02 October 2006
On September 27, the chairman of Kuwait's major oil transport company announced that four new vessels will soon be built, adding important capacity at a time of expansion in emirate's oil-exporting industry.
Kuwait Oil Tanker Company (KOTC) will issue a tender in the next few months to build the tankers, in line with its strategy for upgrading its fleet.
Each vessel is expected to cost between $120m and $130m depending on the technical specifications, a significant price increase on previous costs. The total price for this batch of tankers will come to some $500m.
It will cost more this time compared to the previous cost of $100m for a tanker because the price of shipbuilding materials has increased worldwide, Abdullah al-Roumi, the chairman of KOTC, said as he announced the new plans.
The capacity of the new tankers will be 300,000 tonnes of crude oil. These will replace some of the older tankers that have been decommissioned, reducing KOTC's existing fleet to 24 vessels.
Al-Roumi has hinted that some Asian shipbuilding companies are expected to take part in the tender.
It is likely that KOTC will not stop at these four new ships as it upgrades and expands its fleet, and the company plans to build at least two more tankers.
In the meantime, nine other tankers are already being built and will be delivered in 2007.
Seven of these were ordered from South Korean companies in 2004. Three contracts were concluded in August 2004 at a cost of $540m, to be delivered in 2007.
These include two very large crude carriers (VLCC) with a capacity of 317,000 tonnes each, two liquefied petroleum gas and ammonia tankers with a capacity of 82,000 sq meters each to be built by Hyundai Heavy Industries at a cost of $1.8bn. Three petroleum products vessels were also commissioned in 2004.
Although these tankers are meant as replacements for ageing vessels, they will prove invaluable for coping with extra production capacity set to come online in coming years. The Kuwait Petroleum Corporation (KPC) has announced plans this year to gradually expand production capacity to 4m barrels per day by 2020. In addition, recent discoveries of large quantities of gas in the emirate may add to existing plans for expanding exports.
Export capacity is a major constraint, along with OPEC quotas, placing limits on plans for expansion in production capacity of Kuwait's oil industry.
KOTC transported 24m tonnes of crude in 2005, of which half was shipped to destinations in East Asia, India and Africa. The tanker company, a subsidiary of KPC, operates by leasing tankers to KPC on annual contracts as well as individual leases at market prices.
This year KOTC has leased 19 tankers to KPC on annual contracts, and 6 more at market price. The public tanker company currently transports about 20% of Kuwait's total exports of crude.
The expansion will support the shipping company's plans to increase the size of its fleet to 29 tankers by 2008, with a deadweight capacity of 4.6m tonnes, capable of shipping up to 30% of Kuwait's total oil exports.
Prices for tanker leases increased 166.7% between April and August. Prices rose from $30,000 to $80,000 for VLCCs destined for the Far East and to $70,000 for VLCCs headed to Europe, reflecting tight capacity in the hydrocarbon shipping industry.
The substantial rise in prices, reflecting a global trend in the sector, has put pressure on private companies to continue using older tankers as long as they comply with international standards. Al-Roumi stated that KOTC will follow the same policy, while moderately expanding capacity with the commissioning of the 13 new ships.
Such efficiency-driven policies are meant to contain costs and demonstrate that the tanker company is flexible enough to adapt to market pressures. Indeed KOTC has started to review its fleet expansion plans, in light of KPC's strategy for privatising the company. Hani Hussain, CEO of KPC, unveiled a strategy in May to privatise KOTC and to grant up to three new licenses to private oil tanker companies by 2010. Our goal is to provide an economic and reliable source of transportation for Kuwaiti crude and petroleum products, Hussain told OBG. For this we have set almost $2bn to renew our fleet.
Nonetheless al-Roumi has argued publicly that privatisation plans must not interfere with the building of the six new tankers, given that building costs show no sign of stabilising in the foreseeable future.
Export capacity is a crucial issue as oil export revenue accounts for around 95% of the emirate's income.
Plans announced this week to upgrade capacity of the public tanker company will complement the existing liberalisation strategy to boost the efficiency of the oil-shipping sector. This comes as welcome news for investors interested in taking a stake in Kuwait's downstream hydrocarbon industry as well as for the public oil company.
