Shipping is an important mode of transportation in the global oil trade. According to the BP energy statistical yearbook 2017, global oil production in 2016 was 92.15 million barrels per day and trade volume was 65.45 million barrels per day. EIA estimates that 58.9 million barrels per day (BPD) of oil were shipped in 2015, accounting for 61 percent of total production.
The shipping fortress is a narrow passage on the international navigation route and an important part of global energy security. Once the strait is closed, the tanker may be forced to circumvent other routes, increasing navigation time and costs, causing large fluctuations in crude oil prices.
This report mainly introduces the global oil shipping flow and major shipping fortresses. The Strait of Hormuz, located in the Persian Gulf of the Middle East oil-producing region, and the Strait of Malacca, which connects the Indian Ocean and the Pacific Ocean in the Asian consumer region, are the largest straits in the world.
First, the flow of oil shipping
The main flow of global crude oil shipping, the oil producing areas mainly in the Middle East, West Africa and South America, is shipped to the Asia-Pacific region represented by the United States, Europe, and China.
1) The largest seaborne flow from the Middle East crude oil in the Persian Gulf, through the Strait of Hormuz to the Arabian Sea, east to India or across the Straits of Malacca to China, Japan and South Korea; west through the Mande Strait through the Suez Canal, or around the Cape of Good Hope Shipped to Europe or the US Gulf / East Coast.
2) West African crude oil passes the Cape of Good Hope to East Asia, or via the Atlantic to Europe or North America; North Africa passes the Suez Canal to Asia.
3) Russia goes west through the Suez Canal to Asia; east to the Sea of Japan to China, Japan and Korea.
4) The east coast of South and North America crosses the Atlantic Ocean through the Cape of Good Hope to East Asian countries, and the West Bank crosses the Pacific Ocean to Asia. There are also relatively short-distance inter-regional routes between South America – North America, Southeast Asia – East Asia, Mediterranean – North Sea, West Africa – Western Europe, West Africa – North America, Western Europe – North America.
Second, the main tanker classification
At present, the global crude oil and product tanker classification system is mainly based on the Average Freight Rate Assessment (AFRA) standard. The system was first developed by Royal Shell Oil Company sixty years ago and evaluated the tanker freight rate through a standardized system. Mainly can be divided into the following categories:
General Purpose (GP) and Medium Range (MR, Medium Range) tankers: usually used for transportation of refined oil within a short distance, such as Europe to the US East Coast, Southeast Asia to South Asia, Baltic to the United States. This type of tanker is small and can be moored at most ports around the world. The GP tanker can carry 70,000 barrels and 190,000 barrels of gasoline, and the MR tanker can carry 19 to 350,000 barrels of gasoline.
Large Range (LR, Long Range): The most common tanker, which can transport both crude oil and refined oil, and can adapt to most oil ports for loading and unloading. The LR1 tanker can carry 3.5-62 million barrels of gasoline, or 3 to 550,000 barrels of light crude oil. The Aframax balance is between the LR1 and LR2 models.
The giant tanker (VLCC) and the supertanker (ULCC) are the main oil tankers for long-distance international transportation, and the freight rate is relatively low. A VLCC can ship approximately 190-2.2 million barrels of light crude oil. There is also a Panamax designed for the Panama Canal and a Suezmax designed for the Suez Canal.
Third, the global shipping fortress
1. Strait of Hormuz
The Strait of Hormuz is located between Oman and Iran, connecting the Persian Gulf with the Arabian Sea. The Strait of Hormuz is the world’s most important oil hub. In 2015, oil transportation was about 17 million barrels per day, accounting for 30% of the global total. Traffic increased to a record 18.5 million barrels per day in 2016. The EIA estimates that about 80% of the crude oil that passes through the Straits is shipped to Asia and exported to countries such as China, Japan, India, South Korea and Singapore.
The narrowest point of the Strait of Hormuz is only 21 miles wide, and the narrowest section through which ships can pass is 2 miles wide. The depth and width of the Strait of Hormuz are large enough to accommodate the world’s largest tanker, with two-thirds of the tanker passing through the Straits each year weighing more than 150,000 tons.
Most of the pipelines that can bypass the Strait of Hormuz are not yet operational, and currently only Saudi Arabia and the United Arab Emirates have the ability to bypass. As of the end of 2016, the combined crude oil pipeline capacity of the two countries was approximately 6.6 million barrels per day, and the idle transportation capacity was approximately 3.9 million barrels per day.
