Oil, Gas and Shipping Magazine

ISSUE 86 www.ogsmag.com

Saudi Aramco: Where energy is opportunity Page 24

Also in this edition: Iran: New opportunities and new risks. Page 38

• The Editor

Meet the new year, same as the old year

Editor

The

A

new year always gives us something to look forward to, but there can’t be many in the oil, gas or shipping industries who expect 2016 to be a very happy one.

In 2015, the offshore oil and gas industry experienced the worst downturn for more than a decade. A year ago, people were wondering how long the price of oil could stay below $100 a barrel. Now we’re wondering how long it can stay below $50, or worse. A year ago, oil companies were contemplating how to cut costs and capital expenditure in 2015. Now they’re wondering what’s left to cut after laying off thousands of workers and putting long term projects on hold.

With oil expected to flow westwards out of Iran before the end of the year, adding to global oversupply, it looks like 2016 will see more pain before any gain, unless OPEC reverses its strategy of supporting market share rather than price or a completely unexpected geopolitical event occurs to stoke

Martin Ashcroft

global demand or curb supply.

And that’s just oil and gas. The shipping industry has suffered alongside oil and gas, partly because of the interdependence of the sectors (and the decline in the minerals resources sector, too). Toshi Yamazaki, COO of SAL Heavy Lift, says in this magazine that the shipping industry can expect more troubled waters in 2016. Also in this issue, global shipping consultancy Drewry predicts an acceleration of freight rate reductions and industry-wide losses in 2016.

I’m sorry to be so frank, but you know how it is. Some observers can see light at the end of the tunnel, but most expect the tunnel to continue into 2017. As I said about the mining industry in my editorial for our sister magazine, oil & gas is a long term business and cycles are to be expected. Prices will rebound eventually, and markets with them. The trick is to still be in the game when the upturn happens.

•

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3

Contents Page 24

Saudi Aramco: Where energy is opportunity

3

The Editor: Meet the new year

21

Peel Ports acquires Great Yarmouth port

7

East Africa in need of export pipeline

23

Harding wins lifeboat contract for Sleipnir

9

INEOS wins new UK shale gas licences

24

Saudi Aramco: Where energy is opportunity

13

Statoil developments

38

Iran: New opportunities and new risks

17

Bibby Marine Services orders vessel from Damen

50

Comment: More troubled waters for shipping

18

New man-riding winch from Protea

52

Comment: Ballast water treatment

19

Trelleborg unveils seal inspection facility

54

Belize Natural Energy: Forces of nature

19

ABB chosen for Azebaijan pipeline contract

68

Interview: TV presenter and ‘cruiser’ Keith Maynard

72

Waterfall Security Solutions: Defence against cyber pirates

80

Comment: Container shipping outlook

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News & Features Editor:

Page 72

Waterfall Security Solutions

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Page 38

Iran: New opportunities & new risks

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Oil, Gas and Shipping Magazine 2016

Page 50

More troubled waters for shipping

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• News & features

News in Brief The first of Damen’s new LoFlo

ballast water treatment systems (BWTS) has been delivered for installation in January 2016. The LoFlo 60 will be fitted on board the Royal Netherlands Navy’s (RNLN) submarine support ship and torpedo tender HNLMS Mercuur (A900), as part of a maintenance and refit programme currently underway at Damen Shipyards Den Helder in the Netherlands. * * *

The Chinese cabinet has approved the merger of the country’s two largest shipping lines, China Ocean Shipping Company (COSCO) and China Shipping Group Company. The merger will create the world’s fourth largest container shipping company.

China COSCO, COSCO Pacific, China Shipping Container Lines (CSCL) and China Shipping Development (CSD) will consolidate to create a company with a fleet of 288 container ships and total shipping capacity of approximately 1.6 million TEUs. * * *

Dubai based integrated shipyard

Grandweld has delivered a new dive maintenance and support vessel TAWAM1 to Abu Dhabi National Oil Company (ADNOC). Grandweld designed and built the 50 metre long vessel from conception to completion, after signing a contract with ADNOC in December 2013. TAWAM1 is equipped an offshore lifting crane with a capacity of 35 tons at 7.5m reach. It will be operated by ADNOC’s group company, Abu Dhabi Petroleum Ports Operating Company (IRSHAD). * * *

China’s apparent oil demand rose

1.5% in November from a year earlier to 10.95 million barrels per day (b/d), according to the Platts China Oil Analytics report on the latest Chinese government data.

It was the slowest growth since February 2015—due to a drop in fuel oil and gasoil demand and softer growth in demand for liquefied petroleum gas (LPG).

Export pipeline would catalyse East African oil

W

ith recoverable oil reserve estimates of approximately 750 and 600 million barrels in Uganda and Kenya respectively, and with government share of the reserves expected to be about 30–50%, the potential impact on economic development in these countries could be great. However, new infrastructure, including an export pipeline, is required to enable commercialization of these discoveries, says an analyst with research and consulting firm GlobalData.

Overall oil production in Uganda is forecast to peak at about 200,000 barrels per day (bd) by 2023, while Kenya’s production is estimated to reach approximately 85,000 bd by 2027, provided the export pipeline is in place.

According to Jonathan Markham, GlobalData’s upstream oil & gas analyst, while a range of possible pipeline routes to ports in Lamu, Mombasa or Tanga have been proposed, upstream development in the region has stalled due to a lack of progress in developing an export route for these inland discoveries.