On September 27, the chairman of Kuwait's major oil transport company announced that four new vessels will soon be built, adding important capacity at a time of expansion in emirate's oil-exporting industry.
Kuwait Oil Tanker Company (KOTC) will issue a tender in the next few months to build the tankers, in line with its strategy for upgrading its fleet.
Each vessel is expected to cost between $120m and $130m depending on the technical specifications, a significant price increase on previous costs. The total price for this batch of tankers will come to some $500m.
It will cost more this time compared to the previous cost of $100m for a tanker because the price of shipbuilding materials has increased worldwide, Abdullah al-Roumi, the chairman of KOTC, said as he announced the new plans.
The capacity of the new tankers will be 300,000 tonnes of crude oil. These will replace some of the older tankers that have been decommissioned, reducing KOTC's existing fleet to 24 vessels.
Al-Roumi has hinted that some Asian shipbuilding companies are expected to take part in the tender.
It is likely that KOTC will not stop at these four new ships as it upgrades and expands its fleet, and the company plans to build at least two more tankers.
In the meantime, nine other tankers are already being built and will be delivered in 2007.
Seven of these were ordered from South Korean companies in 2004. Three contracts were concluded in August 2004 at a cost of $540m, to be delivered in 2007.
These include two very large crude carriers (VLCC) with a capacity of 317,000 tonnes each, two liquefied petroleum gas and ammonia tankers with a capacity of 82,000 sq meters each to be built by Hyundai Heavy Industries at a cost of $1.8bn. Three petroleum products vessels were also commissioned in 2004.
Although these tankers are meant as replacements for ageing vessels, they will prove invaluable for coping with extra production capacity set to come online in coming years. The Kuwait Petroleum Corporation (KPC) has announced plans this year to gradually expand production capacity to 4m barrels per day by 2020. In addition, recent discoveries of large quantities of gas in the emirate may add to existing plans for expanding exports.
Export capacity is a major constraint, along with OPEC quotas, placing limits on plans for expansion in production capacity of Kuwait's oil industry.
KOTC transported 24m tonnes of crude in 2005, of which half was shipped to destinations in East Asia, India and Africa. The tanker company, a subsidiary of KPC, operates by leasing tankers to KPC on annual contracts as well as individual leases at market prices.
This year KOTC has leased 19 tankers to KPC on annual contracts, and 6 more at market price. The public tanker company currently transports about 20% of Kuwait's total exports of crude.
The expansion will support the shipping company's plans to increase the size of its fleet to 29 tankers by 2008, with a deadweight capacity of 4.6m tonnes, capable of shipping up to 30% of Kuwait's total oil exports.
Prices for tanker leases increased 166.7% between April and August. Prices rose from $30,000 to $80,000 for VLCCs destined for the Far East and to $70,000 for VLCCs headed to Europe, reflecting tight capacity in the hydrocarbon shipping industry.
The substantial rise in prices, reflecting a global trend in the sector, has put pressure on private companies to continue using older tankers as long as they comply with international standards. Al-Roumi stated that KOTC will follow the same policy, while moderately expanding capacity with the commissioning of the 13 new ships.
Such efficiency-driven policies are meant to contain costs and demonstrate that the tanker company is flexible enough to adapt to market pressures. Indeed KOTC has started to review its fleet expansion plans, in light of KPC's strategy for privatising the company. Hani Hussain, CEO of KPC, unveiled a strategy in May to privatise KOTC and to grant up to three new licenses to private oil tanker companies by 2010. Our goal is to provide an economic and reliable source of transportation for Kuwaiti crude and petroleum products, Hussain told OBG. For this we have set almost $2bn to renew our fleet.
Nonetheless al-Roumi has argued publicly that privatisation plans must not interfere with the building of the six new tankers, given that building costs show no sign of stabilising in the foreseeable future.
Export capacity is a crucial issue as oil export revenue accounts for around 95% of the emirate's income.
Plans announced this week to upgrade capacity of the public tanker company will complement the existing liberalisation strategy to boost the efficiency of the oil-shipping sector. This comes as welcome news for investors interested in taking a stake in Kuwait's downstream hydrocarbon industry as well as for the public oil company.
© Oxford Business Group 2006