Saudi Arabia’s East-West Petroleum Pipeline (Petroline) is 746 miles long and begins in Abqaiq, crossing Saudi Arabia and transporting crude oil to the Red Sea. Petroline consists of two pipelines with a total capacity of approximately 4.8 million barrels per day. One of the 56-inch pipes has a capacity of 3 million barrels per day; the other 48-inch pipe is converted from a natural gas pipeline. In 2016, Saudi Aramco announced that it will expand its East-West oil pipeline capacity to 7 million barrels per day, which is expected to be completed by the end of 2018. But there has been little progress so far.
The Abu Dhabi crude oil pipeline in the UAE is 1.5 million barrels per day, transported from Habshan to Fujairah in the Gulf of Oman, allowing direct bypass of the Strait of Hormuz. The government plans to increase the pipeline’s oil transmission capacity to 1.8 million barrels per day.
Other bypass pipes that are temporarily unavailable
Saudi Arabia has two other pipelines in parallel with the Petroline pipeline, which bypasses the Strait of Hormuz, but currently has no additional oil capacity. One of them was the Iraqi-Platline in Saudi Arabia (IPSA), which was 48 inches long and was completed in 1989. In January 1990, Iraq began using the pipeline to export crude oil, with a capacity of 1.65 million barrels per day. After Iraq’s invasion of Kuwait in August of the same year, Saudi Arabia closed the pipeline and the pipeline only operated for seven months. In June 2001, as a debtor’s compensation for Iraq, Saudi Arabia regained ownership of IPSA and adapted it for the delivery of natural gas.
Other pipelines, such as the Iraqi pipeline from Qaisumah in Saudi Arabia to Sidon in Lebanon, and the strategic oil pipeline between Iraq and Turkey, have been discontinued due to war damage or political differences. These pipes require a lot of repair work before they are put back into service. If the Strait of Hormuz is blocked, the motor transport can also relieve some of the transport pressure.
2. Strait of Malacca
The Straits of Malacca, located between Indonesia, Malaysia and Singapore, connects the Indian Ocean with the South China Sea and the Pacific Ocean. The Straits of Malacca is the shortest sea route transported by the Middle East to Asian consumer markets such as China, Japan and South Korea. In 2016, the Malacca Straits shipped 16 million barrels per day and continued to maintain its position as the second largest shipping fortress. 85%-90% of them are crude oil, and the rest are refined oil.
The Strait of Malacca is only 1.7 km wide at the narrowest point near Singapore. Tanker collisions, stranding or leakage can occur. According to the report of the International Maritime Bureau, the number of pirate hijackings and thefts in the Straits of Malacca increased significantly in 2015. If the Straits of Malacca is blocked, nearly half of the world’s tankers will need to change routes around the Indonesian archipelago, such as through the Lombok Strait between Bali and Lombok in Indonesia, or through the Sunda Strait between Java and Sumatra. Bypassing will reduce global oil transportation capacity, increase transportation costs, and affect crude oil prices.
In order to alleviate dependence on the Straits of Malacca and increase the security of China’s oil supply, the China-Myanmar oil and gas pipeline is put into operation. The pipeline began to supply gas in 2013. It was first oiled in 2015 and reopened in 2017. Ruili entered the supply of Yunnan Petrochemical. The China-Myanmar pipeline is another important energy import channel following the Sino-Kazakhstan crude oil pipeline, the Central Asian natural gas pipeline and the Sino-Russian crude oil pipeline.
3. Suez Canal / SUMED Pipeline
The Suez Canal and the Samed Pipeline are strategic routes for the export of Middle East oil and gas to Europe and North America. In 2016, the total flow was about 5.5 million barrels per day, an increase of 100,000 barrels per day compared with the same period of last year; it accounted for 9% of the global oil and sea shipments.
The Suez Canal is located in Egypt and connects the Red Sea to the Mediterranean Sea. In 2016, oil and liquefied natural gas accounted for 17% and 6% of Suez’s total cargo, respectively. The Suez Canal cannot pass the VLCC and ULCC tankers, and Suezmax is the largest tanker that can pass the Suez Canal. In 2010, the Suez Canal Authority extended the canal depth to 66 feet to meet more than 60% of tanker transit needs. In addition, nearly 93% of bulk carriers and 100% of container ships have successfully passed the Suez Canal.