“Operators have been lobbying for an export pipeline since the discoveries were made to enable development of the area,” Markham explains. “Tullow Oil and Africa Oil have cautiously welcomed progress made in agreeing

a pipeline route from Uganda through northern Kenya to Lamu, but Total prefers routes further south, citing security concerns in northern Kenya.”

The analyst adds that the development of an export pipeline would also be a driver for upstream exploration in the region. Some blocks have already been licensed by governments in central and eastern Africa, but the remote locations have dampened interest from major oil companies.

“Current license holders view new basin exploration as an area with high growth potential, with South Sudan, Ethiopia, Tanzania, Rwanda and the Democratic Republic of the Congo all possible beneficiaries of new pipeline routes,” adds Markham.

“Discoveries in Kenya and Uganda have favourable subsurface characteristics and relatively low exploration and appraisal costs compared with the deep-water dominated exploration in West Africa. Estimated full-cycle capital expenditure per barrel for these upstream developments is about US$8–12, which is increasingly enticing, as the oil and gas industry cuts back on costs. However, without an economical export route, the inland discoveries will remain commercially unviable at current oil prices.”

•

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7

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• News & features

I

INEOS wins new shale gas licences in UK

NEOS has been granted 21 new shale gas licences in the final part of the UK Government’s 14th licensing round. The company was awarded 700,000 acres on top of its existing 300,000 acres, making INEOS the biggest player in shale in terms of UK onshore oil and gas licenses, giving it access to 1 million acres of potential shale gas reserves.

The Department of Energy and Climate Change awarded the licenses in the East Midlands and the North West, including Runcorn, close to the INEOS manufacturing facility in the town, along with additional licenses in North Yorkshire, close to INEOS’ plants in Hull and Newton Aycliffe.

All licenses awarded by DECC are subject to planning permissions

communities.)

“This is the start of a shale gas revolution that will transform manufacturing in the UK,” said Jim Ratcliffe, INEOS Chairman. “INEOS has the skills to safely extract the gas and we have already committed to both fully consult and to share the rewards with the local communities.”

INEOS is in the enviable position of being able to use shale gas as both a feedstock and a power source. The fuel could therefore help underpin the competiveness of INEOS’s manufacturing sites across the UK for years to come.

Potentially these new “shale economics” could bolster the wider UK manufacturing sector as they have done in the US.

and INEOS has committed to full consultation with all local communities before proceeding with any shale gas development. The company has also committed to share 6% of revenues

“This is the start of a shale gas revolution that will transform manufacturing in the UK”

with homeowners, landowners & communities close to its shale gas wells (4% to homeowners and landowners directly above wells and 2% to the wider

Total and BP present at International Petroleum Week Patrick Pouyanné, chairman and chief executive officer of Total, will address delegates at International Petroleum (IP) Week on Thursday 11 February to share his views on the industry and Total’s activities in the current environment.

This session will be preceded by a breakfast briefing from BP’s group chief economist, Spencer Dale, as part of this year’s London launch of BP’s 2016 Energy Outlook. The briefing will outline BP’s view of the key factors shaping energy markets over the next 20 years and consider some of the key risks and uncertainties.

These events will be held on the final day of IP Week, which consists of an intense 3-day programme of speaker presentations, debates and discussion on issues facing the oil and gas sector.

Bob Dudley, chief executive officer, BP, will speak on Wednesday 10 February about how the industry should respond to climate change challenges.

IP Week is widely recognised as one of the major global events for the industry, bringing together an impressive line-up of international speakers to review current challenges and opportunities.

•

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• News & features

Protea delivers 50 tonne crane for Statoil FSU

P

olish engineering and equipment manufacturer Protea has recently completed a comprehensive factory acceptance test of its latest 50t SWL ram luffing crane at its state of the art production facility in Kluczbork, Southern Poland. This will now be shipped to South Korea for installation on Statoil’s Mariner FSU. The crane is the second in a pair to be delivered for the FSU currently under construction by Samsung Heavy Industries in Korea. It features a structurally efficient box boom, two hydraulic cylinders for RAM luffing and Protea’s latest control system.

“The Proteus ram luffing crane draws

on the knowledge that my colleagues and I have gained from over 37 years of designing, building and operating

“This is probably the highest specification offshore crane delivered to date” offshore lifting equipment,” explained Tomasz Paszkiewicz, Protea’s CEO. “We

have achieved exceptional performance whilst minimising overall weight, and complying with EN 13852-1 Offshore Cranes standard, DNV N Class standard, the latest NORSOK regulations and STATOIL’s internal requirements - it is probably the highest specification offshore crane that has been delivered to date.”

Following delivery, the crane will be installed by Protea’s commissioning team using the extensive experience gained while working at a number of shipyards and offshore rigs including those in the UK, Norway, Singapore, Australia, Malaysia, China and Korea.

Statoil set to trim Johan Sverdrup development costs

A

s crude drops below $30 a barrel and oil companies prepare for an extended period of low prices, Norwegian producer Statoil is set to cut development costs at the Johan Sverdrup field off Norway, according to a market statement by its partner Det norske oljeselskap.

Statoil now expects the capital expenditure for the first phase of the giant North Sea oil field to be 108.5 billion Norwegian kroner ($12.23 billion), a reduction of nearly 12% compared with the development plan given to Norwegian authorities last year.

The Johan Sverdrup field, the largest industrial project in Norwegian history, is estimated to hold up to three billion barrels of crude and will start producing in the fourth quarter of 2019. The Det norske oljeselskap statement said measures were also being taken to boost the field’s output beyond the estimated 315,000 to 380,000 barrels a day.

