The Transportation of Oil by Sea

Copyright © 2005, 2011 by Tony Akaki

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Contents

CHAPTER 1 INTRODUCTION

CHAPTER 2 TANKER FREIGHTS

CHAPTER 3 SHIP REGISTRATION/FLAGS OF CONVENIENCE

CHAPTER 4 THE CARGO

CHAPTER 5 THE RHODESIAN OIL EMBARGO

CHAPTER 6 MARITIME SECURITY

CHAPTER 7 TANKER WARS

CHAPTER 8 OIL POLLUTION

CHAPTER 9 THE SHIP

CHAPTER 10 EPILOGUE

SELECTED BIBLIOGRAPHY AND RECOMMENDED READING

DEDICATED TO DORA

1 

INTRODUCTION

Bulk shipping has been used for many years to reduce the cost of sea transport; two thousand years ago Rome imported more than thirty million bushels of grain a year from the grain baskets of northern Africa, Sicily, and Egypt. To carry this trade, a fleet of special ships was built. However, it was not until the mid-nineteenth century that the oil tanker became an important element in the trading of oil.

The beginnings of the tanker trade may be found in the history of oil, and particularly in Titusville, Pennsylvania, where the world’s first major oil field was discovered. The place became a boomtown; with the leases on promising land changing hands for thousands of dollars, fortunes were being made overnight. The demand for the new product was insatiable, and by the end of 1861, kerosene made from oil had virtually displaced coal as the main source of fuel. Oil also began to make an important contribution to the war effort of the Union in the United States’ civil war; the North needed the new source of foreign exchange to compensate for the loss of the South’s cotton.

Oil exports from America began under interesting circumstances in December 1861 when the Elizabeth Watts sailed from Philadelphia to London loaded with barrels of kerosene. The transportation of oil has its inherent risks and thus has always been a fact to be addressed, and in this regard it is important to note that the crew of the Elizabeth Watts were apprehensive in loading the cargo of kerosene for fear of fire. Drunkards from the bars along the Delaware River were found to load the vessel that marked the birth of the transportation of liquid fuel on a major scale.

The voyage was a success, and by the end of 1865 Britain, France, and Germany were all substantial buyers, and most of the nineteenth-century exports accounted for over a third of U.S. annual production. Nevertheless, it became clear that the transportation of oil barrels in wooden vessels was not only dangerous but also uneconomical. This led to the building of a vessel in which the hull or skin of the ship acted as a container; the vessel was called the Zoroaster and was followed very shortly by the steamer Glueck-Auf.

The Glueck-Auf, which was built in 1886 in the United Kingdom, is now generally accepted as the prototype of the modern oil tanker. It is significant to note here that there are very few similarities between it and some of the modern tankers. First, transportation of oil in the early days consisted largely of products such as kerosene. There was, of course, hardly any use for petroleum at the time, and the transportation of crude oil did not start until some considerable time later.

Unlike gold, oil does not have intrinsic value, and when production outruns demand prices are bound to fall; early speculators overlooked this vital fact when they paid vast sums for tracts of promising land. During the 1860s prices dropped from the original twenty dollars a barrel to two dollars, and during the United States’ civil war they fluctuated wildly from ten cents a barrel, which made the wooden barrels more valuable than the oil they contained, up to fourteen dollars a barrel. After the Civil War the day of the small oilman was over and the era of big business started. On the January 10, 1870, the Standard Oil Company was incorporated in Cleveland with John D. Rockefeller as its president. Rockefeller was determined to become the largest shipper of oil.

But before he reached a position to exert any real leverage over the industry, the leading railroads took the initiative out of his hands. However, the economic depression, also known as the Long Depression, strongly affected the transport industry in 1873, making it easy for Rockefeller to approach other competitors and players in the industry and take them over. He eventually succeeded in forming a monopoly in the transportation of oil.

Other parts of the world were also developing viable interests. Baku, in the Caucasus, had been seeping oil through the Earth’s surface for hundreds of years. The Nobel brothers quickly established an ascendancy over Baku and, following Rockefeller’s example, secured a virtual monopoly over transportation of oil from the Caucasus to the rest of Russia and abroad.

This was a complicated process, as there was no railway to the Black Sea, which was the logical output for exports from Baku. The oil had to be taken up the Volga and thence by rail to the Baltic. Other operators tried to build a railway to the Black Sea port of Batum, but the Nobels promptly slashed the price of their oil to levels so low that it became impossible for other competitors to raise the necessary finance. The only alternative was to raise the necessary funds from outside of Russia if the project was to be undertaken. Accordingly, in 1880 the Russians approached Baron Alphonse de Rothschild in Paris, France.