The two-way flow of crude oil and refined oil in the Suez Canal in 2016 was approximately 3.9 million barrels per day. The northbound flow rate was 2.4 million barrels per day, an increase of about 300,000 barrels per day, mainly due to the increase in exports of crude oil from Europe and Saudi Arabia to Europe; the southward flow to 1.5 million barrels per day, the first year-on-year decline in 2009, mainly from Russia to Asia. Decline. 84% of Northbound crude oil comes from the Persian Gulf countries (Saudi, Iraq, Kuwait, UAE, Iran, Oman, Qatar, Bahrain); 78% to Europe and 14% to North America. South to crude oil Russia (17%), followed by Turkey (15%), the Netherlands (11%), North Africa (Algeria and Libya, 12%); mainly exported to Asian countries, Singapore, China, India accounted for 50% of the total %the above.
The Samid Pipeline transports crude oil from the Red Sea through Egypt to the Mediterranean Sea. The pipeline starts at the Ain Sukhna terminal in the Red Sea and ends at the Sidi Kerir in the Mediterranean, with a total length of 200 miles and a total capacity of 2.34 million barrels per day. The pipeline is owned by the Arab Petroleum Pipeline Company, which is owned by Egyptian Petroleum Corporation (50%), Saudi Arabian Oil Company (15%), Abu Dhabi International Petroleum Investment Corporation (15%), and several Kuwaiti companies (15%). Joint venture with Qatar Petroleum (5%). In 2016, the pipeline flow of Samed was about 1.6 million barrels per day, which was the same as in 2015.
If the ship is unable to cross the Suez Canal, the Samed Pipeline is the only alternative to transporting crude oil from the Red Sea to the Mediterranean Sea. The simultaneous closure of the Suez Canal and the Samed Pipeline will force the tanker to bypass the Cape of Good Hope in southern Africa, increasing Saudi Arabia’s transit to the United States by approximately 2,700 miles and increasing the range by 8-10 days; the European voyage will increase by approximately 15 days.
The VLCC through the Suez Canal can also be transported using the Samed Pipeline. Because the Suez Canal is not deep enough to pass the full VLCC, some crude oil needs to be unloaded at the Ain Sukhna terminal to reduce weight and draft. After the canal, the previously unloaded crude oil was re-shipped at the Sidi Kerir terminal at the other end of the Samed Pipeline.
The Mande Strait is the main thoroughfare between Africa and the Middle East and a strategic link between the Mediterranean and the Indian Ocean. The Strait is located between Yemen, Djibouti and Eritrea, connecting the Red Sea with the Gulf of Aden and the Arabian Sea. Most of the tankers from the Persian Gulf through the Suez Canal and the Samed Pipeline will also pass through the Mande Strait. The flow of crude oil and refined oil in 2016 was approximately 4.8 million barrels per day, with the main destinations being Europe, the United States and Asia.
The narrowest point of the Mande Strait is only 18 miles and can accommodate only two two-mile wide waterways. If the Mande Strait is closed, tankers from the Persian Gulf will not be able to pass north through the Suez Canal and the Samed Pipeline, and tankers from Europe and North Africa to Asia will not be able to pass through the Suez Canal; they will need to bypass the southern tip of Africa to increase transit time and cost.
5. Turkish Straits (TurkishStraits)
The Turkish Strait includes the Bosporus and the Dardanelles, the dividing line between Europe and Asia. The Bosphorus is 17 miles long and is a narrow waterway that communicates between the Black Sea and the Marmara Sea. The Dardanelles are 40 miles long and are the gateway to the Marmara Sea and the Aegean Sea and the Mediterranean Sea. Both of these waterways are located in Turkey and are one of the main shipping routes for Russia and the Caspian countries, including Azerbaijan and Kazakhstan, to Europe. In 2016, crude oil and refined oil flow was about 2.4 million barrels per day, of which 80% was crude oil.
At the peak of 2004, the Turkish Strait shipped more than 3.4 million barrels per day. Since 2005, Russian crude oil exports have gradually shifted from the Black Sea to the Baltic Sea, and the volume of the Straits has begun to decline. However, the increase in exports from Azerbaijan and Kazakhstan led to an increase in freight traffic in the Turkish Straits, but the growth did not continue. The Turkish Strait’s traffic has declined steadily over the past five years, from 2.9 million barrels per day in 2011 to 2.4 million barrels per day in 2016. In the future, it is expected that the export volume of the Turkish Strait may increase with the increase in the production of crude oil in the Kasha glycerin field in Kazakhstan.
