Saudi Arabia’s Shuttle System for Gulf Oil Producers
Saudi and UAE using ‘shuttles’ to move crude through Strait of Hormuz, with some waiting up to 10 days for cargo, analysts have told AGBI.
The vessels now waiting in the Gulf of Oman make up about 15 percent of the global fleet of very large crude carriers (VLCCs), according to shipping data company Clarksons Research. This significant portion of the global VLCC fleet is being utilized by Saudi Arabia and the UAE to shuttle crude through the Strait of Hormuz, a crucial waterway for global oil trade.
Crude Comparison
Saudi Arabia sharply increased its use of the shuttle system after attacks forced the closure of its East-West pipeline, which carries crude to the Red Sea port of Yanbu. Flows through the pipeline resumed on Tuesday. Longo calculates that about 60 million barrels of Saudi crude will be moved from Ras Tanura to Sohar during September and October as part of the shuttle operation.
On September 20 alone, seven VLCCs loaded about 14 million barrels at Ras Tanura, according to his analysis. The UAE is doing the same from its terminals at Zirku and Das Island. This increased demand for shuttle services has led to a significant increase in waiting times for cargo, with some vessels waiting up to 10 days.
Tanker Earnings
The global VLCC fleet is about 928 vessels, according to Erik Broekhuizen, head of tanker research and consulting at shipbroker Poten & Partners. Of those, 200 are subject to sanctions, further reducing the pool readily available to mainstream charterers. The squeeze has helped raise tanker earnings.
VLCCs carrying Middle East oil to China have recently been earning more than $1 million a day, compared with a 10-year average of about $35,000, according to Richard Matthews, director of consultancy and research at shipbroker Gibson. This significant increase in earnings is largely due to the limited availability of vessels and the pressure to keep Gulf crude moving.
Waiting Game
The ship-to-ship transfer is not the main drag on resources, according to Longo. “The bigger costs are the shuttle leg, the Hormuz risk and, increasingly, waiting time.” War-risk cover can cost up to 10 percent of a vessel’s hull value per transit, while Middle East-China VLCC earnings have peaked at about $1.27 million a day, Longo said.
The additional time is becoming more important. Long-haul VLCCs can spend five to 10 days waiting for cargo, while Longo has observed the Gulf of Oman shuttle round trip taking about 17 days. Each additional day ties up a vessel that could otherwise be carrying another shipment. Shuttle tankers are also making only about 1.5 to two trips a month, Longo said, reducing the effective supply of vessels even though the distance added to the oil’s journey is relatively small.
That matters because the system absorbs ships on both sides of Hormuz. One group is required to make repeated crossings of the strait, while another waits outside to take the transferred crude onwards. “You lose effective tanker supply on both sides,” Longo said.
Original Article: How Gulf oil is being shuttled through Hormuz — Agbi