THROUGH THE YEARS. 1. Tanker seaborne crude oil trade over four decades. 3. Crude oil seaborne trade Crude oil seaborne trade 2002

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1 THROUGH THE YEARS Four decades of INTERTANKO and the oil tanker industry huge changes in the way the industry is structured, how it goes about its business, how it thinks, how it performs. 1. Tanker seaborne crude oil trade over four decades bn tonne-miles 9, 3. Crude oil seaborne trade , 7, 6, 5, 4, 3, Boom and bust Lay up and demolition Growth and structural changes China, the emerging markets and profitability 2, 1, 198s 199s 2s Source: INTERTANKO, based on data from Fearnleys Source: Fearnleys 2. Oil consumption & production in the and 2s 4. Crude oil seaborne trade 22 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% US Europe (inc Eurasia) 6.1mbd 3.mbd 4.7mbd 22.3mbd 17.mbd Oil consumption Japan Other Asia 12.1mbd 6.6mbd 5.4mbd 11.7mbd 5.3mbd Oil consumption 2s Middle East 12.7mbd 1.9mbd 1.5mbd Oil production China 22.7mbd 24.2mbd 7.2mbd 16.8mbd 7.2mbd Others Oil production 2s Source: BP Source: Fearnleys

2 BOOM AND BUST Boom and bust Suez Canal closure in 1967 saw tanker freight rates rocket and the beginning of a tanker building boom of larger and larger tankers built to trade round the Cape of Good Hope saw orders for 15m dwt of new tankers, representing 55% of the existing fleet. Torrey Canyon wrecked off the UK in , tonnes of crude oil lost. This incident brought about: Civil Liability Convention of 1969 (CLC) and Fund Convention; introduction of Tovalop and Cristal spill compensation funding system as an industry voluntary interim move pending universal ratification of CLC; International Convention for the Prevention of Pollution from Ships of 1973 (which became MARPOL and brought in segregated ballast (SBT)). SOLAS Convention of 1974 brought in inert gas systems (IGS) to prevent tank explosions. Arab-Israel war 1973 and Arab oil embargo 1973/4 cut oil exports and hiked oil prices. Tanker demand collapsed. Oil price increased from $2/bbl in the early to $3/bbl by the end of the decade after the 1979 oil price shock. With the oil and tanker shipping worlds in turmoil, INTERTANKO was a steadying hand as it looked at issues from currency instability to uses for idle tankers, from flag discrimination to clean ballast tanks, from the casualty record to slow steaming. Main tanker trades were between Middle East and Europe/U.S. which together represented 7% of world oil demand. Today less than 5% of world oil production is consumed by U.S. and EU. (See graphs 2, 3 and 4 opposite) Suez Canal reopened in 1975, decimating tanker tonne-miles and leaving a large, modern tanker fleet, which increased by 25% during the, locked into chronic oversupply and floundering even before oil production started to decline in Nevertheless despite the poor rewards, the VLCC moved to centre stage and by 1977 roughly 6% of crude oil was carried by VLCCs. Amoco Cadiz lost off France in , tonnes of crude oil lost. The incident hastened the amendments to, and the ratification of, MARPOL 73/78 which brought in Crude Oil Washing (COW) and protectively-located ballast (SBT-PL). Tankers contributed to 28% of oil pollution at sea (compared to 7-1% in 2s and still declining) exceeded only by sump oil (poured down town drains) contributing 29.4%. A -built steam turbine powered VLCC burned 18 tonnes of heavy fuel a day (compared to 65 tonnes of intermediate fuel today). The first ever VLCC Idemitsu Maru 26,16 dwt, built in 1966 Oil majors lost the control of large chunks of the world s oil nationalisation of oil production in Latin America, North Africa and the Middle East. In the the Middle East was supplying more than one third of world oil production. Today it is just under one third (see graph 2 opposite).

3 198s LAY-UP AND DEMOLITION 198s Lay-up and demolition Oil prices now up to $32/bbl. In 1981, 41 VLCCs went for demolition including 15 oil company vessels. In 1982/3 another 126 VLCCs were scrapped alone saw an 18% drop in tanker tonne-miles. VLCC rates hit a WS14 low point. A 1 year-old VLCC was worth $3m. 71.4m dwt of tankers were laid up in % of the fleet. By 1985 half the VLCC fleet was surplus tonnage over 13 were laid up. Even oil company tankers were laid up. In m dwt of tanker tonnage was sold for demolition. Iraq / Iran wars through the early 198s Iraq attacked the aframax Filkon L loaded with Kuwaiti crude oil. The tanker war became a key strategic element. Over the four years, INTERTANKO recorded 324 attacks on tankers. In 1987, 144 tankers were attacked and 64 seafarers killed. Twelve 5 pound parachute bombs extensively damaged the world s largest tanker, the 564, dwt Seawise Giant. This decade saw INTERTANKO becoming involved in port state control, oil pollution compensation and disputes over open registries; dealing with lay-up, scrapping, and the dangers of low building prices with tempting finance packages; taking a fresh look at tanker quality, and also pushing for fair port dues for SBT tankers. Fundamental changes in the ownership patterns of oil, of oil refineries and of oil tankers started in the, accelerated in the 198s and continued through the 199s. In the about 8% of oil production was in the hands of the oil companies. Today that share has fallen to about 25% of oil production and about 15% of oil reserves. In 1988 it was noted that state companies had taken over the lead position in controlling oil production and reserves with companies such as Aramco, KPC, NIOC, PDV, Pemex, Petrobras, Sonatrach holding the reins. Tonne-mile trade figures declined by 155% from the peak in 1976 to a low in 1985, according to Fearnleys. Overall tonne-mile demand was down by 38% this decade compared to the 7s. Main tanker trades still Middle East/West but eastbound shipments growing and trade diversification accelerating. INTERTANKO developed on the world political stage, gaining inter alia a consultative seat at IMCO in In the same year IMCO was reborn as the IMO. This period also saw the growth of the independent tanker owner as oil companies and state companies reduced their tanker ownership. INTERTANKO s prompt reactions to the growing importance of independent ownership helped boost its membership in the 198s and 199s. Exxon Valdez grounded in Alaska in , tonnes of crude oil lost. This watershed incident changed the tanker world as it brought in OPA 9 and double-hull legislation.

