TANKER CHANGES FIZZLE
INDUSTRY RESISTS DOUBLE-HULL SHIPS

By DAVID WHITNEY
Daily News reporter

WASHINGTON- Sixteen months after the Exxon Valdez oil spill, Congress enacted legislation requiring oil shippers to replace their fleets with safer double-hulled tankers.

The arguments for it were compelling. Studies by the Coast Guard and others said that if the Exxon Valdez had been built with a more protective second skin, the size of the 11-million-gallon spill would have been cut by 60 percent to 80 percent.

Sen. Ted Stevens, R-Alaska, hailed passage of the bill. He said the Alaska oil industry, producer of a quarter of the oil pumped in the country, would be the first to see older single-hulled ships replaced.

"I believe the new double-hull tankers will be brought into the Alaska trade as fast as they can get there," Stevens said.

U.S. shipyards also were delighted by passage of the 1990 Oil Pollution Act, predicting orders for 70 new tankers by the turn of the century.

Five years later, however, those predictions are proving to be wrong.

Orders have been placed for only a few double-hulled tankers, none of which is destined for the Alaska trade. And many who follow or are involved in the North Slope industry don't envision new tankers arriving anytime soon.

There are about 40 tankers that carry North Slope oil. Under the 1990 law, half will be phased out of service by the turn of the century. The rest are younger, and some were built with double bottoms or hulls. But even those will be idled in 10 or 15 years.

So why aren't new ships being ordered?

According to some in the oil industry, the answer is uncertainty about North Slope production, which peaked in 1988 and has been declining since.

"We've got a decline in crude oil production," said Art Stephens, spokesman for Exxon Corp.'s shipping subsidiary, SeaRiver Maritime Inc. Exxon is Alaska's number three oil producer.

Less oil means less need for tankers.

"With the cost of building new ships, you've got to have some feel that it will have use on a long-term basis," Stephens said. "One of the pieces is what oil will be here out through the future."

Predictions of declining production are not universal, however. Cambridge Energy Research Associates reported last month that more oil could be produced from the North Slope in 2005 than is being pumped today.

The bigger uncertainty, according to some analysts, is who will buy that oil.

At present, North Slope oil may not be exported. The Alaska congressional delegation is pressing to lift the 22-year-old ban. If that happens, the kinds of tankers needed could undergo dramatic change.

Walt Parker, an Anchorage energy consultant, believes the oil industry is using declining production as an "excuse" to avoid fleet replacement until they know better what kind of tankers will be needed.

New double-hulled tankers can cost upward of $40 million. Art McKenzie of the Tanker Advisory Center in New York said no company is likely to invest in tankers to carry oil to West Coast refineries when there's the possibility that big chunks of the market could shift across the Pacific Ocean.

The risk, he said, is that they would end up with "white elephants" -- smaller tankers built for shallow-water ports on the West Coast when market economics favors putting the oil on supertankers destined for new Asian customers.

The extent of that risk may not be known for some time. Assuming the ban is lifted, an international dispute over who ships that oil is virtually certain.

Under export legislation approved by the Senate Energy and Natural Resources Committee, the oil would be carried on U.S.-flagged tankers manned with U.S. crews.

That requirement was negotiated by British Petroleum, the North Slope's biggest producer and the industry leader in the export battle, to win the support of U.S. maritime unions. Many think it violates international trade agreements.

U.S. Trade Representative Michael Kantor believes there's no problem. But 14 nations and the Commission of European Communities have expressed "grave concerns" about the bill.

Si Nunn, vice president of the Shipbuilders Council of America, thinks the World Trade Organization ultimately will rule that foreign owned and operated ships should be able to carry the Alaska oil to Asia.

World economics favor that result. According to Energy Department figures, it is substantially cheaper to ship Alaska oil to Japan on foreign supertankers than to take it by domestic tanker to West Cost ports.

The long-term goal for BP is to open to development the Arctic National Wildlife Refuge, east of the North Slope oil fields, Nunn said. "When that comes on line, the company wants the freedom to export the oil on foreign-flagged bottoms, even to U.S. ports."

BP spokesman Tom Koch disagreed that there's some hidden company strategy. He said BP believes the export restrictions proposed in Congress are legal. He refused to "speculate" on what might happen if the export provision is sunk over an international trade flap.

But according to McKenzie, whose organization monitors tanker operations worldwide, it is this market uncertainty over the export issue that makes North Slope shippers reluctant to commit the cash needed to rebuild their domestic fleets.

"Until this is settled, I don't see anyone placing orders for double-hulled vessels," McKenzie said.

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