Oil & Gas in the Falklands

Everyone will have noticed the increased tensions between the United Kingdom and Argentina recently in relation to the Falkland Islands (Islas Malvinas). First Britain was sending Prince William on a tour of duty there, then they were sending the new Royal Navy ship HMS "Dauntless", and this week we heard that a whole Westminster committee is soon due to visit the Islands. Argentina has reported the UK to the United Nations for its 'militarisation' of the area and has, along with some of its neighbour states, blocked Falklands-flagged vessels from entering its ports.

Much has been made of the fact that this year signifies the 30th anniversary of the Falklands conflict and this has been cited as a possible cause of the ratcheting up of tensions in the region. However, it seems that the more likely cause is the dramatic change in the Islands' value as an economic asset, after recent discoveries of generous oil deposits in the Isalnd's waters.

In today's Sunday Times (19 February 2012, Business Supplement, Page 2) they report new research from a City investment firm which shows that the Islands could generate a huge fortune from new oil finds currently beginning to be exploited / prospected by a number of firms: 'THE Falkland Islands could eventually reap $ 177 billion (£ 122 billion) in tax and royalties from oil production ... ' they report.

This figure represents almost $ 58 million income per head of population (currently pop. 3,100), an enormous income for the Islands where at present each resident pays an average of around $ 5,000 a year in taxes to the revenue (which is far exceeded by the cost to the UK of servicing and defending the islands).

Offshore Vessels

In the maritime industry today we often hear reference made to 'Offshore Vessels'. So let's look at  exactly what is meant by this, as vessels within this category are arguably more diverse in size, shape and operation than any other. 

     (Image Credit: Carl Tanzler)

Most people understand 'Offshore' in the maritime context to mean oil and gas rigs. However today it would be more accurate to describe it as the energy industries generally (encompassing both traditional oil and gas and new forms of energy generation at sea, like wave and windpower). Offshore vessels then include any vessels involved in these industries, as well as those involved in a few other very niche industries which occur entirely away from land (cable laying,  offshore dredging etc.).

Oil & Gas Vessels
Drillship
Semi-Sub
Rigs
Accommodation Vessels
Cargo Transporters
Platform Supply Vessels
AHTS
Guard Vessels / Patrol Boats
FPSO

Wind Farm Vessels
Construction
Engineer Supply

Other (Niche Offshore Industries)
Cable Layers
Pipe Layers
Offshore Dredging
Seismic Survey

A Brief Guide to Tugs and Towing

Tugboats are small but very powerful vessels which were developed to specifically assist other vessels (by pushing or towing them from a to b, moving them around in canals or harbours, fire fighting etc.). 


Today they are more advanced than ever and can perform a multitude of tasks but the basic construction of a simple harbour tug remains broadly as the following diagram. You will notice a towage rope for assisting other vessels and heavy 360o fendering (the tyres)

TERMINOLOGY
- A tug is always a boat, and not a ship. The craft began their lives as relatively small vessels and so will forever be categorized as such, even though today many are very large vessels.
- A tug tows other vessels using a towage or towing line (when a piece of rope is used) or a wire (when some form of metal rope is used).

TYPES



General Harbour Tugs - The most common form, they perform a multitude of general assistance tasks around ports and harbours. Generally small and do not venture far from the harbour or port limits.


SDMs (Ship Docking Modules) - These are very specialised little tugs used to help moor other small vessels, normally yachts, in tight marinas. Because they need to be so versatile and gentle with their charge they look a little bit like padded floating saucers.


Ocean-Going Tugs - These are much larger tugs used to tow vessels over a long journey in potentially hazardous seas.


AHTS (Anchor Handling Towage Supply) Tugs - These vessels provide support for offshore structures in the energy industries, both old and new. They are specially built to be able to raise huge anchors belonging to offshore rigs, tow vessels and platforms where necessary and carry supplies out to them.

CONTRACTS


For a look at the principal contracts involved in Towage work see this article. 

Laytime & Demurrage: A Back-to-Basics Guide

One of the more mysterious elements of shipping law, at least to the uninitiated, are the issues of laytime and demurrage. I thought, for this reason, that it might be useful to do a 'bare bones' guide to the area. As with other areas identified many people use the terminology incorrectly so don't get confused by people saying apparently contradictory things. 

