Oil Price Volatility - Risks And Opportunities In 2015 - Update 5

Update 5 - Offshore oil storage - legal implications

Tanker owners are happy. VLCCs and Suezmaxes are generating strong cash flows and charterers are rushing to procure tonnage in an increasingly tight market. Commentators estimate that 40-50 older VLCCs have been commissioned on long-term charters to store crude. Are there any legal concerns with tankers being used for floating storage? Tanker owners see less risk in their tankers sitting stationary than sailing the high seas, but need to ask where they will anchor, for how long and whether this changes the applicable regulatory regime. If a 'storage tanker' is actually a floating storage unit (FSU), there is increased permitting required and a reduced ability to limit liability under the International Convention on Civil Liability for Oil Pollution Damage. While the Convention imposes strict liability for pollution damage on the Owner, it does allow for this liability to be limited, absent actual fault of the Owner. This reduction in liability does not apply to FSUs though.

Owners will need to know up front where the tanker will sit. This is for maintenance and staff planning even if it is not a concern to the insurers. There are obligations under Flag and Class for the Owner to fulfil, plus the requirements of the Hague or Hague-Visby Rules and the law of the relevant coastal states.

Looking through the Tankers Fixtures List of the Lloyd's List on the day of writing, 25 VLCCs and Suezmaxes were chartered, with two thirds of the VLCCs taken by Unipec for China with Reliance, oil majors and traders accounting for the next. At the recent Marine Money, London Ship Finance Forum, it was reported that Chinese shippers were shopping for several VLCCs on 2 year charters after concluding an agreement with Russian sellers desperate for cash as the sanctions take hold.

Where in the World...?

For the sovereign charterers, it makes sense to anchor close to home. The three big risks facing tankers in parts of Asia are piracy, weather and terrorism. Owners have the technology and systems to look out for all three but may face reduced control so far from port. Good intelligence is given by the live IMB Piracy and Armed Robbery Map and there may be metocean data available for the area. It is this which will inform the tanker requirements, from global strength of the hull to structural design of both hull and topsides to withstand fatigue cracks. If there is a disaster, the Owner will be fully liable for...