By Alaric Nightingale and Tony Hopfinger
March 24 (Bloomberg) -- Alaskan fisherman J.R. Janneck’s boat is 38 feet. The SeaRiver Long Beach, the sister ship of the Exxon Valdez, which caused the worst oil spill in U.S. history, is 987 feet and carries 1.5 million barrels of oil. There is another difference.
“My boat is double-hulled,” Janneck, 63, said as he worked on his silver salmon fishing boat in Valdez Harbor last month. Twenty years after the March 24, 1989, disaster, Janneck still remembers the “tiger-stripe sheen” of oil in the water and the absence of birds around him.
Even after 79 percent of the world supertanker fleet has been replaced by craft with two hulls, Exxon Mobil Corp. remains the biggest Western user of the older designs. It hired more of the tankers last year than the rest of the 10 biggest companies by market value combined, according to data compiled by Bloomberg.
Exxon, the world’s largest oil company, has kept using tankers with one hull even as 151 countries have decided two are better than one for preventing oil spills and pledged to ban single-hull vessels by 2015. The European Union called the design “more accident-prone” in 2003, when it started a prohibition that takes full effect next year. London-based BP Plc says it won’t hire them because of the risk of leaking.
U.S. refining rivals, including Sunoco Inc., Chevron Corp., ConocoPhillips and Koch Industries Inc., and Paris-based Total SA didn’t hire one such vessel last year, the data show. Exxon’s use of single-hull ships compared with its nine biggest competitors is based on more than 12,500 ship-rental deals. The data were provided by shipbrokers, including Simpson, Spence & Young Ltd. in London, and shipping-information provider Lloyd’s Register-Fairplay in Redhill, England.
Coastline Damaged
The Valdez dumped 11 million gallons of oil into Prince William Sound, damaging at least 700 miles of coastline and killing more than 36,000 birds, according to the U.S. Environmental Protection Agency. It took three years and $3.86 billion to clean up the spill and compensate fishermen and other business owners. The U.S. Supreme Court last year cut the punitive damages against Exxon to $507.5 million from $2.5 billion.
“I am very surprised they are still using these tankers because they are still suffering brand damage from the Exxon Valdez,” said Tracey Rembert, a senior corporate governance analyst at the Service Employees International Union in Washington, whose largest stockholding is 126,000 shares of Exxon. “There are people who still don’t buy gas at Exxon, and that was 20 years ago.”
Extra Protection
Double-hull tankers have an outer layer of steel, normally about an inch thick and 6.5 feet from the inner one, that acts as a buffer in an accident. When tankers with one shell are ruptured, the only place for the oil to go is into the sea.
It costs about 20 percent less to hire a single-hull ship. Exxon’s estimated savings amounted to less than a cent a share last year, according to Bloomberg calculations. The Irving, Texas-based company made a profit of $45.2 billion, or $8.69 a share, in 2008, the largest in U.S. corporate history.
Last year Exxon saved an estimated $18 million using single-hull vessels, based on the number of times it hired such ships multiplied by 2008 rental rates from Drewry Shipping Consultants Ltd. and average durations compiled by Bloomberg. Hiring a double-hull replacement for SeaRiver Long Beach for a year would have cost about $25 million using the same rates.
Hull design is only one of “hundreds of variables” Exxon uses in monitoring safety, and cost isn’t one of them, said Rob Young, a company spokesman. He declined to comment on the savings question because it would be an “incorrect characterization” to say its motivation in hiring the vessels was financial. He also declined to comment on whether double- hulls are intrinsically safer than singles.
No Spills
Exxon had no oil spills in 2008 and “less than one teaspoon per million barrels carried” in 2007, Young said by e- mail. The company’s shipping units “often exceed regulatory standards to enhance the safety, security and reliability of marine transportation,” he said.
In the aftermath of the Valdez disaster, the U.S. led a global push to outlaw single-hull vessels. Later accidents involving the Erika off France in 1999, which had been hired by Total, and the Prestige off the Spanish coast in 2002, leased by Crown Resources AG of Switzerland, increased pressure.
The U.S., under the Oil Pollution Act of 1990, will allow single-hull tankers to sail in its waters either to unload at the Louisiana Offshore Oil Port or at dedicated unloading areas out at sea until 2015. The International Maritime Organization, the shipping division of the United Nations, will ban single- hull tankers starting next year. Member nations can avoid the prohibition for five more years by outlining their intentions in a letter to the IMO. Lee Adamson, a spokesman for the IMO, was unable to say how many have sought such exemptions.
