Bloomberg News

Supertankers Delayed in China as Nation Fills Strategic Reserves

May 02, 2012

Delays emptying supertankers at ports in China are spiraling as the world’s biggest energy consumer scours the globe for alternatives to Iranian oil to fill its strategic reserves, driving up shipping costs.

Very large crude carriers hauling 2 million-barrel cargoes are waiting as long as 10 days to discharge, compared with two normally, Ody Valatsas, chartering manager of Dynacom Tankers Management Ltd., an Athens-based owner of 11 of the vessels, said by e-mail today. The increase took place in the past two months, he said. Delays are nine days, compared with about two usually, according to Nikos Varvaropoulos, an official at Athens-based Optima Shipbrokers Ltd.

China, which aims to more than double its reserve capacity, imported a record 23.5 million metric tons of crude a month in the first quarter, customs data show. Purchases from Venezuela more than doubled from a year earlier and deliveries from Angola climbed 25 percent. Its imports from Iran slumped to the lowest level since 2010.

“There has been increased chartering activity as the Chinese have sourced alternative supplies to Iran and filled their strategic reserves, so the Chinese have logically overwhelmed their ability to discharge into their ports,” said Nigel Prentis, director of research at HSBC Shipping Services Ltd. in London. “This is restricting supply of ships available for new cargoes in the Persian Gulf and all helps to lever up freight rates.”

$39,532 a Day

The cost to ship Middle East oil to Asia, the biggest VLCC trade route, rose 29 percent to 64.08 industry-standard Worldscale points since the start of the year, according to data compiled by Bloomberg. Daily earnings on the route advanced 90 percent to $39,532, data from shipbroker Poten & Partners show.

China was the largest buyer of Iranian crude in 2010, according to the U.S. Energy Department. The U.S. and the European Union have imposed sanctions on the Middle East country’s oil in an effort to halt its nuclear program.

China will complete eight new emergency oil-stockpiling centers by early next year, part of a strategy to raise reserve capacity to 271.8 million barrels from 103.2 million, according to China National Petroleum Corp., the nation’s largest crude producer. That’s enough for about 28 days of consumption, International Energy Agency data show.

The country imported 1.94 million tons of Venezuelan crude (about 14 million barrels) in March, the most since at least 2008, customs data show. Purchases from Angola totaled 3.6 million tons, the largest amount since September 2010. Iranian supply fell to 1.43 million tons from 2.5 million in the fourth quarter of last year.

Frontline, OSG

Frontline Ltd. (FRO), the Hamilton, Bermuda-based company that lists 42 supertankers on its website, has advanced 52 percent to $6.50 in New York trading this year. Overseas Shipholding Group Ltd., the largest U.S. operator of the vessels, has gained 6.2 percent.

Jens Martin Jensen, Singapore-based chief executive officer of Frontline’s management unit, said delays off China are expanding in an e-mailed response to questions.

The six-member Bloomberg Tanker Index (TANKER), which also spans owners of smaller vessels, has advanced 31 percent this year.

“These delays are a reflection of China’s huge demand for oil, and they are allowing owners to push up rates,” said Varvaropoulos, who is based in Dubai. “Even though everybody knows that China is where the growth is coming from, what we are seeing now is pretty extraordinary.”

To contact the reporters on this story: Alaric Nightingale in London at anightingal1@bloomberg.net; Rob Sheridan in London at rsheridan6@bloomberg.net

To contact the editor responsible for this story: Stuart Wallace at swallace6@bloomberg.net


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