Introduction: Shell Transport & Trading Company has played a role in UK shipping since 1892 when the first bulk oil tanker, Murex was constructed in Har-tlepool.
Built to rigorous new safety standards, Murex became the first tanker to transit the Suez Canal. Shell tankers were instrumental in creating a global market for oil.
The involvement with the shipping industry continued through the many changes of the last century, and Shell executives have continued to contribute to industry bodies such as the Chamber of Shipping.
The Chamber of Shipping enjoys a very special position in the United Kingdom - as the representative body for the entire shipping industry.
We, at Shell, have been active members of the chamber and its predecessor, the General Council for many years. We have also been proud to see the leaders of Shell’s Shipping business as Presidents of the Chamber - over recent years Richard Tookey, Juan Kelly and Paul Skinner have all held that position.
My predecessor as Chairman of the Shell Transport & Trading Company - Sir Marcus Samuel – who also found time to be Lord Mayor of London - could justifiably claim to have been the founder of bulk oil shipping.
His tanker Murex, purpose-built at Hartlepool to meet rigorous new safety standards, made the first tanker transit of the Suez Canal in 1892, shipping kerosene from the Black Sea to Singapore to undercut Standard Oil’s then dominant position in Eastern markets.
Shell’s Maritime Heritage:
Looking back over more than a century, that voyage was a critical milestone for Shell.
There are several reminders of a maritime heritage in my office. A seventeenth century Dutch painting of the invasion of Chatham on the Medway by de Ruiter in 1667 – in which the sea is littered with sinking British ships and the buildings on land all flying enormous Dutch flags.
I have sailed myself in a modern yacht up the Medway and to get a fleet of seventeenth century warships up that winding enemy river under sail was a major feat.
But we were all taught in school that England was last invaded in 1066, so I keep that painting there to remind people that even such a sober nation as the Dutch are sometimes guilty of a little exaggeration, and history is not always what we are taught.
Then there is the bell from the Shell Tanker Amastra, damaged and almost sunk while discharging in Nhatrang, Vietnam, by Vietcong frogmen with limpet mines.
She was returned to service for 17 years before retiring, but her ships bell has adorned the Chairman’s office ever since.
As a sailor I worry about the purpose and symbolism of this. As the mariners here will know, ringing the bell rapidly for about five seconds every minute, immediately preceded and followed by three separate and distinct strokes, indicates that you are aground in fog.
Interesting Times:
Both the energy and shipping industries are living through interesting – and exceedingly unpredictable – times. In the oil business we have seen price volatility near record levels in the last two years.
Gas prices have also risen sharply. The tanker market has reached record price highs – in all vessel categories. Marine environmental concerns are once again center stage following the Erika accident off the coast of France.
The World Trade Organization is virtually under siege; global multilateral trade liberalization has stalled. Sadly, the follow up to the Kyoto global warming talks collapsed.
Because of the difficulties in creating global solutions to address issues from Climate Change, through global trade, to shipping, individual countries and regional groups are trying to create local and regional solutions.
Many of these are, in themselves, worthwhile – but both energy and shipping are global industries. We need global solutions.
I am sorry if I appear to be cataloguing concerns. I certainly don’t want to upset your enjoyment of this evening or the feeling of satisfaction following a year of, for many of us, much improved business results.
However, the strong markets we have seen are almost certainly not going to last. For a variety of reasons I believe they are fundamentally unsustainable. Consider the oil market – which still sets overall energy prices.
Following spot prices less than 10 dollars a barrel in late 1998, three production cuts by OPEC countries turned the market and sent it sharply upwards.
Ancillary factors – refinery runs, stocks levels – then combined to maintain high prices and push them even higher as this winter began.
OPEC has increased production four times during the course of last year, and yet it was only recently that prices began to fall. Non-OPEC production also rose by about 1.5 million barrels a day.
Consequently there is a lot of oil in the pipeline - and in tankers - right now. This has been the price drive of oil shipping markets.
Once we pass winter we are likely to see a potential supply surplus once again. Stocks will have returned to historical levels and start to put downward pressure on prices. OPEC has recognized the need to make early cuts if their target price is to be achieved.