Government Findings
In deciding to restrict single hulls, the U.S. Congress considered design studies provided to the IMO that found spills from double-hull tankers would be “zero in most accidents,” said Robert Gauvin, Washington-based technical adviser at the U.S. Coast Guard.
A 1992 report to Congress by the Coast Guard found that double hulls are unequalled for avoiding spills and prevent them in “all but the most severe incidents.”
“We in the market don’t understand why Exxon continues to do this,” said Per Mansson, a shipbroker at Nor Ocean Stockholm AB, who’s been involved in the tanker industry for 30 years.
BP Experience
On March 6, a tanker BP hired -- the double-hull SKS Satilla -- struck an oil rig 65 miles from Galveston, Texas, that was lost during Hurricane Ike. The incident, which caused “multiple punctures” along a 60-meter (197-foot) by 12-meter section, didn’t leak any oil, Coast Guard spokesman Tim Tilghman said from Galveston.
SKS Satilla had on board about 1 million barrels, or 42 million gallons, of crude oil.
“Because of the double hull, there’s no further penetration, other than the outer skin,” Sverre Jacob Mehn, a spokesman for the ship’s manager, Kristian Gerhard Jebsen Skipsrederi AS, said in an interview from Bergen, Norway.
The proportion of single-hull supertankers has shrunk to 21 percent from 100 percent before Valdez, according to Lloyd’s Register-Fairplay, as shipbuilders such as Hyundai Heavy Industries in Ulsan, South Korea, the world’s largest, stopped making them. A new double-hull supertanker costs about $126 million, while the last mono-hull carrier to change hands, built in 1994, cost $14 million, according to Oslo-based shipbroker Fearnleys AS.
‘Substantially’ Lower
Exxon last year arranged to hire at least 32 single-hull very large crude carriers -- or VLCCs -- tankers slightly bigger than the Exxon Valdez, and one smaller vessel, the data show. That amounted to 6.1 percent of its overall tanker bookings.
Taking into account vessels Exxon owns and ships it has on long-term rentals, its single-hull rentals are “substantially” lower than 6 percent, said Young, the company spokesman.
By contrast, Royal Dutch Shell Plc, Europe’s biggest oil company, moved 1.8 percent of cargoes on single-hull tankers last year, the data show. Shell was the world’s largest hirer of oil tankers in 2008, booking them on at least 855 occasions.
All of Shell’s long-term rental tankers have double hulls, spokeswoman Catherine Aitken said by e-mail from The Hague. Sometimes it’s forced to use single-hull carriers because there aren’t enough with two available, she said, adding hull design isn’t a “panacea” for safety.
Maintenance Important
Maintenance, regular inspections and effective operational management are also important, said Apostolos Papanikolaou, an Athens professor of ship design who has led studies on the relative safety of both hull configurations.
The combined single-hull rentals by Exxon and Shell are dwarfed by carriers in Asia, including Indian Oil Corp. and Thai Oil Pcl. IOC, based in New Delhi, hired single-hull tankers 130 times in 2008 out of 188 recorded rentals, the data show. Bangkok-based Thai Oil, the nation’s largest refiner, booked them 55 times out of 60, or 92 percent of the time, commercial manager Pongpun Amornvivat said.
Both companies said they use single-hull ships because of the savings.
“As long as they can be used, we will take advantage of lower rentals,” said Basavaraj Ningappa Bankapur, director of refineries at IOC, India’s biggest refiner.
Exxon’s single-hull SeaRiver Long Beach regularly calls on San Francisco and Los Angeles as well as Valdez. The 21-year-old carrier had a leak from a hairline fracture in 2000 and had to return to Valdez to unload its cargo. About 10 gallons of crude spilled into the sea, all of which was cleaned up, said Raymond Botto, a spokesman for SeaRiver Maritime, an Exxon subsidiary.
Like Janneck, the fisherman in Valdez, Leroy Cabana from Homer 200 miles away remains angry about Exxon two decades later. That the Exxon Valdez’s single-hull sister ship continues to call on Alaska fits a pattern, said Cabana, 53, who was part of the army of workers hired to clean up the spill.
For him, the accident wasn’t just caused by a single-hull tanker. “It was caused by a reckless company,” he said.
To contact the reporters on this story: Alaric Nightingale in London at Anightingal1@bloomberg.net; Tony Hopfinger in Anchorage at thopfinger@gci.net.
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