This area of shipping law deals with the general principle that if you charter (hire) a ship to move cargo from A to B at a set price (i.e. a voyage charter), then you should pay the ship compensation if it gets held up whilst loading or discharging the cargo you wanted to move, i.e. if you delay in getting your goods to the port and the ship's journey takes 2 days longer as a result, you should compensate the ship for those 2 days lost. Here is the framework that has developed, in simple terms. 

Ships are not like trains and cannot confirm absolute timetables for being in place A to B, especially when they are 'tramping' (just going where ordered next and not between set ports). So, when you enter a charterparty to hire a ship to move your goods the ship is given Laydays, being the period of days in which the ship can arrive to load your goods. After this point comes the Cancelling Date; if the ship is not there by this date the charterer may cancel the contract, basically because the ship is so late they either no longer wish to move the goods or wish to use another ship. This period is sometimes referred to altogether as the Laycan (Laydays + Cancelling).

When the ship arrives to load or discharge it tenders a Notice of Readiness (NOR) to the charterer, stating that they are ready to load / discharge. After a period of time (normally 6 hours) of giving notification it is considered reasonable for the charterers to have been able to start loading, so Layitme starts to run. Laytime is a period of time set out in the charterparty which gives the charterer an allowance for time to load (often 36 hours, but depends on trade and means of loading - oil tankers load faster than bulk cargo for instance). Once the charterers used up their laytime allowance time switches to Demurrage. Demurrage is a rate of compensation per day (or pro rata per hour) that they must pay to the shipowner for holding up the ship for longer than agreed. 

If the ship is held up for reasons for which the charterer is responsible but outside the running of laytime / demurrage then the shipowner can sue the charterer for Detention. Usually the compensation awarded for detaining the ship is the same as the demurrage rate, because the parties have already agreed a convenient compensation calculation for using the ship's time outside the contract so it is easy for the courts to apply this rate. 

South of England P&I Club

At the weekend we received news that it appeared the South of England P&I Club had ceased trading. The South of England is / was a commercial (rather than mutual) protection and indemnity (third party liability) insurer and covered a range of interesting bulk carriers and tankers, among other vessels.

The International Group of mutual P&I clubs had a North of England and a West of England club, so perhaps the creator of the South of England felt that merely choosing another point on the compass would give the Club gravitas on the international P&I scene, but alas it appears that it was not to be as we hear that the liquidators have been called in. 

We received first notification in writing via the Maritime Advocate circular: 'It is at the Clyde & Co Party at the Merchant Taylors’ Hall that we hear, courtesy of the Senior Partner’s welcome speech that the South of England P&I Club has appointed provisional liquidators in Bermuda and has ceased trading. So we bid farewell to another have-a-go P&I operation, set up outside the International Group Agreement; it joins a list comprising the Oceanus, Sphere Drake, Dragon, OMM and Pacindat to name but a few. It only goes to show that the market outside the IGA is demanding and only the very long term players in the fixed market can really cope. The short span of attention, which invests your very average insurance operation simply will not sustain a business with low general underwriting profitability, accomplished claims handling and a claims tail of 30 years or more.'

That seemed relatively final and was confirmed in a later article in Insurance Day, but it clarified that the liquidators were actually called in by the company's auditors, KPMG. Later in the day we could see in Lloyds List that the Club was actually promising to fight the appointment of liquidators in Bermuda and intended to keep trading. However, looking at the news from the Club throughout the year it does appear that the writing is on the wall for the venture. If or when it does cease trading it will join a long list of commercial P&I ventures which have failed to maintain a long-term presence in the market.


The South of England started trading in 2004 and was registered in Bermuda, but appears to have been managed from Zurich, with most of the day-to-day claims management and some other services taking place in the Club's UK base in Brighton.

The "Rena" Grounding in New Zealand - What Limit Applies?

The "Rena" ran aground on a reef off the North Island in New Zealand on 5 October 2011. It is predicted to be the worst maritime disasters in New Zealand's history. Questions quickly began as to what the total cost would be and whether the shipowner (MSC is reported to have had the container vessel on a 5 year hire agreement) would be able to limit. I have heard a lot of speculation about what the result will be but in my opinion the vessel will be able to limit its liability to around USD 9.5 Million (considering that no direct fault of owners or charterers is alleged and proven).

There are 4 main conventions which apply to limitations for release of oil. The difference is extremely confusing but hopefully the following provides a brief 'idiot's' guide.