Det norske holds an 11.5 per cent interest in the Johan Sverdrup field. Other shareholders include Statoil (40%), Lundin Norway (22%), Petoro (17%) and Maersk Oil Norway (8%).

•

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• News & features

Bibby Marine Services orders walk-to-work vessel from Damen

B

ibby Marine Services has signed a contract with Dutch shipbuilder Damen Shipyards Group for a service operations vessel (SOV) with walk-to-work access.

The vessel, Bibby WaveMaster 1, which will undertake offshore wind project work in the North Sea, is the first vessel purpose-built for the transfer and accommodation of offshore personnel and aims to maximise working time and staff retention.

With wind farms being constructed farther from shore, the SOV with walk-to-work access is able to remain at sea for periods up to one month.

Accommodation is provided on board for up to 45 turbine maintenance personnel and 15 crew members.

“This is much more than just a vessel – it is a total access and accommodation

solution,” said Damen business development manager Peter Robert.

“The development of this vessel has started with a blank sheet of paper, as

offshore wind industry. This is the first time that a wind farm operations and maintenance vessel has been designed exclusively for this purpose. Great care has been taken, over two years of development, to ensure suitability to the tasks for which it is designed.”

Although Bibby will use the vessel to serve the offshore wind industry, the design can easily be applied to the offshore oil and gas sectors.

A host of options are available for the vessel, including an additional deck crane with up to 24 tonnes capability, tank arrangements suited to liquids such as glycols, tanks suited to low flashpoint liquids with separate delivery intakes and facilities for dive support and ROV operations.

Bibby WaveMaster 1 is being built at Damen’s Shipyards Galati in Romania and is expected to launch in mid 2017.

“This is much more than just a vessel – it is a total access and accommodation solution” opposed to being an evolved version of an existing design. It has been tailored specifically to the needs of the

•

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17

Protea further expands its winch range with delivery of its first man-riding winch

P

rotea is well known globally for delivering high quality offshore handling equipment including cranes, winches and launch and recovery systems.

Recently, it has further expanded its product range with the delivery of its first winch certified for man-riding operations for installation on the Maersk Gallant Jack-up rig.

“Given its man-riding application, the certification requirements for this winch were extensive – it is fully compliant with DNV-OS-E101, NORSOK standards R-002 and R-003 and is also CE marked and approved for operations in ATEX Zone 1.” explained Lukasz Tracz, Project Manager.

The winch has a SWL of 150kg and can operate at speed up to 60m/min. Ordered via Protea’s strategic partner Westcon, the winch was recently delivered to Haugesund in Norway for installation on the Jack-up rig.

“Protea can supply a wide range of winches (with hydraulic, electric and pneumatic drive options) to meet the specific needs of its customers. The addition of man riding winches further strengthens our offer and allows Protea to provide a 18

•

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complete suite of handling equipment for offshore platforms such as Jack-up rigs.” added Graham Manning, Protea Global Sales Manager.

Established in 2001, Protea is an international engineering and equipment manufacturer supporting the offshore and onshore energy industry.

Based in Poland and with over 37 years industry experience Protea delivers a wide range of bespoke turnkey handling systems for vessels, drilling rigs and oil producing installations.

The company has a proven track record of supplying high quality equipment to discerning global customers with core products including pedestal cranes, winches and innovative handling systems to meet specific customer requirements.

For more details please see www.protea.pl or contact: Slawomir Przewozniak, Marketing Specialist - Mobile: + 48 660 669 159

• News & features

T

Trelleborg unveils dedicated swivel stack seal inspection facility

relleborg Sealing Solutions has opened a dedicated climatecontrolled swivel stack seal inspection facility for the validation of bespoke seals.

The global facility is based in Barendrecht in the Netherlands, and will help floating production storage and offloading (FPSO) operators achieve the highest possible standards in seal quality.

The facility provides a temperaturecontrolled environment to avoid fluctuations in the dimensions of the seals caused by temperature changes, with specialist storage racks allowing

the seals to be acclimatized prior to inspection.

A bespoke inspection table has been installed, on which seals up to 3000mm can be measured with special lighting to aid visual inspection.

Trelleborg’s FPSO Focus Group, which is based on site, is made up of a team of experts trained to inspect the specialist seals.

Henk-Willem Sanders, technical manager oil & gas and FPSO focus group leader at Trelleborg Sealing Solutions, said: “Oilfield operators need to be confident about their equipment

– if a seal fails during an operation this can lead to lost production revenues amounting to millions of dollars.

“The quality of seals for our customers is of the upmost importance and we are continually striving for excellence, which is why we have launched this dedicated seal inspection and validation facility.

“Typical FPSO seals are from 100mm up to 3000mm in large cross sections.

The controlled environment in combination with the fact that large diameter seals can be inspected, gives our customers unrivalled reassurance when selecting a seal partner.”

ABB chosen for Azerbaijan pipeline control infrastructure ABB has won a contract for the 1,850 km Trans-Anatolian Natural Gas Pipeline (TANAP) to bring Azerbaijan’s natural gas directly to Europe. ABB will deliver the control infrastructure to contribute to safe, secure and reliable operation of the pipeline throughout its lifetime.

The $11 billion pipeline will interconnect with two others: the South Caucasus at Turkey’s border with Georgia and the Trans Adriatic at its border with Greece. The gas will come from the Shah Deniz 2 field in the Caspian Sea and will enter the European network in Italy. The pipeline will cross the whole of Turkey, with TANAP forming the central section of the $45 billion Southern Gas Corridor, which will be part of Europe’s future strategic energy infrastructure.

