Shipping giants lift oil fleet capacity

Xin Jin Yang, a newly-bulit oil tanker made for the China Shipping Group, berthed in Dalian on Friday, July 23, 2004. The tanker has a capacity of 300,000 deadweight tons.

China's shipping firms are expanding their crude oil tanker fleet transportation capacity to help safeguard the nation's vulnerable oil supplies.

This is under a government-backed plan to increase domestic companies' share in the delivery of Chinese oil imports.

China Ocean Shipping Group (Cosco) President Wei Jiafu said that the firm, the nation's largest shipping company, plans to build 15 very large crude carriers (VLCCs) by 2010, to become China's largest crude shipping fleet.

Cosco currently has a total of seven VLCCs in its fleet.

The total value of the fleet will reach US$1.2 billion.

Cosco is expected to expand its crude oil fleet to nearly 4 million deadweight tons by 2007, from the current 1.94 million deadweight tons.

China Shipping Group, the nation's second-largest shipping firm, is also building up its fleet. The company's first VLCC was delivered in Dalian, Northeast China on Friday. It has a capacity of 300,000 deadweight tons.

A similar VLCC will be completed next year.

According to financial news agency Bloomberg, Chinese shipowners bought at least 10 tankers this year, with a capacity to ship a total of over 2 million tons of crude.

China's crude oil tanker capacity was 5.2 million tons last year.

China's crude tanker fleet transportation will increase to 10 million tons by 2005, said Zhang Guofa, deputy director of the water transport department at the Ministry of Communications.

Domestic shipping firms have been urged by both government and experts to increase their share in the delivery of crude imports to China.

About 90 per cent of China's crude imports are currently transported by foreign ships.

Just 10 per cent of imports are carried by the domestic fleet, largely due to domestic firms' insufficient shipping capacity.

The government is concerned that China's oil supplies may be disrupted in the event of emergencies and conflicts, given the nation's heavy reliance on foreign tankers.

Oil imports currently account for one-third of the country's consumption needs, with the proportion likely to rise to half of the nation's consumption needs by next year.

"More than 90 per cent of Chinese oil imports are delivered by sea," said Zhou Hongchun, a researcher at the Development and Research Centre under the State Council. "When this is controlled by foreigners, it poses huge risks to China."

Experts also said the shipping companies are expanding their fleets to cash in on the rapid increase in Chinese oil imports.

China's crude oil imports rose year-on-year by 39 per cent to 61.02 million tons, about 447 million barrels, in the first six months of this year.

State oil companies and shipping companies have been increasing their co-operation since last year. Sinopec, which accounts for more than 80 per cent of China's total imports, last year established a strategic partnership with Cosco and fellow shipping giant China Merchants Group.

According to the agreements, Sinopec is allowing more oil imports to be carried by the two shipping companies which, in turn, are offered discounts on freight charges.

China Shipping Group Deputy General Manager Sun Zhitang said Chinese shipping firms would be capable of shipping about 30 per cent of the country's oil imports in five years.

Luo Ping, an expert with the logistics research institute under the National Development and Reform Commission, said it is an opportune moment to expand the domestic crude tanker fleet.

"International fleets are renovating their ships built in the 1970s. This provides opportunities for us to enter the market," said Luo, adding that domestic oil companies can also reduce the risk of foreign currency fluctuations by using Chinese crude tankers.