Global crude oil and refined product trade flows have reshuffled after the Russian attack on Ukraine. Sanctions have closed off certain markets, such as Europe and forced a rethink about how to best serve more distant new markets (like India and China). In this context, it appears that oil (both crude and products) is increasingly being handled through so-called ship-to-ship (STS) transfers. Why is this the case and do we expect this trend to continue?
Ship-to-ship transfers are not a new phenomenon. STS transfers have been used for many years in different parts of the world. It is mostly driven by the shipping industry’s drive to maximize economies of scale. It is much cheaper on a dollar per barrel basis to move oil in a VLCC, which can carry 2 million barrels than in a Aframax, which ‘only’ carries 700,000 barrels. However not all ports or terminals in the world can accommodate VLCCs. Due to draft restrictions, most U.S. ports cannot accommodate fully laden VLCCs. Hence, STS operations have been used in the U.S. Gulf for decades, initially to discharge VLCCs coming from the Middle East, but since 2016, increasingly also to load VLCCs for crude oil exports to Asia and (more recently) Europe. STS operations are also used for refined products. In West Africa, for example, full laden LR1s or LR2s arriving from Asia or Europe transfer their cargo into multiple smaller vessels who distribute the product along the West African coast. When done properly, STS operations are safe and efficient.