GAO Forecasts Shortfall In Double-Hulled Tonnage

GAO Forecasts Shortfall In Double-Hulled Tonnage

Will Jones Act Waivers Be Sought To Meet Oil Demand As OPA '90 Deadlines Arrive?

The HMI Brenton Reef is one of five new double-hulled Jones Act tankers built by Hvide Marine Inc., operated by Interocean Ugland Management and manned in all licensed positions by American Maritime Officers. According to a recent GAO report, the current U.S.-built oil transportation fleet consists of 194 vessels-144 single-hulled ships and barges and 50 with double hulls.

      A new report from the U.S. General Accounting Office (GAO) points to the possibility that U.S. dependence on foreign oil producers and foreign tank ships will increase in the near future if American shipowners choose not to replace their single-hulled tankers with qualified double-hulled vessels.
     In the report, "As U.S. Single-Hull Oil Vessels Are Eliminated, Few Double-Hull Vessels May Replace Them," the GAO said that most of the 24 U.S. companies that own petroleum-certified tank ships have adopted a 'wait-and-see' attitude toward replacing their single-hulled vessels as they are phased out of service under the Oil Pollution Act of 1990.
     The Oil Pollution Act of 1990 (OPA '90) requires that single-hulled tank ships operating in U.S. waters, including barges, be removed from petroleum transportation service on a graduated schedule, which began in 1995 and concludes in 2015.
     Rather than committing to the construction of OPA '90 qualified tankers to ship oil in U.S. coastwise trades under the Jones Act, most U.S. tank ship owners said they would employ other options for oil transportation, including importing oil and petroleum products from foreign ports and increasing their use of foreign ships.
     This points to two possibilities: an increase in imports of foreign oil carried to the U.S. by foreign double-hulled tank ships, or a collective push for Jones Act waivers or repeal as U.S. single-hulled tank ship tonnage is phased out of service. Bypassing the Jones Act would allow companies to build double-hulled tankers in foreign shipyards, such as those of Korea, which are heavily subsidized by their respective governments and are able to undercut world shipbuilding prices.
     Current U.S. dependence on foreign oil has contributed to current record gasoline prices. According to a CNN report aired May 31, 2000, the average price of regular unleaded gasoline was $1.54 per gallon, a historical high in the U.S.
     Of the 22 companies that provided information to the GAO (out of 24), the four companies involved in transporting crude oil are collectively replacing only a fraction of their single-hulled fleet despite having a dedicated market. The decision was attributed to a decline in oil production on Alaska's North Slope, which itself may herald a further increase in U.S. dependence on foreign oil.
     Under the OPA '90 schedule, approximately 61 percent of U.S. single-hulled petroleum-certified tonnage will have been phased out of service by 2005. With the capacity of the current U.S. double-hulled tanker fleet figured in, the drop in carrying capacity would stand at approximately 42 percent. As the phase-out schedule progresses, the decline in available U.S. petroleum-certified tonnage gets worse, reaching a 90 percent drop off in single-hulled tank ship tonnage by 2011.
     "If owners' current plans do not change appreciably, there will likely be a substantial drop in the shipping industry's capacity to carry oil cargoes in U.S.-built vessels within the next few years," according to the GAO report.
     "U.S.-built ships move crude oil from essentially one location-the southern terminus of the Trans-Alaska Pipeline at Valdez, Alaska," according to the report. "The four companies we contacted that ship crude oil carry nearly all of this oil. The four companies are affiliated with the companies that produce the oil and do not compete with each other in the rates they charge."
     Of these four companies, only one has committed to replacing single-hulled tankers with double-hulled vessels. One company remained undecided, one refused to disclose its plans and the other said it would not be replacing its lone single-hulled tanker when it is phased out of service.
     According to the GAO report, the decision among crude oil carriers to replace only a fraction of the vessels was attributed to declining oil production from Alaska's North Slope.

