought a record amount of crude from Venezuela.

Oil imports to the US have fallen to their lowest level since 1997 prompting a debate about whether the US will continue to guard the world’s critical sea lanes. But Mr Goldwyn said the increased trade, and its eastward move, demanded a refocusing rather than a reduction of US security measures.

The increase in tonne-miles in part reflects the makeup of North American oil production. While light, high-quality, crude oil from the Bakken field in North Dakota has displaced similar crude from Nigeria, many US refineries continue to run heavier crude oil from the Middle East. That means while US imports fell 5 per cent in 2012, its tonne-miles remained flat.

India and China have been rapidly building refineries to meet rising demand for products such as gasoline and diesel from their fast-growing economies. These refineries are increasing imports from regions such as West Africa and Latin America.

“The marginal barrel of production is shifting west to North America, but refining capacity is moving east to Asia, meaning oil is moving much further to markets,” said Simon Newman, head of tanker research at Icap Shipping.

FT