1. The CLC Convention - This would normally be the first port of call for an oil pollution claim. However, it only covers persistant oil - i.e. heavy oil carried as cargo by oil tankers. It will not therefore apply.

2. The 1992 Fund Convention - In the same way as above this would not apply.

3. The Bunker Pollution Convention - This convention was brought in specifically to deal with the effect of large oil spillages from commercial vessels due to them spilling their own fuel (bunkers), rather than a cargo of fuel they were carrying. The New Zealand government has supported its implementation recognising that in the last ten years the worst oil pollution incidents in NZ waters have been bunker spills, however, to my knowledge they have not yet ratified or acceded to the convention. It therefore has no effect.

4. The LLMC 1976 - This is the convention that will probably therefore apply by default, as implemented into NZ law in the Maritime Transport Act 1994 . It is very broad brush and does not even specifically mention oil but the limit for claims which do not involve injuries to people or passengers are as follows:
(a) in the case of a ship of not more than 300 gross tons, 83 333 units of account:

• (b)     in the case of a ship of more than 300 gross tons, but not more than 500 gross tons, 167 000 units of account:

• (c) in the case of a ship of more than 500 gross tons, 167 000 units of account* plus a further number of units of account calculated as follows:
  • (i) for each gross ton of the ship from 501 to 30 000 tons, 167 units of account; and
  • (ii) for each gross ton of the ship from 30 001 to 70 000 tons, 125 units of account; and
  • (iii) for each gross ton of the ship in excess of 70 000 tons, 83 units of account.

Therefore the limit can be calculated as follows:
a. 167,000 SDR (for the first 500 GT)
b. 29,500 x 167 SDR = 4,926,500 SDR (for 501 to 30,000 GT)
c. 7,209 x 125 SDR = 901,125 SDR (for 30,001 to 37,209 GT - the GT of the "Rena")
Total = 5,994,625 SDR (or) approx. 9,500,000 US Dollars at today's rate of exchange.

* A 'Unit of Account' means a Special Drawing Right - see this article for an explanation of what this is. 

What is the Difference Between a Port, Quay, Pier and Wharf?

These terms are sometimes used interchangeably, but there are differences between each which it is useful to remember.

A Port is generally a description of a place on the coast which has facilities for boats or ships to call into, and usually a village or town attached. Normally these places developed because the natural features at that particular part of the coastline (a break in the high cliffs, an area of deepwater where the coast is rocky etc.). Because a port is a description of a type of function, ports can look very different from one another and a port may contain all of the things listed below (wharfs, quays, piers etc.). Porto Cervo, in Italy, is a good example.

A Wharf is a man-made structure on a river or by the sea, which provides an area for ships to safely dock. Some are very intricate, with multiple types of berth over a large area, and navigable channels, and others (like this one, below, from Australia) are more straightforward. A Wharf can contain quays and piers and will normally have buildings within it to service the ships (often warehouses and offices). Because of their abundance of unusual buildings and ready-made water features, unused wharfs are often converted into expensive retail and housing areas (for instance Canary Wharf and Butler's Wharf in London).

A Quay is, technically, a part of the river bank or coastline which has been modified so ships can dock at it parallel to the shore. This boat is moored at the quay in Poole, England. 

A Pier is a, normally wooden, structure which protrudes from the shore at a level above the water level, allowing ships to disembark passengers in the deeper water further out. The length of the pier may also provide berths for smaller boats.

Common Bulk Cargoes

When a layperson glances at a modern Bill of Lading from a bulk carrier they often ask what cargo is being carried. This is because in order to avoid claims or delivery disputes, the Bills are very specific about exactly what is being carried, rather than using an understandable description. Here is a short guide, which like all our articles we will expand on over time, to the real-world meanings of common cargoes listed as being carried.

SOME COMMON MODERN CARGOES

FAME - Fatty Acid Methyl Esther - These are basically fatty acids (types of energy-rich acid taken from animal fats, vegetable oils), mixed with a pure alcohol (methanol) so they can be stored in a concentrated liquid form. They can readily be stored and transported and the ship's tanks can be relatively easily be cleaned after discharge. The exact quality and type is very important as the type of use and value can vary greatly. Some FAME cargoes may be used at destination for creating food products, face creams or tablets; it would be very important that such a cargo was not contaminated. But equally you could have a shipment of FAME which was old grease and oils collected from restaurants, and other sources, being transported for use as biodiesel (natural diesel) - this would be less valuable. FAME is a very common cargo in modern shipping because of its wide array of applications.