The company that has committed to building double-hulled tankers has a contract for three newbuilds with an option for two more. These ships will operate in place of the company's previous fleet of eight tankers, four of which have already been phased out of service.
An official from the undecided company told the GAO that "it will delay decisions about whether to order new ships for as long as possible to take advantage of the most current oil production data available. Given the two-year lead time needed to build such ships, the company expects to make its decisions as to whether to purchase these ships in 2000 and 2001."
The company that would not discuss its plans owns nine tankers. At least three of those will probably not be replaced, as their phase-out deadlines expire by the end of 2002 and no orders have been placed with U.S. shipyards to replace them, according to the report.

     Accounting for the remaining 18 U.S. tank ship owners, the GAO reported that companies shipping oil products between refineries and ports, or among U.S. ports, operate in competitive markets where charter rates depend upon the supply of shipping services.
     Of these companies, four had plans to replace some of their U.S. single-hulled tank ships with double-hulled tonnage and 14 had no firm plans to replace their single-hulled tankers as they were phased out of service.
     The four companies with plans to build double-hulled vessels said they would be replacing at least one single-hulled ship or barge. One company had built four new barges, one was building a double-hulled ship and one was building a new barge.
     Of the 14 companies with no firm plans to replace their single-hulled tonnage, three said they would not be building any double-hulled ships. Five of these companies already had at least one double-hulled vessel and could continue to operate on a limited basis as their other vessels were decertified for petroleum products. The rest of the companies said they would wait before making a decision.
     According to the GAO report, companies said their low level of interest in replacing tank ship tonnage stemmed from current charter rates, which they considered too low to make investments in double-hulled vessels worthwhile.
     A double-hulled crude oil carrier can cost as much as $195 million, according to the report. Other figures cited include $75 million for a refined petroleum carrier and $20 million for an ocean-going barge.
     To justify the expense of new tanker and barge construction, Maritime Administration representatives and officials from some of the companies said that charter rates for tank ships would need to increase by about $14,000 per day from current levels and that charter rates for barges of approximately 10,000 gross tons would need to increase by about $8,500 per day from current levels, according to the report.
     If a shortage of Jones Act qualified double-hulled tank ship tonnage develops as single-hulled tankers are removed from the petroleum trades, companies cited importation of foreign oil, an increase in the use of foreign tankers, an increase in the use of pipelines and land transportation of oil and petroleum products as preferred alternatives.
     Under OPA '90, all vessels certified to carry petroleum products in U.S. waters after 2015 must have double hulls or, for vessels under 5,000 gross tons, must have a redundant containment system that U.S. authorities deem as effective as a double hull in preventing oil spills. Under the law, U.S. waters are defined as territorial waters within three miles of the U.S. and foreign tank ships are included in the regulations, as are any lightering barges.
     An increase in the use of foreign tonnage would mean that oil is being imported from abroad and shipped directly to the U.S. aboard double-hulled foreign tankers, which are allowed to transport cargo from a foreign port to a U.S. port, but are not allowed to ship cargo directly between U.S. ports or refineries under the Jones Act. It could also mean that the companies plan on seeking waiver or repeal of the Jones Act in order to build double-hulled tonnage abroad to operate in the U.S. domestic trades.
     A national oil shortage brought on by companies' refusal to replace their Jones Act qualified single-hulled vessels may force Congress to comply with requests for waivers of the crucial cabotage law, which currently enjoys well-earned support in House, Senate and executive branch.
     The other alternatives, use of pipelines and ground transportation, are sketchy solutions. No pipelines exist to service Florida or the Northeast U.S. and there are no plans for construction of pipelines to these areas. Trucking may provide limited relief to the Northeast but may prove an impractical alternative to ocean shipping.
     These two regions are currently served by tank ships and ocean-going barges. To ensure that the demand for oil and petroleum products in these regions can be met, double-hulled tonnage would have to be used after 2015, and perhaps earlier.
     Given the lack of commitment for building Jones Act qualified double-hulled vessels, this again points to an increase in dependence on foreign oil and foreign tank ships or a concerted push from petroleum carriers for Jones Act waivers.
     The GAO report was completed in April 2000 and distributed in May. In it, the GAO advised Secretary of Transportation Rodney Slater to have the Maritime Administration regularly assess the progress being made by U.S. tank ship owners in replacing their single-hulled fleets as they are phased out of service under the 1990 law.

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