Introduction

Oil and gas industry have experienced déjà vu as oil prices have once again crashed, this time due to the destruction of demand associated with coronavirus disease 2019 (COVID-19) and the war on prices between Russia and Saudi Arabia and other Organization of the Petroleum Exporting Countries members.

What path lies ahead for the industry in the coming months and years? This chapter discovers some of the facts that exist around the trading of oil products, their transport, and the value set at the international markets. We air some thoughts (and some questions) to help oil and gas companies navigate the current landscape.

Surprisingly, it seems there is still very little publicity or knowledge of the highly technical operations of modern ships, as well as the crew who sail them.

There are over 50,000 ships plying the oceans of the world at any one given time. About 1 million highly trained seamen are employed at sea, while a further 1 million take their home leave.

Generally, seamen are required to commit to work aboard their ship for long periods at a time, seldom less than 6 months. They disembark in some parts of the world, travel home, have a leave period of 6–8 weeks and then rejoin another ship in another part of the world.

The first known records of sea vessels chronicle their use of oars and sail. The first sea-going sailing ships were developed by the Austronesian people in what is now called Southern China and Taiwan. They invented catamarans and outriggers. Their claw sails made it conceivable for them to begin making long voyages into open ocean origination what it was the foundation of the Austronesian Expansion at around 3000–1500 BCE.

From those remote times to the actual moment, sailing in general and the transport of merchandise in ships has certainly evolved. The advances in all aspects of shipping have continued. Modern technology has, for example, completely revolutionized marine communications and navigation. The Internet has radically changed how shipping companies trade with their clients. Although the ships of today bear little resemblance to those originally developed, they continue to share the same purpose of transporting goods throughout the world from one place to another while being manned by a skilled mariners who leave behind their homes and families.

Experts advise us that more than 90% of goods worldwide are transported by ships. Shipping, then, is the main transporting method of goods and the vertebral column of the world trade. Without it, the present-day economy could not be sustained.

The oil industry and shipping

Crude and clean refined oil (gasoline, diesel, kerosene, and gas oil) are carried on board oil tankers to and from oil production platforms, oil terminals, and oil refineries. They are delivered to tankage in all parts of the world. The slots allocated for any ship at port are limited and continuously subject to demand and rapid turnover. In a similar fashion to a busy airport, trading ports in the world, as well as those near refineries or oil industry, are given timely and many times require several days of waiting time offshore prior to allowing docking time. Because time spent in port to deliver to tankage is very short, seldom more than 36 hours, and given other procedures such as compulsory and very necessary inspections by officials also take place in port, it is an extremely busy time for everyone to ensure the ship is loaded or discharged as quickly as possible in order to meet time limitations; consequently, there is very rarely an opportunity for any crew member to ever go ashore for even a short period.

Captains and ships officers are permanently under pressure to save time and reduce costs. It is said that “ a ship in port Burns money, a ship at sea Earns money ”

Thus the urgent necessity for achieving a fast turnaround in ports and oil terminals is constantly the call of the day.

The effects of COVID-19 on oil services, oil logistics, and shipping industries

As the spread of the COVID-19 progressed from China to other countries, the problems for our industry, as it happened to others, increased. We were fighting on two fronts dealing with an oil price war and a pandemic. The dropping price in oil was dramatic. On January 1, a barrel of crude oil sold for $67.05 on New York’s NASDAQ exchange. In early March, it was trading at around $30.00 per barrel.

Any reserve stored on tanks of oil companies became worth, approximately a half of what they had previously been worth at the start of the year. As companies struggled with this cut in their values, the situation became worse as the entire sector was overwhelmed by the huge downfall in the demand, the closedown of the aviation sector (one of the prime consumers of refined oil worldwide), industrial slowdowns, travel restrictions, stricter immigration regulations, requirements for quarantine, and border closures with major restrictions to worldwide trade.

