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Print articleThe ice ship cometh
Will shipping’s ice age start to thaw, asks Clive Woodbridge
There is no doubt that ice-class tonnage is in strong demand at present, largely as a result of the growing importance of the Russian market in a number of commodity trades. However, in the short term owners may struggle to get the return on investment they hoped for, as a surge of newbuilding activity takes its toll on rates.
Russia is aiming to significantly expand its crude oil exports and this strategy will inevitably require additional ice-class tankers, given that a large proportion of the country’s oil shipments will move via ice-affected ports in the Baltic or Arctic regions. LNG exports are another key target for the Russian government.
 Demand for ice-class tankers continues to grow |
The development of oil and LNG facilities is clearly one significant driver, but the growing need to supply cargoes of all types into the St Petersburg gateway on a year-round basis is persuading owners that ice-class notations are a good thing for a wide range of tonnage types, including bulkers and containerships. Not being specified as ice class would obviously exclude vessels from operating in what is clearly going to be one of the key growth regions for the shipping industry over the next 20 years or so.
Tankers are, nonetheless, the primary focus for ice-class investment. According to Londonbased brokers Clarksons: “In the tanker sector, the shipbuilding industry is in the process of delivering the results of huge investment and the ice-class fleet is growing strongly. For the other sectors – such as containers and bulkers – there has been more muted growth, while in the LNG sector there is exciting potential, but the current situation is characterised by project slippage and uncertainty.”
In its recently published annual report on the ice class market, Clarksons reviews developments and growth estimates in oil regions that will require ice-class tonnage. The company concludes that: “Although growth in the Baltic is maturing, developments in North Russia remain exciting if uncertain, while the projects at Sakhalin in East Russia continue to have massive potential.”
Russia is now the world’s largest exporter of natural gas and the second-largest oil exporter (its oil exports are growing by around eight per cent per year). Russia’s key Baltic terminal at Primorsk in the Gulf of Finland exported around 64 million tonnes of oil last year, up from just 12 million tonnes in 2002, and could reach 70 million tonnes in 2007. The Russian government has recently announced plans to double capacity at Primorsk, envisioning at least a further 50 million tonnes of oil throughput via the Baltic port.
Russia is also looking to develop oil export terminals near Murmansk, and is considering using the Northern Sea Route for transporting cargoes of all types along the Siberian coast. Furthermore, development of the Shtockman gas field project in the Barents Sea could lead to large quantities of LNG being shipped from the Arctic to the US East Coast from 2011 onwards, underpinning a significant requirement for ice class LNG ships.
New technical solutions may be required to make this happen. According to the classification society, ABS, “The challenge for the international maritime industry is to deliver the technological support needed to underpin these vital energy projects. To make the Northeast and Northwest passages regular shipping lanes required a new, polar ice class.”
Demand generated by the Russian market, coupled with the MARPOL-driven phase out of older tonnage, will result in further expansion of the ice-class tanker fleet over the next few years. There are currently around 500 ice-class ships in service or on order and most of these, around 70 per cent, are relatively small with capacities of 20,000 dwt or under. However there is a clear trend towards the introduction of larger capacity ice-class tonnage and the first suezmax ice-class 1A vessels have entered service in the past 18 months.
The Greek company Tsakos Energy Marine (TEN), for example, has taken delivery of six suezmax ice-class tankers in 2006 and 2007, while Sovcomflot of Russia is another that is investing in ice-class suezmax ships. In May this year TEN took delivery of the 162,400 dwt, 1A ice-class tanker suezmax tanker Antarctic from Hyundai Heavy Industries and the 36,660 dwt 1A ice-class handysize product tanker Aegeas from Hyundai Mipo Dockyard. Delivery of the Antarctic completed the company’s six vessel suezmax newbuilding programme, while the delivery of the Aegeas further augments its ice-class capabilities in the product tanker category.
Aegeas has entered an attractive three-year timecharter with a major international oil entity and is expected to generate about $21 million in gross revenues over the charter period. Antarctic is to enter the spot market. TEN has taken a strategic decision to invest in ice-class vessels and will be a significant player in this niche sector. At the end of March this year, 19 of its 40 vessels were ice-class and a further four more ice-class tankers are due to enter the Greek owner’s fleet by the end of the year.