No Price Predictions:
Now, I have been around too long to risk my reputation on predicting the oil price. It is, as the old saying goes, the surest and quickest way to ruin in this business. It is a bit like predicting the weather.
We can see the general conditions emerging but we can’t say when the storm is going to break, or exactly how much rain will fall.
We do know that the full non-OPEC marginal cost of production is somewhere in the mid teens, way below the mid twenties that OPEC is now aiming at.
As confidence in OPEC’s management of prices increases, a lot more development projects get underway. There is ample oil in non-OPEC countries and OPEC countries with pressing development needs, which can be produced profitably at $15 per barrel. It takes time but eventually it appears - and some substitution also takes place.
Eventual fall likely:
So, the longer it stays high, the more supply comes on stream and the more likely an eventually price fall becomes.
The pendulum swings harder. All other things being equal, we are likely to see more volatility in oil prices in the coming years, not less. You could be forgiven for thinking this sounds a bit like the shipping business!
A significant rider needs to be added to this general overview, of course. Oil remains the world’s single most important strategic, and hence political, commodity.
Political forces – developments -could change and that could change the price outlook – we just don’t know.
Along with increasing volatility, one of the more interesting developments in energy is the rapid growth of gas. Gas is the cleanest hydrocarbon and so is likely to take an increasing share of energy markets.
In the United States, 96 percent of new generating plants are gas-fired. The LNG trade has expanded from its East Asian base and is now becoming global.
We are very likely to see the emergence of an international LNG trading market in the coming years and, as you know, specialist shipping is a key feature of that trade.
Driven by environmental concerns, and this will be spurred by today’s relatively high energy prices, significant amounts are being invested in non-hydrocarbon technologies. In Shell we are investing in wind, photovoltaic – that is, solar cells – and biomass.
We have a variety of different ventures and business models – in many different parts of the world. Moreover we are investing in hydrogen fuel cells – which is a technology that still has technical problems to overcome, but is well worth keeping an eye on.
Overall, it would be fair to describe the energy industry as being in a period of flux. We are not exactly on the cusp of a brand new era as yet.
However we are definitely at an inflexion point. New technologies are emerging, as are new business models.
I can’t claim to be as familiar with the shipping industry as I am with the energy industry. But, due to the co-dependence of the industries and their long and intertwined histories – not least in Shell – I think I can make a few observations.
Tonnage Tax welcome:
Here, in the UK, the relatively new tonnage tax is I am sure, very welcome to many in the industry and I hope will provide e a vital stimulus to both British shipping and shipbuilding.
I understand some are disappointed that this arrangement has not yet generated as large a British-flagged fleet as had been hoped for.
These things take time, and, of course, there are other Red Ensign registers that also, in the broadest sense, contribute to Maritime Britain.
Moreover the training implications of the tax are clearly of benefit to everyone. We in Shell maintain a significant training commitment to support of our operational fleet of around 50 ships.
Taxation is always an important variable. At the moment however, high market prices have all the attention.
Pricing in shipping, as in oil, is complex. The overall global economy is more volatile today than in recent decades.
The energy industry, as I have described, is likely to be more volatile. It would be nice to be able to predict more stable prices for tanker shipping in the coming months – but, as with oil prices, I am afraid that is most unlikely.
Perhaps I could turn now to another important factor, which I believe will shape shipping markets in the years to come. That is the environment Arguably through pressures on vessel quality - it is already having a significant impact on market rates.
In earlier decades the energy industry made serious errors in not adapting to, or even anticipating the depth of environmental concern. I believe we have now well and truly learnt that lesson.
For us one of the key issues was the effect of fuels on local air quality particulates, lead and sulphur in petrol. We focused on technical details but perhaps failed to appreciate the overall strength of the air quality argument.
Similarly, the recent failure of the climate change talks should not diminish our resolve to find long-term solutions - which address this critical global issue.
We must look past the technical arguments and focus on what people all over the world want - which is for us in the energy industry to do something about it! Our biggest contribution to societies everywhere has to be the provision of abundant, reliable, and economic low impact energy.