ABB will deliver the control system, telecommunications, pipeline monitoring and security systems including fibre-optic

cables to transmit data along the pipelines.

The pipeline will be controlled and automated by ABB’s System 800xA process automation system. The software solutions will integrate the supervisory control and data acquisition (SCADA) systems and the telecommunications that control the gas flows, detect leakages or intrusions and make CCTV coverage available for safety and security purposes.

ABB has experience in similar projects, including the South Caucasus link and the Baku Tiblisi Ceyhan line connecting Azerbaijan with the Mediterranean.

TANAP is a special-purpose company with SOCAR of Azerbaijan, BOTAS of Turkey and BP as shareholders. ABB’s delivery will be a business-led collaboration between ABB in Turkey and ABB in the UK. •

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• News & features

Peel Ports acquires Great Yarmouth Port Company

L

iverpool-based Peel Ports has agreed to purchase Great Yarmouth Port Company from International Port Holdings, an offshoot of Global Infrastructure Partners (GIP), for a consideration said to be £50 million.

GIP bought a 99-year leasehold interest in the existing river port assets of Great Yarmouth for a nominal consideration in 2007, after committing to invest in an outer harbour sea port expansion.

GIP subsequently oversaw the development of a new, deepwater outer harbour that complements the facility’s existing river port in Norfolk. The expansion, opened in 2010, enables the servicing of larger ships and a greater range of trades and commodities.

Great Yarmouth Port serves the UK sector of the southern North Sea

Shell update

offshore oil and gas industry, and some of the UK’s largest offshore wind projects. It also has interests in grain, aggregate and other bulk and general cargoes. Its latest annual accounts report revenues of £10.9m and operating profits of £4.5m.

“Great Yarmouth is a welcome addition to our portfolio and will

“Bringing together customers and commodities served by both businesses will present a sound base for exploring future growth opportunities. This includes decommissioning, where Great Yarmouth’s market position has the potential to further enhance Peel Ports’ existing strategic assets. The acquisition is fully aligned with our growth aspirations and strengthens Peel Ports as a leading UK ports group.”

GYP, which currently employs approximately 65 staff in Great Yarmouth, is the closest UK port to the Benelux region, provides good access to the UK Midlands national distribution centres and has good proximity to Southern North Sea oil fields and wind farms.

Peel Ports also operates ports in Merseyside, Greater Manchester, Lancashire, Kent, Glasgow, Belfast and Dublin.

“The acquisition is fully aligned with our growth aspirations” complement our business by providing geographical and commercial diversification,” said Mark Whitworth, chief executive of Peel Ports.

Royal Dutch Shell has announced that its recommended combination with BG Group has received unconditional merger clearance from the Chinese Ministry of Commerce (MOFCOM). Following previously announced approvals in Brazil, the EU and Australia, MOFCOM clearance marks the final pre-conditional approval required for the combination.

“We’re grateful to MOFCOM for its thorough and professional review of the recommended combination, and I am delighted we now have all the pre-conditional approvals needed to move to the next important phase,” said Shell CEO Ben van Beurden.

“This is a strategic deal that will make Shell a more profitable and resilient company in a world where oil and gas prices could remain lower for some time. We will now seek approval from both sets of shareholders as we move towards deal completion in early 2016.”

In a separate update, Shell announced further details of its proposed restructuring to integrate BG’s business into Shell businesses around the world. Shell currently expects an overall potential reduction of approximately 2,800 roles globally across the combined group, or approximately 3% of the total combined group workforce. These reductions are in addition to the previously announced plans to reduce Shell’s • OIL, GAS & SHIPPING MAGAZINE www.ogsmag.com 17 headcount and contractor positions by 7,500 globally.

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• News & features

H

Harding wins lifeboat contract for Sleipnir submersible crane

arding has been awarded contracts for nine FF1200 freefall lifeboat systems complete with davits on Heerema Offshore Services’ semi submersible crane vessel Sleipnir. The vessel will be built by Sembcorp Marine at its flagship Tuas Boulevard Yard in Singapore.

Heerema’s Sleipnir is one of only a handful of large offshore projects currently running, along with the Johan Sverdrup Field Centre in Norway, where Harding is also a supplier. “Everyone is talking about Sverdrup, but this project is every bit as big, with just as many systems,” says Harding’s regional sales manager Oddgeir Mælen.

And while deliveries are essentially based on offshore technology, the Heerema contracts pose a special kind of challenge. “The new crane vessel will serve worldwide, so a number of

relevant international standards had to be considered when selecting life saving equipment,” Mælen relates.

The Sleipnir contract will push Harding just over the 100 mark on delivered

Skipsrevyen’s Ship of the Year award for 2015, including the winner, the Skandi Africa.

“We are extremely proud of winning such a competitive contract in today’s tight market,” says Harding CEO Styrk Bekkenes. “Harding has been through a major transition to reach our current level of capability, and in this bid we could really see the benefits. Our people pulled together and stepped up to a new level.”

With the Sleipnir contract, Harding has proven that it is not just a player, but a stayer in the offshore market, along with Heerema itself. By pressing ahead with the Sleipnir project despite the low price of oil, Heerema has proven its commitment to serving the industry, and Harding stands equally as firm: “We are not in and out,” Bekkenes emphasises. “Harding is in to stay.”