The growth of the ice-class fleet over the past few years has been quite rapid, with the opening of the Primorsk facility in 2001 proving to be a key trigger for investment by owners. In 1992 Clarksons says that the ice-class fleet stood at around 11.4 million dwt. By 2006 the fleet was over 38. 2 million dwt, following a 28 per cent surge that year, when 8.5 million dwt were added. Of the global ice-class fleet, roughly 34 per cent comprises high specification icestrengthened ships of 1A or 1AS class.
The current orderbook for ice-class vessels stands at 228 ships, totalling 8.6 million dwt, and over the course of 2007 the ice-class fleet is expected to grow by more than 6.5 million dwt to 44.7 million dwt. This would represent a further increase of about 17 per cent. The trend towards the higher end of the ice-class range continues, and Clarksons suggests that by the end of this year almost 45 per cent of the fleet will be 1A or 1AS type.
The ordering surge for ice-class ships seems to be tailing off. Indeed, Clarksons suggests, “The story at present is less one of continuing investment, but more of a heavy delivery schedule that is the result of earlier investment.” Recent large-scale deliveries appear to have put pressure on rates, despite the expansion of Russian Baltic oil exports. The “ice premium” achieved by owners in previous winters – fluctuating on average between $90,000 a day and $140,000 a day – is not available to owners at the moment, and may take some time to reassert itself.
The rapid growth in the ice-class fleet coupled with several mild winters, means the premium has been shrinking for a number of years. For the first time this winter, average Worldscale rates for ice-strengthened and nonice- strengthened aframax vessels operating on typical Baltic routes have been almost identical. After a period of significant expansion, it appears that the ice-class tanker shipping is beginning to take stock. In the short term, earnings may be adversely affected, but in the longer term the prospects are extremely positive, although perhaps more dependent on political factors in Moscow than the market would like.
Outside of the oil tanker market, demand for ice-class ships is also expected to grow. In particular there are signs that more Arctic-capable LNG tankers will soon be ordered. The Shtockman field is expected to have capacity for 14 million tons of LNG annually and this would generate more than 200 vessel movements a year. Developing the field will require many more ice-strengthened ships than are on order at present. One company that is investing is Russia’s leading owner, Sovcomflot. Sovcomflot’s 1C iceclass LNG carrier Grand Elena is due for delivery from Mitsubishi Heavy Industries later this year and is one of two sisters destined to serve the Sakhalin-2 project.
Russia’s container traffic is also surging, with St Petersburg being the main gateway. This will require more iceclass boxships, probably of 3,000 TEU capacity and below. There has also been a very healthy rise in the volume of refrigerated cargoes being shipped from South America and South Africa into Russia via St Petersburg. As a result, it is likely that many of the next-generation reefer vessels will be high ice class, and it is significant that the market leader, Seatrade Reefer Chartering, has recently ordered four ships from Japan that are identical to some existing vessels in the company’s fleet with the exception that they will feature an ice-class notation. The reason, the company says, is the growing need to cater for Russian perishable produce imports more effectively than older vessels in the world reefer fleet are able to do.
On a wider level, global warming may mean that the present and projected generation of ice-class vessels could be the precursors of an even bigger shipbuilding boom. Arctic ice is retreating and one of the few benefits of this is that year-round commercial routing of ships via the Northwest Passage and the Northern Sea Route is considered a distinct future possibility. Using the Northern Sea Route would dramatically reduce the sailing distance between Europe and the Far East or the west coast of North America and may be of considerable interest to vessel owners and operators. The European Union is significantly backing a three-year research and development programme called ARCOP, the purpose of which is to develop the means of bringing Russian oil and gas to Europe, making use of the Northern Sea Route.
Owners and operators of ice-class tonnage seem set to enjoy very positive market conditions for the next few years, although, in the short term, there may be a softening of the market. The main challenge will be developing vessel designs and systems that can facilitate the development in a safe and economical way.
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