Swarf - metal scraps - This is one of those old words which has stuck in industrial use for want of a better replacement. Swarf used to refer to little bits of metal which fell on the floor whilst you were cutting or working with metal. They used to be of concern primarily as a safety hazard, because even a very thin slice of scrap metal lying on a floor or bench can be a real danger but today with the market price of all metals soaring they are better known as bulk shipments where scrap metal of all kinds is mixed together for shipment to scrapyards for melting down. Sometimes a shipment will just literally be a load of mixed scraps of all kinds (shavings, taps, pipes, cable) and sometimes it will be solid compressed blocks of such scrap. Sometimes you will see basic sorting processes having taken place, lke a designation 'Swarf - 25 MT honey'. This is a reference to scrap of a yellow and gold colour which has been piled together for melting down, as opposed to another lot of scrap madeup of grey metals.

Q: What is a Special Drawing Right?

Anyone looking at conventions involving international maritime law will soon come across the SDR or Special Drawing Right. It is used mainly in the calculation of limitations. An SDR is a creation of the IMF and is essentially like an international currency which cannot be spent. 

It's strength lies in the fact that it's value is decided by the IMF based on a 'basket of currencies' (the Dollar, Pound, Euro and Yen), so it avoids the fluctuations of a single currency when a country announces bad employment data, or a bailout etc. 

The most common concern is what one is worth (the answer is about one Euro - normally). The specific information is available directly on the IMF website, but a much easier way is to just use a conversion site like XE. The international 3 digit currency code for the SDR is actually XDR, so just scroll to the bottom of the extended currency list and choose convert XDR into whatever currency you like. 

Article: The Growing Business of Armed Guards on International Ships (to Counter Piracy)

We often wonder, when reading of news stories involving piracy, who are the people at the forefront of dealing with this problem day to day. I mean if you mention any of the places we commonly associate with piracy to a 'normal' marine professional / surveyor they would baulk at the offer of a trip there or a project involving sorting something out there. 

However, one company that springs to mind is Gray Page. They specialise in maritime investigations, crisis management and providing plans and intelligence in handling such situations. Check out their website for further information (linked above).

One of the issues they are presently warning about is the fact that there is an increasing need to vet companies offering armed guard (private security services) services to vessels. This is a burgeoning market at the moment and it appears that some think that a cautious approach needs to be taken to those rushing to enter the market.  

Gray Page advised that the IMO's Maritime Safety Committee’s (MSC) recently approved interim guidance on the employment of privately contracted armed security personnel (PCASP) to combat piracy underlines the requirement for independent vetting of private armed maritime security providers (AMSP).

The MSC guidance, issued in May, incorporates recommendations for flag States confirming that it is the responsibility of individual flag States whether to ordain the carriage of security personnel and their firearms on board ships sailing under their flags. Further interim guidance, for shipowners, ship operators and shipmasters, seeks to address the difficulties faced in selecting an appropriate provider of armed security services.

James Wilkes, managing director, Gray Page, commented: “The IMO should be commended for setting these guidelines focused, as they are, on ensuring that the provision on board of armed maritime security teams is managed safely and lawfully.”

“For a shipowner, employing the services of an armed maritime security provider is an exceptionally serious proposition, as the logical consequence of putting men with arms on board a ship is, fundamentally, to sanction the potential use of lethal force to defend the crew and vessel (albeit in extreme and proscribed circumstances). Any decision of such importance should be supported by comprehensive and objective due diligence.”

Gray Page has launched an ‘Armed Maritime Security Provider’ Vetting Programme to provide shipowners with a reliable and independent means of vetting prospective providers of armed maritime security services. The programme helps shipowners objectively and comprehensively evaluate prospective providers against professional, legal and ethics-based criteria encompassing corporate probity, financial substance, regulatory and legislative compliance, commercial experience, contractual integrity, operational and logistical capability, weapons licensing and accountability, and the selection, recruitment and training of security personnel.

About one in ten vessels off the Somali coast already carry armed guards. The IMO claims there were 489 reports of piracy and armed robbery against ships in 2010 - up more than 20% on 2009. So far this year more than 200 cases have been reported.
 
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Update October 2011 - We are told that the North of England P&I Club (a member of the International Group of P&I Clubs) has partnered with Gray Page to provide armed guard vetting services to all its members.