“The new crane vessel will serve worldwide, so a number of relevant international standards had to be considered” FF1200 lifeboats, securing its place as an industry favourite. Harding supplied lifeboats to all the ships nominated for major Nordic shipping magazine

Frames completes solar powered chemical injection systems in Kuwait

A

partnership between Frames and aQuaintance has completed the design, manufacture and commissioning of four solar powered chemical injection systems for the Kuwait Oil Company (KOC) Early Production Facility-50.

The project is part of the first phase of development of the Jurassic Gas field. The chemical injection systems are designed to prevent hydrate formation during the winter in Kuwait.

Frames and aQuaintance were awarded the design and supply of the systems in June 2015. The four skids were transported to Kuwait in December, followed by start-up and commissioning

by Frames on-site.

The chemical injection package replaces various pieces of equipment that are currently installed. The complete package is also designed for stand-alone operation in an Ex zone 2

environment in the desert and does not require any auxiliary power supplies. “Due to our know-how and thirty years of experience in the oil and gas industry, we were able to set up an integrated system, which is transportable and suitable for deployment at any other field as well,” says Nick Bartels, project manager at Frames Flow Control and Safeguarding.

This was executed as a fast track project, with time from order to delivery being only twenty four weeks. “We worked closely together with both aQuaintance and Shell Kuwait during the entire project,” said Bartels. “This led to a fast, efficient, and effective project execution, especially during the documentation and procurement phases.”

Early Production Facility-50 is part of the North Kuwait Jurassic Gas (NKJG) reservoirs currently under development by KOC. •

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Saudi aramco where energy is opportunity Producing roughly one in every eight barrels of the world’s oil supply, Saudi Aramco is the world’s largest oil and gas company, with the world’s largest proven crude oil reserves and the largest daily oil production.

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S

audi Aramco is the state-owned oil company of the Kingdom of Saudi Arabia and a fully integrated, global petroleum and chemicals enterprise. Headquartered in Dhahran, Saudi Arabia, with offices and operations throughout the Kingdom, Saudi Aramco employs more than 61,000 workers worldwide across more than 70 countries. The company’s subsidiaries and affiliates are located in Saudi Arabia, China, Egypt, Japan, India, the Netherlands, the Republic of Korea, Singapore, the United Arab Emirates, the United Kingdom and the United States.

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• Saudi Aramco

History

Over the past 80 years Saudi Aramco has become a world leader in hydrocarbons exploration, production, refining, distribution, shipping and marketing, and is the world’s top exporter of crude oil and natural gas liquids (NGLs). The story of Saudi Aramco tells of the discovery and development of the greatest energy reserves the world has ever known and the rapid transformation of Saudi Arabia from desert kingdom to modern nation-state. From its beginnings, Saudi Aramco has grown from an oil-producing company to a fully integrated, global energy enterprise with partnerships in North America, Europe and Asia.

Saudi Aramco has, over the course of its history, built an unmatched record of reliability, and remains committed to providing energy to the world and to maximizing the value of Saudi Arabia’s petroleum reserves for the benefit of its citizens.

From its very beginnings, it has been involved in developing the nation in the broadest sense. During the company’s early years, which were also the early years of the young country of Saudi Arabia, Saudi Aramco’s economic and social service programs became woven into the fabric of the country. Over the years Saudi Aramco began supporting or complementing services increasingly led by the government. Once the company became fully Saudi owned, its social responsibility strategy has become focused on increasing the Kingdom’s revenues from its petroleum reserves and on being a catalyst, a role model and a supporter of growth and development in all aspects of society in general, and in the economic sector in particular.

Business strategy

From producing approximately one in every eight barrels of the world’s crude oil supply to developing breakthrough energy technologies, Saudi Aramco is driven by a core belief that energy is opportunity. As the global population grows, economies •

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“Saudi Aramco produces roughly one in every eight barrels of the world’s oil supply”

expand, and standards of living increase, energy will continue to be an essential enabler of opportunity. Saudi Aramco is executing a wide-ranging strategy to ensure that it is at the forefront of providing the required energy for today and for tomorrow. This business strategy has five focus areas.

1. To reinforce its position in oil and gas exploration and production.

Saudi Aramco’s reliability in delivering its products to its customers enables the company to play a leading role in stabilizing world petroleum markets and in ensuring that economies around the world have the energy supplies they need to prosper. Saudi Aramco aims to achieve excellence in every aspect of its upstream operations. This means innovating and applying leading edge technologies in exploration and reservoir management to discover new fields and increase recovery in producing fields. Its maximum sustainable oil production capacity will continue to be 30

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maintained at 12 million bpd while it increases gas production.

Unconventional gas will make a significant contribution in the company’s plans to increase gas production.

2. To integrate the business across the hydrocarbon value chain to create impact.

Saudi Aramco’s greatest opportunities for growth and diversification will come from the steps it is taking to capture and create value from every hydrocarbon molecule. This will open up opportunities for organic growth and strategic partnerships with leading global firms at home and abroad; create more business for service and materials suppliers in local supply chains, and generate new jobs. The expansion of its downstream activities will increase Saudi Aramco’s global presence, creating greater sustainable competitive advantage.

It will better position the company to diversify risk and take advantage of a crude oil placement strategy that provides an optimal balance of geographic exposure between Asia, Europe,

• Saudi Aramco energy, reducing carbon dioxide emissions, realizing more fuelefficient vehicles, creating next-generation materials that make lighter and stronger consumer products and conserving water resources. Such technology targets would overstretch even the best research lab and so Saudi Aramco has adopted an open network innovation model that integrates talent, capabilities, and ideas from around the world. Through research alliances and its global research centers it can create strategic hubs able to grow both in scale and scope.