Understandably, agents were reluctant to travel to oil terminals. The authorities began finding it increasingly difficult to man or safely provide the services required to berth large supertankers. Supplies of food and water and any provision to the tankers were also compromised.

Travel restrictions meant that seamen could not travel to join ships, thus those aboard who had finished their contracted period were not only unable to be relieved or leave the ship, there were no flights available for them to travel home to their families. By May 2020, it was estimated that 150,000 seamen were stranded aboard their vessels, not allowed to leave the ship at all.

Merchant vessels do not carry a doctor, there are no hospitals in the Atlantic, Pacific, or Indian Oceans. This form of confinement, combined with the fear of contracting COVID-19, can of course be hazardous to the mental health of the crew members. At any time on a ship, captains and ship officers have the duty to care for their crew and for their morale, and teamwork is of utmost importance. Working in a close space for a long period of time in many times hostile weather conditions and perilous environments can be a hazard by itself. This becomes even more challenging when considering the fear associated to the pandemic, the limitations for the seamen to return home, or even to leave the ship ashore. Although these highly trained individuals are experts in their profession, they are not doctors. Throughout this period, a great deal of added pressure has been put upon them.

Economic impact of the lockdown on oil services, oil logistics, and shipping industry

Demand for oil plunged as COVID-19 caused people to lockdown in their homes, stop driving, or traveling any distance to and from work. Transport in general was radically reduced. Airlines closed. We saw the lowest oil prices in almost two decades, with worse predicted to come or at least to be prolonged throughout significant time.

The dramatic drop in oil price negatively affected the returns on exploration projects and caused many future proposed explorations to be cancelled.

Tanker rates, instead of dropping, as initially predicted, rose, especially for large tankers; this was because the oil majors wanted to fill all of their tanks and storage them in places with cheaply priced oil. As soon as prices decreased, oil companies sailed their tankers to be filled with cheaply priced oil and anchored them in safe areas approximately 50 miles offshore. By mid-May 2020, there were about 40 large tankers anchored offshore California, with an equal number in the North Sea, West Africa, the Far East, and the Arabian Gulf.

The effect of the oil glut on the world

Most laymen innocently welcome cheap oil and cheap energy. However, this cheap energy comes with its own problems.

The year 2019 was the first year in which the USA exported crude oil. Small crude oil producers were busily pumping oil from small oil wells in Texas, Oklahoma, and other states, also fracking for crude oil became big business. Break-even costs for fracking are very much higher than the costs of cheap crude oil from the Middle East. Consequently, those small oil producers were eventually put out of business, oil exports from the USA slowed down or stopped and cheap imported oil became popular.

Small oil-producing countries such as Ecuador, Columbia, and Trinidad, whose only real means of earning hard currency is by exporting crude oil, are now really suffering as they struggle to service their debt. Many of their workforce have lost their jobs with consequent impact on their economy.

The future

As the pandemic continues abating the world and no solution is seen in the near future, the situation for the oil industry will likely continue, and this will translate into Tanker Rates remaining high until the end of the year 2020. Then, if, hopefully, the COVID-19 virus slows down enough to enable the world to, progressively, begin to get back to where we were before, we might be able to return to the previously present scenario.

After summer (2020), I expect the freight rates to drop back down again because the oil inventories are being used up, and oil prices will then start to climb up again.

As to COVID-19, I leave that opinion to the good doctors and scientists who are desperately trying to find a vaccine. Personally, I believe that COVID-19 will be with us for a long time, and that eventually, humans will develop a natural immunity to this virus. The world, although changed, will continue as it has done for billions of years, and ships and shipping will continue, as before, carrying the vast majority of all the worlds commodities, from one country to another, as it is the safest and most cost-effective means of transport.

Disclaimer

The views expressed are solely of the author, and ETEnergyworld.com does not necessarily subscribe to it. ETEnergyworld.com shall not be responsible for any damage caused to any person/organization directly or indirectly.