Early 2011 is not the first time that world geopolitics have dramatically altered shipping’s course. Wars, sanctions and the closure of Suez have, in the past, led to changes in fortune for many of those involved in the ocean transportation business. And, as always in shipping, there have been winners and losers on each occasion.

It is certainly too soon to foresee the likely repercussions of current Middle East turmoil, but it is not too soon to draw some conclusions about “energy vulnerability”, long-term oil price trends and the implications for shipping and its service providers. They are far-reaching and could,depending on how events unfold, wreak another round of fundamental changes to the industry.

The fact that oil prices have risen from around $80 to $115 or more in amatter of a few weeks comes as an unwelcome reminder that prices are more susceptible to supply uncertainty than any other commodity. Saudi Arabia maybe able to step into the breach and pump more oil to compensate lost production elsewhere – for the moment, primarily in Libya – but the Saudisare not ring-fenced from the contagious people’s revolt that is sweeping theMiddle East. And the pace at which contagious discontent is spreading from North Africa to Bahrain, Oman and, it is believed, Iran has left political analysts open-mouthed.

In the short run, rapidly rising prices will provide a valuable catalyst for the lacklustre tanker market, as buoyant Asian economies seek to shoreup energy reserves and raise stock levels. So far, only the Philippines has introduced measures requiring companies to maintain a minimum oil stocklevel – 15 days for individual companies and 30 days for oil refineries. But other Asian nations are expected to follow suit.

China is the world’s second largest oil importer after the US and buysmore than half its oil from overseas. Consumption rates are rising exponentially. India currently ranks number five in the global consumptiontable. Yet neither country currently has an adequate strategic petroleum reserve. China is currently in the second phase of building up stocks and by the end of this year, it plans to have 270m barrels of reserves. By 2020, it expects to have three months of imports in reserve – about 500m barrels at present consumption rates. However, present uncertainty could mean that this date comes forward very rapidly, some analysts believe. India has far lessoil in reserve, probably less than two weeks supply at current consumptionlevels.

Again, in the short run, this may come as music to the ears of beleaguered tanker owners whose fleets exceed today’s demand requirements by a significant margin. Re-stocking could rapidly stimulate demand if cargoes are available. However, energy supply constraints leave vulnerable western economies even more fragile. Today’s $115 barrel could easily become tomorrow $200, some energy analysts are warning. This could well dampen the long-awaited economic recovery which these economies so badly need.

There may be a silver lining, however, though it is not easily seen as yet. Higher oil prices will hasten the global energy exploration process and make hither to uneconomic reserves viable. This, in turn, will spur the advancement of production technology and speed the exploitation of today’sdifficult deepwater oil and gas resources, stimulating demand for high-end seismic research vessels, floating exploration and production units and the increasingly sophisticated support vessels required to service them. Conversions and newbuildings will be required.

Meanwhile, pressure on the drive to raise the operational efficiency of existing and new vessels will also increase. Ship speed may come down further – already, container ships, cruise vessels and gas carriers are running more slowly – but the speed power curve may lead to further reductions, constraining supply and hastening equilibrium in today’sover-tonnaged markets. The quest for greater operational efficiency will also become more urgent, with demand for new hull forms, latest generation anti-foulings and new propulsion systems, including gas power for main and auxiliary machinery all more pressing.

Republished by kind permission of: A&A Thorpe, 131a Furtherwick Canvey Island, Essex SS8 7AT Tel: +44 (0) 1268 511300 Fax: +44 (0) 1268 510467 shipaat@aol.com
The views of the Publishers do not necessarily correspond to the views of Lambos Maritime Services Ltd.