5. To strengthen its position as an employer of choice.

Saudi Aramco’s ethos of providing the greatest number of opportunities for the greatest number of people ensures that its employees are engaged in meaningful projects with the potential for impact on a global scale. The company’s ability to attract, develop and retain top talent is critical to it achieving its aspirations. It fosters a culture that empowers individuals, encourages collaboration, manages risks, drives accountability, and rewards high performance. This appeals to professionals who are looking for a place where they can work as highfunctioning teams and individuals. Young professionals are particularly drawn to this culture of internal mobility and continuous development, which has increased the young talent in Saudi Aramco’s workforce. Today, almost half of its employees are 35 or younger.

Key projects Manifa

and North America.

3. To enable the sustainable development of the Kingdom of Saudi Arabia.

Though Saudi Aramco is the main driver of the Saudi economy, it leverages its skills and capabilities to expand the opportunities it enables. For example, Saudi Aramco takes on infrastructure and public works projects. It seeks out possibilities at the intersection of its business activities and the Kingdom’s needs, whether by enabling private sector job creation and training, acting as a catalyst for the localization of the Kingdom’s energy services sector, or championing energy efficiency.

4. To lead in technology development and innovation.

People’s lives can be changed for the better by breakthroughs in research domains and Saudi Aramco is working to make reality of ideas like providing more reliable access to affordable

Saudi Aramco has created a giant offshore oil project called Manifa and this one single project has added a million barrels a day to world oil reserves. The development of the offshore Manifa oilfield in shallow water involved the removal of a whole reef and the building of 25 miles of causeway as well as a series of drilling islands. Manifa is one of the largest heavy crude oil increments ever undertaken, and it is considered as the fifth-largest oilfield in the world. Furthermore, the field’s geography - in shallow waters in the fragile ecology of the Arabian Gulf - requires unique, environmentally friendly access solutions involving a novel causeway design linking drilling islands.

Manifa will expand its capacity in the coming year, adding a further 500 million barrels a day to world markets. The project is part of the development of the Saudi oilfields, which are expected to see an increase in production to over 12.5 million barrels a day from 11 million barrels a day. The first phase of the project began production in April 2013. The field produced 500,000bpd by July 2013. It was producing 900,000bpd of crude oil once fully completed by the end of 2014. Additionally, there is production of 90 million standard cubic feet per day of sour gas, 65,000bpd of gas condensate, and water.

Abqaiq

Saudi Aramco’s Abqaiq Plants facility is the company’s biggest oil processing and crude stabilization facility. With a capacity of 7 million barrels per day, the facility is the primary oilprocessing site for Arabian extra light and Arabian light crude oils. The facility handles crude pumped from the Ghawar field and is linked to the Shaybah oil field through a 395-mile pipeline and to the export terminal in Yanbu through a natural gas liquid pipeline. The Abqaiq Plants facility comprises three •

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“Saudi Aramco is working to make reality of ideas like providing more reliable access to affordable energy, reducing carbon dioxide emissions, realizing more fuel-efficient vehicles, creating next-generation materials that make lighter and stronger consumer products and conserving water resources”

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primary processing units – an oil processing unit, an NGL facility and a utilities unit.

“With an eye toward the future, a new project was initiated to increase the crude production of the Khurais facility to 1.5 million bpd, making KhCPF one of the largest oil producing facilities in the world” The oil-processing unit consists of multiple spheroids and 18 stabilizer columns where hydrogen sulphide and 34

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light hydrocarbons are removed from the crude oil. Steam generated by 14 boilers is supplied to the oil processing unit, NGL facility, turbines and compressors. The water treatment plant at the facility comprises 16 reverse osmosis units, which provide demineralized water. The water produced by the plant is supplied as make up to the boilers and heat recovery steam generators to produce the necessary steam. The water produced by the plant is also used as drinking water for plant personnel and is supplied to the neighbouring Abqaiq community. The Abqaiq Plants facility is equipped with two steam-driven and three motor-driven air compressors, which provide the requisite instrument air to operate control valves at the facility.

Haradh

The Haradh Natural Gas and Oil Development lies 280km southwest of Saudi Aramco’s headquarters in Dhahran. The gas plant is capable of delivering 1.5 billion cubic feet a day of sales gas to Saudi Arabia’s Master Gas System and incorporates a gas

• Saudi Aramco

“Saudi Aramco’s ethos is to provide the greatest number of opportunities for the greatest number of people” oil separation plant capable of stabilizing 300,000 barrels per day of Arabian Light crude oil.

The gas oil separation plant associated with the Haradh - also known as GOSP2 - includes a 130 million cubic feet associated gas-gathering facility. In addition to the sales gas, the Haradh Gas Plant is capable of delivering 170,000bpd of condensate to Saudi Aramco’s Abqaiq processing facility and can produce 90t of sulphur a day for export. The plant processes non-associated gas from the wells in the South Ghawar area. The Haradh Natural Gas and Oil Development Project was the third so called ‘mega-project’ completed by Saudi Aramco. About 87 wells feed the Haradh plant. The wells are connected to the plant via manifolds at Haradh, Wagr and Tinat. Sweet and sour gas from the wells is transported through the Haradh manifold, located 12km from plant.

Khurais

The Khurais oilfield development was the largest of several

Saudi Aramco projects intended to boost the production capacity of Saudi Arabia’s oilfields from 11.3 million bpd to 12.5 million bpd by 2009. The Khurais project as a whole covers three oilfields: Khurais, Abu Jifan and Mazalij, with the Khurais field being the biggest in the project.