The narrowest part of the Turkish Strait is only half a mile wide, with approximately 48,000 ships crossing the sea each year, making it one of the busiest and most difficult waterways in the world. Although Turkey claims to have the right to regulate the environmental and security issues of the Straits, commercial vessels in peacetime are free to pass through the Straits.
6. Panama Canal (PanamaCanal)
The Panama Canal is an important shipping route connecting the Pacific Ocean and the Atlantic Ocean. The canal is 50 miles long and is only 110 feet at the narrowest point of the Culebra Cut on the continental divide. In 2016, more than 13,000 ships passed through here, with a cargo load of 204 million tons. Of these, 67% came from or to the United States, and 19% came from trade with China.
The Panama Canal is not the most important channel for global oil transportation. In 2015, oil transportation accounted for only 1.7% of the global total. In 2016, the oil transportation volume was 920,000 barrels per day, of which 840,000 barrels were refined oil and the rest were crude oil. 84% of the gasoline capacity (775,000 barrels per day) is transported from the Atlantic to the Pacific in the south.
The alternative route to the Panama Canal is the Straits of Magellan, the Cape Horn and the Drake Passage at the southern tip of South America. These straits will add 8,000 miles of transport, resulting in a significant increase in transit time and costs.
Large tankers such as ULCC are about five times the largest capacity of the canal. In order to improve navigation capacity, the Panama Canal Authority completed its first expansion since the completion of the canal in 1914 in June 2016. The original two canals of the Panama Canal will be expanded to include a third channel. The accessible vessels were expanded from the original Panamax (300,000-500,000 barrels of refined oil) to the new Panamax (400,000-600,000 barrels of refined oil). The waterway still cannot pass the VLCC ship, and the oil transportation has not improved much. It is more advantageous to export propane and HGL from the United States to Asia.
The Trans-Panama Pipeline (TPP) operated by Panama Petroleum Corporation (PTP) is the main conduit for bypassing the Panama Canal. The pipeline began operations in 1982 with the original purpose of transporting crude oil from the northern slopes of Alaska to refineries in the Caribbean and the Gulf of America. In August 2010, the pipeline was reverse engineered to transport oil from the Caribbean to the Pacific Ocean. In 2012, BP and PTP signed a seven-year storage and transportation agreement that allowed BP to lease storage facilities located on the Caribbean and Pacific coasts and use TPP pipelines to transport crude oil to US West Coast refineries. In early 2017, Shell also signed a three-year lease agreement to obtain warehousing, transshipment, pipelines, and terminals. In 2016, 110,000 barrels of crude oil was piped to the port of Chaco Azul.
7. Danish Straits (DanishStraits)
The Danish Strait connects the Baltic Sea and the North Sea and is an important means of exporting Russian oil to Europe. In 2016, about 3.2 million barrels of oil per day passed through the Danish Strait. Since the opening of Primorsk port in 2005, Russia has transferred most of its crude oil exports to the Baltic port. In 2011, Primorsk port oil exports accounted for nearly half of all exports in the Danish Strait, and in 2016 the proportion fell to 32%. Some oil from Norway and the UK also began to flow eastward to the Scandinavian market in 2016.
8. Cape of Good Hope
The Cape of Good Hope in southern Africa is an important transit point for global tanker transportation. EIA estimates that approximately 5.8 million tons of seaborne crude oil will pass through the Cape of Good Hope every day in 2016. Of this, 4.3 million barrels of crude oil are transported eastward, mainly from Africa (2.2 million barrels per day) and South America (1.6 million barrels per day to the Asian market (4.1 million barrels per day). Westbound transportation is from the Middle East (1.5 million barrels per day) ), shipped to the United States (75%) and Europe (12%).
The Cape of Good Hope is also an alternative route to the west through the Gulf of Aden, the Mande Strait and the Suez Canal, but the time and cost of bypassing the Cape of Good Hope will increase accordingly. According to estimates by the US Department of Transportation, if the Suez Canal and the SUMED pipeline are closed, the tanker that sails from Saudi Arabia to the US will increase the Cape of Good Hope by about 2,700 miles. The time to arrive in Europe will increase by 15 days, and the time to arrive in the United States will increase by 8-10 days.