ECONOMY

Conversion pains for single-hulls

Those who reckoned that the new regulations for safe navigation introduced by the international MARPOL treaty – aiming to prevent pollution from ships – would lead entire fleets of tankers to break up yards are now likely to revise their views pretty soon. According to the treaty, all single-hull tankers must be withdrawn from service by 2010, irrespective of age. This would include tankers built up to the mid-1990s, causing considerable financial loss for shipowners, given that up until recently the average life of a tanker in service was 20-25 years, allowing the recouping of the cost of purchase. Facing such a prospect, many shipping companies in recent years converted their tankers for other uses, particularly in the smaller size categories (up to aframax). Nevertheless, questions continued to linger regarding the larger size categories that are more profitable, the VLCCS, whose capacity ranges around 300,000 dwt. Theoretically, the cost of converting a VLCC into a double-hull tanker is too high, including the loss of revenue for six months, the time usually required for the job. According to a recent article in the industry’s TradeWinds publication, the first company that is proceeding to convert a tanker into a double-hull one is Singapore-based Tanker Pacific, which has one of the biggest fleets worldwide. The company is reported to have agreed on the conversion of its VLCC tanker Sunrise Jewel at the Huarun Dadon Shipyard. The cost of conversion is estimated at $20 million, excluding $6.5 million in lost revenue in the six months of the duration of the project. Without the conversion, the vessel would have to be withdrawn in 2010 at age 18, whereas the conversion will enable it to remain in service for at least five additional years. Shipping industry sources say that more than 20 shipbuilding Chinese companies are currently in search of appropriate locations for yards for the conversion of VLCCs into double-hull tankers. Cosco Dalian shipyard inaugurated such a facility a few days ago, having already undertaken conversions for handymax and suezmax tankers. Nevertheless, no everyone agrees with the conversion of VLCCs into double-hull vessels. London-based research company Marine Strategies International (MSI) is predicting that older single-hull tankers will go for scrap in case freight rates fall, the result being that world demand will create a new generation of single-hull tankers even after 2010. According to MSI, freight rates for VLCCs are expected to fall in 2007-2008 due to a glut of vessels, which would condemn many of them older than 20 years to the scrap yard. In turn, this would allow younger single-hull VLCCs to continue operating without conversions. For this to happen, of course, some form of extension to the MARPOL treaty would be needed. At any rate, 56 percent of VLCCs aged 15-20 years are projected to be single-hull by 2010. Analysts argue that if all single-hull vessels are withdrawn from service, there will not be enough for the transportation of oil, even taking into account the high number of vessels currently under construction. For this reason, MSI reckons that an extension will be ultimately granted for single-hull tankers to operate until 2015. According to TradeWinds, the problem does not seem to affect many Greek shipping companies as most of their orders in recent years were for double-hull VLCCs, in contrast to Asian and Middle Eastern operators whose fleets remain mostly single-hulled. Many Greek shipowners also sold their single-hulls and are, therefore, facing a lesser dilemma of whether to convert them or not.