With an eye toward the future, a new project was initiated to increase the crude production of the facility to 1.5 million bpd, making KhCPF one of the largest oil producing facilities in the world. Planning for the new Khurais increment project began in 2012 and the front end engineering design (FEED) was completed in May 2014.

The current Khurais Program involves the development of the Lower Fadhli field and production to KhCPF, and includes the construction of new processing facilities to handle an additional capacity of 300,000 bpd of Arabian Light crude oil, 143,000,000 scfd of associated gas and 34,000 bpd of NGL. To accommodate this increase, a new gas-oil separation plant (GOSP), a crude stabilization unit and a gas train will be installed at the KhCPF. Two gas turbine driven pump trains will also be installed to provide treated seawater injection for reservoir pressure support.

To optimize energy efficiency and make the plant partially self-reliant with power, a 165 megawatt co-generation unit will also be installed. About 45 percent of the power generated will come from recovering waste heat from the gas turbine hot exhaust flue gases that otherwise would have been vented into the atmosphere.

To comply with Saudi government directives to conserve groundwater, one of the largest membrane technology-based facilities within Saudi Aramco will be installed to use seawater to produce water for process use and refined seawater for injection and enhanced oil recovery production testing.

Shaybah

Shaybah Oil Field is another of Saudi Aramco’s mega projects, a crude oil production site located approximately 25 miles from the northern edge of the Rub’ Al-Khali (Empty Quarter) desert.

Shaybah was developed to exploit the Shaybah oilfield and was developed by Saudi Aramco during the 1990s. Prior to this, only the rough tracks used by early exploration teams existed in this isolated desert region. At the start of the development the Shaybah oilfield had estimated reserves of over 14 billion barrels of crude oil and 25 trillion cubic feet of gas. Saudi Aramco brought the project on-stream in 1998. The crude is Arabian extra light, a high-quality crude grade. The oil pipeline from the Shaybah field to Abqaiq is 638 miles in length.

The Shaybah oil field imposed major challenges during its discovery and development due to the temperatures that soared there to 55° Celsius with heavy dust storms and the shifting sands. Despite the harshness of its climate, the Shaybah field has the best Arabian Extra Light crude oil with a specific gravity of 42 degrees at depth of 4,900 meters.

In April 2011, Saudi Aramco announced its intention to expand the Shaybah field after implementing expansion works that included a fourth plant to double production capacity of the Arabian Extra Light crude oil from 500,000 bpd to 750,000 bpd, besides the establishment of a new plant for gas-oil separation.

The next Shaybah field expansion focuses on two major projects. First is oil production increase by 250,000 barrels per day (bpd), for the second time. The expansion will provide the

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Shaybah field with a capacity of 1 million bpd of Arabian Extra Light crude oil by April, 2016, double its initial capacity in 1998.

“Despite the harshness of its climate, the Shaybah field has the best Arabian Extra Light crude oil with a specific gravity of 42 degrees at depth of 4,900 meters” Moreover, the Saudi oil company is working to improve the design of wells to increase the average reservoir contact to 10 km, enhancing production from the deep, tight faces of the reservoir.

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As for the second project, Saudi Aramco will construct a new NGL plant, to meet the growing demand for petrochemical feedstock through the extraction of high value NGL of the produced gas.

Qatif and Abu Sa’fah

Saudi Aramco is developing the Qatif and Abu Sa’fah fields as a single large-scale project. The Qatif field consists of seven oilbearing reservoirs containing approximately 8.4 billion barrels.

The Abu Sa’fah has reserves of 6.1 billion barrels. The onshore and offshore facilities along the Gulf coast have the capacity to produce, process and transport 500,000bpd of Arabian light crude from the Qatif field, and 300,000bpd of Arabian medium crude from the Abu Sa’fah field, as well as 370 million standard cubic feet per day of associated gas.

The Qatif field is composed of north and south domes. The Qatif gas and oil separation plant gathers gas and 200,000 barrels of crude per day and sends it all to the central

• Saudi Aramco

“Saudi Aramco is developing the Qatif and Abu Sa’fah fields as a single large-scale project. The Qatif field consists of seven oil-bearing reservoirs containing approximately 8.4 billion barrels. The Abu Sa’fah has reserves of 6.1 billion barrels”

processing facility in the north, where the crude is blended with 300,000bpd from the north dome. All the crude is then desalted, stabilized and processed, and shipped to Ju’aymah and Ras Tanura. The gas is sent to the Berri Gas Plant. The development includes three GOSPs (gas-oil separation plants), the installation of five new offshore platforms and upgrading ten existing platforms as well as building 30 drilling islands, constructing 450km of pipelines and 600km of fibre-optic cable and an Industrial Support Facilities Complex consisting of an administration building and maintenance workshops.

Global position

Saudi Aramco’s oil and gas production infrastructure leads the industry in scale of production, operational reliability and technical advances. Its plants and the people who run them make it the world’s largest crude oil exporter, producing roughly one in every eight barrels of the world’s oil supply.

Saudi Aramco maintains the world’s largest spare crude oil

production capacity, ready to stabilize the global oil market in times of disruption. It manages proven conventional crude oil and condensate reserves of 261.1 billion barrels and average crude production is 9.54 million barrels per day. Saudi Aramco also has stewardship of natural gas reserves of 294 trillion standard cubic feet.