Rothschild’s Paris bank was already involved in oil and consequently put up the money for the Batum railway, but in return they demanded mortgages on the producer’s properties as well as the right to buy oil for export. Nevertheless, with the completion of the railway in 1883 the growth of the Russian oil industry was incredible, and by 1888 its production was over two and a half million tons.

This intermodal characteristic of the oil industry between sea and rail transport was also significant in 1860s America, particularly in Cleveland, where Rockefeller had set up the Standard Oil Company. Cleveland had a direct rail link with the oil regions in Pennsylvania, combined with unrivaled communications with the eastern United States by two railways and the Great Lakes with their interlocking system of canals.

This intermodal nature had a huge impact on oil distribution. For instance, Russian oil swept all over Europe like a flood and transformed the entire marketing situation. By the 1890s Russian oil could be shipped via the Suez Canal to the Far East more easily than from North America and afterwards the Dutch East Indies became a major producer, and Burma a less important one. It is important to note the considerable impact of the Suez Canal on oil transport once the movement of crude oil had reached relatively large quantities.

Interestingly, the first vessel to transit the Suez Canal fully laden belonged to one of the oil majors’: the Royal Dutch Shell Group’s the Murex. On August 24, 1892, it was the first of several tankers to sail from the shipbuilder’s yard in West Hartlepool, United Kingdom, for the Black Sea, and a few weeks later it discharged its cargo in Singapore and Bangkok. Long and arduous negotiations with canal authorities were necessary before the ship could undertake this first voyage from the Black Sea to the Far East.

This voyage through the canal from north to south remained the norm until the beginning of the twentieth century. Contrary to common belief that the situation changed with the discovery of oil in the Arabian Gulf (which is also known as the Persian Gulf), it was the exploration and eventual production of Indonesian oilfields that opened up a trade for oil from the East through to Europe. Until that time, ships carried oil southward through the Suez and carried dry cargo from the East on the return journey. The possibility of carrying oil in both directions led to innovative tanker designs. It is also crucial to point out that, since 1975, the Suez Canal Authority has been aware that fully laden Very Large Crude Carriers (VLCC) are unable to transit the canal; however, discussions on deepening the canal sufficiently for VLCCs to transit while fully laden are ongoing.

The competition in the Far East was intense, for the Far Eastern markets were dominated by Standard Oil, and any newcomer trying to break into the area would become an easy victim to the kind of selective price cutting by which Standard Oil maintained its supremacy in the United States The practices of Standard Oil and other companies involved in oil has brought a lot of attention to the business of oil production, marketing, and transportation, as well as what may be called the politics of oil.

However, this book is essentially about the transportation of crude oil and not the politics of oil. Oil is a highly emotive issue that involves governments, powerful finance houses, and oil companies, among others. That notwithstanding, it is therefore inevitable that some political, geostrategic, and economic aspects of oil transportation will be examined, particularly as they reflect on the vulnerability of Western interests in the Middle East.

Royal Dutch Shell Group

Competition among the major oil companies that had become multinationals and wielded enormous power signaled the beginning of the tanker chartering era. In April 1907 two of the largest European companies—Royal Dutch Petroleum Company, under Henri Deterding, and Marcus Samuel’s Shell Transport and Trading Company—merged into the Royal Dutch Shell Group.

The fortunes of Shell are interesting to those involved in the transportation of oil by sea.

The tanker fleet of Shell alone was more numerous than the merchant marine of all but the largest countries. This era of competition, characterized by cutthroat price wars, is what led to the amalgamation of these giants; smaller competitors were pushed out of the market, thereby consolidating power into the hands of a few large multinationals. The Shell company is of particular interest to those involved in the tanker trade, not only because of its large fleet of tankers but also for the innovations it brought to the tanker trade in general.

Shell’s business was conducted through a network of agents in the main trading centers, and instead of owning their own vessels they chartered vessels through a firm of London brokers called Lane & MacAndrew. One of its partners was Fred Lane, who was also the London agent for the Paris Rothschild’s oil interest. He wanted to find a way of selling their Russian kerosene in the Far East, and he suggested carrying out this project to Marcus Samuel sometime between 1885 and 1888.

Fred Lane knew that only a company capable of establishing itself simultaneously in every market could hope to survive. Lane argued that this was possible with their existing network. Marcus Samuel was skeptical because of oil’s inflammability; furthermore, kerosene could only be taken through the Suez Canal when packed in tins that were in turn packed in wooden cases. Both the tinplate, which came from Wales, and the wood were very expensive, Samuel wondered whether it would be possible to match Standard’s prices. Nevertheless, he was sufficiently interested to allow Lane to take him on a tour of the Russian