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Feature: Vegoils ease the pain for chemical tanker owners |
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Friday, 05 March 2010 |
 Chemical tanker owners today find themselves in the same predicament as most other shipping sectors. The combination of a reduced demand for their services and an orderbook much too large for current market requirements translates into fleet oversupply and depressed returns.
Despite the fact that ship operators have been implementing a series of
defensive measures over the past 18 months, there is no escaping the
fact that this is the most severe shipping crisis to hit the industry in
over 30 years. There are still a large number of new chemical tankers
to be delivered to what is already a relatively young fleet and, in
addition, fears are growing that the weak economic recovery of recent
months will be short-lived.
Although resigned to another tough year ahead in 2010, chemical tanker
owners are also taking heart from a number of positive signs apparent in
the marketplace. The commissioning of new Worldscale petrochemical
plants in the Middle East and China holds the promise of additional
tonne-miles for their beleaguered fleets, as do surging US Gulf chemical
exports stemming from the weak dollar and the low natural gas feedstock
prices in that country.
However, it is the carriage of vegetable oils that is poised to bring
the greatest measure of relief to chemical tanker owners faced with
skyrocketing bunker fuel bills and straitened cash flows. The movement
of vegetable oils by sea, at about 60 million tonnes per annum (mta),
represents one-third of total chemical tanker cargoes. It has also been
the fastest growing chemship cargo segment over the past decade.
With the exception of prohibitions on the carriage of certain previous
cargoes, vegetable oils were originally transported as unregulated
products. Then, following several incidents involving the spillage of
vegoil cargoes, the shipping industry became aware of the harmful
effects that these products could have on seabirds and other marine
life.
The marine pollutant properties of vegetable oils are recognised in the
revised edition of Annex II to the Marine Pollution Convention (MARPOL),
which entered into force in January 2007. The reclassification of
vegetable oils and a number of commodity chemicals under the revised
Annex II provisions significantly increased the volume of annual
seaborne trade requiring carriage in chemical tankers virtually
overnight.
Vegetable oils are widely used in the processing of foodstuffs, animal
feed and the manufacture of oleochemicals. Consumption is growing in
tandem with population growth, the increase in consumer spending power
and the recent emergence of an entirely new vegoil market - the use of
bio products as transportation fuel.
Of the 60 mta deep sea vegoil movements, palm oil and soya bean oil are
the two biggest cargoes, accounting for one-half and one-quarter of the
total, respectively. India and China have emerged as the two largest
importers of vegoils in recent years. In 2009 Indian vegoil purchases
approached 9 million tonnes (mt), some 12% ahead of the previous year’s
levels. Palm oil accounts for three-quarters of Indian vegoil imports.
China’s vegoil imports expanded by over 20% last year compared to 2008
levels, reaching over 8 mt.
Although the international biofuel trade to date has been relatively
small compared to total vegoil movements, investments in new production
capacity aimed at overseas markets continue to rise. Furthermore, since
2005 a significant part of the overall growth in the deep sea vegoil
trades has been attributed to growing use of these products as biofuels.
Chemical tanker owners are confident that environmental concerns and
commercial pressures will support a strong increase in the carriage of
biofuel cargoes in their vessels in the decades ahead. Growing
environmental awareness is spurring government mandates which stipulate
minimum levels for renewables in bio/fossil fuel mixes. As one example
amongst many, Indian government policy states that by 2017 all petrol
and diesel fuel must have a biofuel content of at least 20%. Rising
gasoline and diesel oil prices are also serving to boost global biofuel
output.
The strongest performer amongst the biofuels to date has been ethanol.
The worldwide production of ethanol for use as a transport fuel has
quadrupled over the past decade, from 8.5 mt in 2000 to over 34 mt in
2009, some 3 million tonnes of which was exported from Brazil alone.
Biodiesel output, in tonnage terms, is only one-quarter of that of
ethanol but production has expanded at a faster rate. Annual biodiesel
production currently stands at 8 mt, up from less than 500,000 tonnes a
decade ago.
One of the latest chemical tanker cargoes is jatropha oil. The seeds of
the wild plant, which flourishes even on poorly irrigated land, produce a
non-edible oil that can be blended with diesel to make a biofuel that
is in increasing demand. In October 2009 the relevant hazard assessment
working group at IMO agreed to classify jatropha oil, like other fatty
acid methyl ester (FAME) biodiesel vegetable oils, as an Annex II
Pollution Category Y liquid that needs to be carried on an IMO Type 2
chemical tanker. Type 2 ships are constructed with double hulls and Type
2 cargoes must be carried in tanks no greater than 3,000m3 in capacity.
Oils based on jatropha, waste biomass and pond algae are recognised as
second-generation biofuels and the intention is to build upon the
initial success of the first generation ethanol, palm oil, sunflower oil
and rapeseed oil products and to add them to the mix of renewable
fuels. Air New Zealand, for example, recently completed the first test
flight of a commercial airliner running partly on jatropha biofuel. A
blend of 50% jatropha oil and 50% traditional jet fuel kerosene was
used.
From the point of view of the IMO carriage requirements laid down in
MARPOL Annex II and the International Bulk Chemical (IBC) Code, the two
principal categories of biofuel cargoes are the FAME biodiesel products
and bioethanol. The IBC Code contains separate entries for palm oil
FAME, coconut oil FAME and rapeseed oil FAME as well as a generic FAME
entry. The recent assignment of a pollution category and ship type for
jatropha oil, as mentioned above, means that it is now possible to carry
jatropha oil FAME under the generic FAME entry in the IBC Code. Soya
bean oil is also transported under the generic FAME entry.
Bioethanol is transported as straightforward ethyl alcohol, or ethanol,
and, as such, it is not necessary to carry the product in an
IMO-designated chemical tanker. However, because the discharge
requirements as laid down in Annex II Pollution Category Z must be
followed when transporting bioethanol, most shippers choose to despatch
this product in chemical tankers. In addition to the above requirements,
work is also underway at IMO to finalise conditions governing the sea
transport of fossil fuel/biofuel blends.
In 2010 India and China are once again both expected to record
double-digit growth in their bulk vegoil imports. Over the longer term
chemical tanker operators can also look to growing volumes of biofuels
to help them keep their ships moving. In 2009 worldwide bioethanol
production expanded by 12% while that for biodiesel grew by 4%. There is
no reason to believe that such a pace will slacken as the new decade
progresses.
Editor's Note: Mike Corkhill is a technical journalist and consultant
specialising in oil, gas and chemical transport, including tanker
shipping and chemical logistics. A qualified Naval Architect, he has
written books on LNG, LPG, chemical and product tankers and is currently
the Editor of both LNG World Shipping and LPG World Shipping.
Source: Feature, BIMCO
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