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Artic route could take years if not decades until it becomes a major tanker trade - 2011-11-07

With more and more vessels sailing through the so called Arctic route, it‟s worth to take a look in what this could mean for the tanker
i-maritime News Service
November 07, 2011
markets. According to a recent report from London-based shipbroker Gibson, back in 2009, the shipping industry industry witnessed an extraordinary event, when a pioneer commercial voyage took place along the Russian Arctic coast, the so-called Northern Sea Route (NSR). The following year more vessels sailed via this route, including a few tankers. This year, the challenging Arctic passage has been successfully completed by a Suezmax, the largest tanker to attempt this route. According to Gibson, “in part the interest in oil shipments via the NRS has been driven by its advantage over the traditional routes in terms of distance. A voyage from Murmansk to Ningbo via the NSR is more than 40% shorter than the same voyage via the Suez Canal, thus enabling significant savings in terms of bunker costs and time. However, the bunker cost savings are smaller if the cargo is being transported from and/or to locations that are “further apart”. For example, a voyage from Murmansk to Map Ta Phut, Thailand via the Arctic voyage (also completed this year on the Panamax tanker) is just 17% shorter than via the Suez. Apart from the cost sensitivity to distances between load and discharge ports, the NSR has other shortfalls. The commercial operations on this route are not as flexible as on other traditional routes. The Arctic passage is only available during a limited window of about three months each year. In addition, it takes time to get approval for the transit and vessels are reportedly subject to additional inspections for ice worthiness” said Gibson. It went on mention that “finally, perhaps the biggest drawback of the NSR is the need to use ice-breakers in areas along the route that have the highest density of ice. It is believed that the tankers that transited through the route were accompanied by two ice-breakers during the most difficult parts of the journey. According to our rough estimates for a 120,000 tonne shipment, in order for the NSR to be cost effective relative to the same voyage via the Suez the ice-breaking costs have to be set at less than $7/tonne for Murmansk – Ningbo and below $4/tonne for Murmansk - Map Ta Phut. In comparison, the Russian federal tariff service has set this year the maximum limit for ice-breakers fees along the NSR at around $19/tonne, although market intelligence suggests that the actual ice-breakers costs have been considerably more competitive. In the long term and despite additional icebreaking costs, the Arctic route has a massive potential as an export route both for Eastern and Western customers due to huge oil and gas reserves located in the Arctic region. But it will take years, if not decades for these resources to be developed, thus it will be quite some time off (if ever) until we see the Arctic route developing into a major tanker trade” concluded Gibson. Meanwhile, in its review of the past week in the tanker markets,Gibson said “into the last quarter of the November VLCC programme from the Middle East Gulf, and Owners are left with nothing more solid than hope. Availability easily outweighs demand upon the current fixing window, and it will only be the very last knockings of the month that may-perhaps-allow for some degree of tightness to aid the cause. In the short term, holidays early next week in Singapore and the Middle East will serve to perpetuate the presently soggy market. Currently rates operate at around WS 47.5 to the East and down to WS 33 to the West. Suezmaxes had a very slow week of it, but managed somehow to keep rates moving sideways, rather than down. 130,000 by WS 80 East and WS 50 West were representative. Aframaxes failed to make their potential gain, and actually retreated to 80,000 by WS 105 on only limited interest and it will be a slow start to next week too” said the shipbroker. It went on to mention that “West Africa suezmaxes failed to break noticeably out of their box, but did manage to loosen their bonds slightly - mainly at Charterers instigation as they started to probe on more forward dates, conceding some 'insurance' for the privilege. Tongues wag that a higher market is around the corner, but there‟s not much substance to the rumour for now. Rates end the week at 130,000 by WS 77.5 US Gulf and WS 80+ for Europe. VLCCs are virtually non-existent for November positions which ordinarily would lead to a rate spike. Unfortunately for Owners, inter-Atlantic interest stays at virtually nil, and rates stay stuck at around 260,000 by WS 55 US Gulf and WS 53.75 East with down to USD 3.45 million seen for East Coast India discharge. Hands high in the air for aframax Owners in the Mediterranean as supply swamped demand, sending rates crashing to 80,000 by WS 85 cross-Mediterranean - surely bottom, but it will take a solid spree of bargain hunting to turn the tide once again. Suezmaxes ticked steadily lower through the week on only modest fixing. Rates are now starting to bottom out at the 135,000 by WS 85 mark from the Black Sea, but upcoming holidays in Russia will likely postpone any potential fightback. VLCCs in the Caribbean enjoyed good attention at the start of the week that allowed Owners to maintain an average USD 3.5 million for Singapore, and although the market awaits the next tranche of cargoes, sentiment should hold solid until then. Aframaxes, on the other hand, turned backwards to 70,000 by WS 95 upcoast which brings earnings to nearly absolute zero, and there‟s no good reason to see any relief in the short term” concluded Gibson.

Source: Hellenic Shipping News