4 199s GROWTH AND STRUCTURAL CHANGES 199s Growth and structural changes Tonne-mile demand increased by 36% in the 9s compared to the 8s. Periods with good freight rates, but strong volatility in the market due to incidents such as the Iraq-Kuwait war, strongly increasing Middle East oil production (1992 highest level in more than a decade), unrest in Nigeria. Increasing talk of an ageing tanker fleet saw INTERTANKO rediscussing the definition of substandard ships, and stressing that proper maintenance was a bigger safety factor than age. INTERTANKO was the first shipping association to introduce quality criteria for membership. Exxon Valdez, Oil Pollution Act of 199 (OPA 9) and the IMO s adoption of the double hull in March 1992 meant that as from mid 1996 all new tankers were double hulled. INTERTANKO called OPA 9 a hundred pages of uncertainty as Congress removed charterer liability from the Act, and as this Act brought in compensation for damage to natural resources along with contingent valuation methodology. OCIMF s Ship Inspection Reports Programme (Sire) started in INTERTANKO had suggested the concept and assisted in its development. INTERTANKO started to call for support from industry partners to improve the industry s infrastructure and thereby increase safety, calling it Prevention through Partnership. Through the 199s the idea took root and grew that responsibility for safe and sound shipping is shared between all those elements which are involved in its execution. This gave rise to the concept of the chain of responsibility, which emphasises joint responsibility as well as the fact that a chain is only as strong as its weakest link. Erika broke up off France in December , tonnes of heavy fuel oil lost. This incident brought in IMO s amendments to Marpol 73/78 with a tougher single-hull phase-out timetable and brought the EU into the regulatory front line. It also signalled the start of the two-tier tanker market. INTERTANKO involved itself increasingly in criminal liability issues, unlimited liability, drug and alcohol abuse measures, charterer responsibility for quality, pressing for tougher class surveys. The 1992 Protocols to CLC and Fund Conventions (eif 1996) broadened the scope of these Conventions and raised financial limits of liability. INTERTANKO and its Members found themselves looking at the cost to them of the poor image of the tanker industry, and at the same time starting to reach out to the environmental groups.

5 2s CHINA, THE EMERGING MARKETS, AND PROFITABILITY 2s China, the emerging markets, and profitability The decade started with the global dot.com crisis and ended with the global financial crisis. 2 saw INTERTANKO s landmark legal victory in Washington when five years of fighting through the U.S. courts resulted in INTERTANKO winning its argument that individual U.S. states had no constitutional right to regulate matters of vessel design, construction, maintenance, operation, equipping and manning. Tanker trade growth lower than the 9s, but the decade started with relatively tight market balance and a limited shipbuilding capacity, which helped boost earnings. The tanker trades have become diversified, with getting on for twice as much oil now going Middle East/East as goes Middle East/West. U.S. and EU now consume less than 5% of world oil production (was over 7% in 197). China s oil consumption increased by 77% over the decade, pushing its oil imports up 25% and becoming one of the main drivers of the tanker market. Tankers contributed to less than 1% of global oil pollution at sea (less than 2% in the U.S.) down from 28% in. Reducing tanker spills through 8s, 9s and into s tonnes Average age 6 Figures show average size of tanker (dwt) 16 For a large part of the 2s shipping experienced a super boom, with all shipping sectors enjoying unprecedented simultaneous profitability for a time With closer supply/demand balance and increased employment came greater market volatility, with VLCC spot rates swinging from $1, to $1, a day in six months, then from $15, to a peak of close to $25, a day in another 6-12 months , 1 99, 82, Prestige broke up off Spain in 22 7, tonnes of fuel oil lost. This incident brought in EU phase-out regulation and a further tightening of the international phase-out regime. INTERTANKO s role this decade has become increasingly political, with an emphasis on regulation at the IMO, in Washington and in Brussels, as well as emphasis on the environment, and on the industry s image. With the industry cooperating to produce a compensation regime that balances the interests of all stakeholders, the limits of liability under the 1992 CLC/Fund regime were raised by 5% in 2, and in 23 the Supplementary Fund provided a third tier of compensation up to $1.2bn Source: INTERTANKO, based on data from ITOPF As top quality officers and crew become harder to recruit and retain, and as accident statistics point to high human causative factors, INTERTANKO has been focusing on the human element in much of what it does. A modern motor powered VLCC consumes about 65 tonnes of intermediate fuel a day. It uses 1 litre of fuel to move 1 tonne of cargo 2,5 km more than twice as far as the steam turbine powered VLCCs in the.