Get sub-standard shipping out:
For shipping I believe the pre-eminent issue today is to get sub-standard shipping out of the market. We need to harness the energy of port authorities, of classification societies, of flag states and of chatterers to work together, to take these vessels out of the system.
Some say to me - well, you are one of the biggest companies, you do it and then everybody else will follow. To the best of our ability and knowledge we have done so. But that just means those ships go off to another company.
Getting them out of the industry – and hopefully into the scrap yards – is not a job just for companies; it is a job for government, and for international agreements.
At the moment, as I mentioned earlier, we are seeing many global – international – arrangements and agreements fall into disrepute and even disuse.
These range from agreements under the World Trade Organization, right through to global tanker standards, and on the industry level, arrangements for compensation for oil spills.
For me there is no more dangerous international trend. Regional standards often contain excellent ideas and models. But, they remain regional band-aids for problems in a global industry.
In the shipping arena we should preserve and build on tried and tested international mechanisms, which protect the rights of claimants following oil spills. I believe that there are a few simple principles on which these arrangements must be based.
Public rightly concerned
The public and governments are rightly concerned that clean up and compensation funds are adequate to an increasingly complex task. But there is a lot of ignorance on who pays, illustrated by the loud calls for “the polluter” to pay.
This is rightly an industry problem – one accident affects us all, cargo and ship owners alike. The words of that great Elizabethan poet and writer John Donne are apt: “No man is an Island, entire of it self; every man is a piece of the Continent, a part of the main; if a clod be washed away by the sea, Europe is the less, as well as if a promontory were, as well as if a manor of thy friends or of thine own were; any man’s death diminishes me, because I am involved in Mankind; And therefore never send to know for whom the bell tolls; it tolls for thee.”
So who pays? We all pay. For example, under the International Oil Pollution Convention, the cost to Shell of the “Nahodka” sinking off Japan in 1997 and of “Erika” off the coast of France last year may well be tens of millions of dollars, even though Shell had absolutely no connection with either of these ships or their cargoes.
First line of responsibility:
However the first line of responsibility has to remain with the operator of the vessel. To use an American expression, the operator must have “skin in the game”. After all he has prime responsibility for the vessel.
We also need to have confidence that Classification Societies provide reliable surveys and have some responsibility if a ship’s structure which they have certified is later found to be deficient following an accident.
We have, through the Oil Companies International Marine Forum, given strong support to the first tranche of European initiatives on maritime safety following the “Erika”.
However, it is worrying to see the Commission suggest, in their latest proposals, that oil receivers - uniquely - should bear the burden of any accident in European waters over and above the existing Fund Convention limits.
System tried and tested:
I believe that the tried and tested international system involving both ship owners and cargo receivers provides the model for the way forward, and I suggest at we should support the IOPC working group that is tasked to review the various international conventions and bring them up to date.
A regional band-aid solution will only have the effect of weakening, possibly destroying, the international system in which the responsibilities of the various parties are well understood.
I have been involved in attempts to get international agreement on complicated issues – and I am acutely of the frustrations involved. But, today’s world is in many ways extremely small and highly wired.
We need to take account of public concerns and demonstrate that we are addressing them. We must persist, no matter what the difficulties and setbacks, in the drive to ensure global standards, global agreements and global solutions.
To me there is some irony in these patterns. Just as Internet technology is making business truly global and all of us international, the world community seems to be retreating from international solutions.
Faith in institutions:
Ladies and Gentlemen.: We live in a time of growing challenges and of perhaps even greater complexity. Despite that, I am very optimistic because I have faith in the basic quality of the institutions we have built - both in this country, and internationally.
In shipping we can make things better. We can remove the poor-quality ships from the market. We can take the best regional ideas and make them global. Our long and proud heritage should be a source of inspiration for all of us.
We can help set and achieve the highest standards. Apart from meeting society’s reasonable expectations, it is simply good business to do so.
Mark Moody-Stuart, Chairman of the Committee of Managing Directors (CMD) of the Royal Dutch/Shell Group of Companies and Chairman of The "Shell" Transport and Trading Company, plc. at The Chamber of Shipping Annual Dinner, London, UK
Source:SHELL.COM
© 2001 Mena Report (www.menareport.com)