Today, Saudi Aramco is positioned to build upon its prominence as a stable supplier of hydrocarbon resources. By producing petrochemical products, building export refineries and advancing the development of technologies that will result in cleaner fuels designed for the new generation of internal combustion engines, it will continue the work of enhancing lives while safeguarding the planet.

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Iran new opportunities and new risks After the easing of sanctions against Iran on Implementation Day, Stuart Grider and Stephanie Brown Cripps of Freshfields Bruckhaus Deringer LLP discuss the differences between EU and US sanctions, the new business opportunities now available, and the new challenges that companies can expect to face •

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T

rade with Iran has been largely off-limits for many years, in many different sectors.

The industry with the most restrictions, on both the US and EU side, has been the oil and gas industry, with the shipping industry close behind.

An announcement on 16 January 2016 brought a major change, but the new opportunities this creates will bring new risks.

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• Iran now, ongoing compliance challenges, and how companies can protect themselves.

What has changed?

The lifting of EU sanctions has had a significant effect on the business EU companies and individuals are able to conduct in Iran. On Implementation Day, the EU suspended its prohibitions and authorization regimes on financial transfers to and from Iran and sanctions on banking activities.

“The EU now allows the import of oil and gas from Iran, the import of Iranian petrochemical products and the export of key equipment for the oil, gas and petrochemical sectors”

A long process of negotiation with Iran led to the Joint Comprehensive Plan of Action (JCPOA), an agreement signed in July 2015 between Iran and China, France, Germany, Russia, the United Kingdom, the United States and the European Union, which called for certain suspensions of EU and US sanctions related to Iran’s nuclear program once Iran fulfilled certain nuclear-related commitments.

On 16 January 2016, the International Atomic Energy Agency (IAEA) verified Iran’s compliance with the nuclear commitments undertaken pursuant to the JCPOA. On the same day as this verification, significant EU, US and UN sanctions relief measures came into effect. This date is known as Implementation Day. The JCPOA follows on from, and will expand upon, the limited sanctions suspensions provided for in the Joint Plan of Action (JPOA), which came into effect in January 2014.

This article will describe the key features of the recent sanctions suspensions, what companies can and cannot do

The EU now allows the import of oil and gas from Iran (sanctions that were partially suspended under the JPOA since January 2014), the import of Iranian petrochemical products (also partially suspended since January 2014), the export of key equipment for the oil, gas and petrochemical sectors, investment in the oil, gas and petrochemical sectors, permits associated services in the oil, gas and petrochemical sectors as well as the shipping, shipbuilding and transportation sectors, and has removed a first group of individuals and entities from the EU ‘designated persons’ lists.

The JCPOA has also led to suspensions of certain extraterritorial US sanctions that apply to non-US persons, referred to by the US government as ‘secondary sanctions’. The oil and gas and shipping-related secondary sanctions that were suspended include, in summary: • investing in the development of Iranian petroleum resources (a term that includes petroleum, refined petroleum products, oil or liquefied natural gas, natural gas resources, oil or liquefied natural gas tankers, and products used to construct or maintain pipelines used to transport oil or liquefied natural gas); • selling, leasing or providing to Iran goods, services, technology, information or support that could facilitate the development of Iranian petroleum resources or the maintenance or enhancement of Iran’s domestic production of gasoline, diesel or jet fuel, including the construction, modernization or repair of petroleum refineries or infrastructure such as ports, railways, and roads; • selling, leasing or providing to Iran (i) gasoline, diesel or jet fuel or (ii) goods, services, technology, information or support that could directly and significantly contribute to Iran’s ability to import gasoline, diesel or jet fuel; • selling, leasing or providing to Iran goods, services, technology or support that could directly and significantly contribute to Iran’s domestic production of petrochemical products;

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• participating in a joint venture relating to the development of petroleum resources outside of Iran; • owning, operating, controlling or insuring a vessel that (i) was used to transport crude oil from Iran or (ii) was used in a manner that conceals the fact that it was transporting crude oil extracted in Iran or gasoline, diesel or jet fuel produced or refined in Iran; • selling, supplying or transferring to or from Iran significant goods or services used in connection with the energy, shipping, or shipbuilding sectors of Iran, including the National Iranian Oil Company (NIOC), the National Iranian Tanker Company (NITC) or the Islamic Republic of Iran Shipping Lines; and • purchasing or acquiring petrochemical products from Iran.

In addition, on Implementation Day, many Iranian individuals and entities were removed from the SDN list (specially designated nationals), so it is no longer 42

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problematic under US secondary sanctions for non-US companies to engage in business with these former SDNs, as long as there is no other connection to the United States (such as US dollar payments).

Importantly, non-US entities owned or controlled by ‘US persons’ (including US citizens, permanent residents, entities organized under US law, and persons located in or operating from the US) are now permitted to engage in certain business with Iran, with certain conditions. Among other things, SDNs cannot be involved in the business; US-origin goods, services and technology cannot be exported without an OFAC license, and transfers of funds involving a US bank cannot be made.

It is now possible for US and non-US persons to obtain a license from the Office of Foreign Assets Control of the US Treasury Department (OFAC) to sell and lease commercial aircraft and related parts and services to Iran, and for US persons to import Iranian-origin carpets and foodstuffs into the United States.

• Iran from transactions for which a transaction-specific license is obtained from OFAC. Primary sanctions also apply where there is a US nexus, including the use of US dollars cleared through US correspondent banks or taking or causing action in the United States. Transactions denominated in US dollars would bring the transaction within the scope of the primary sanctions, as payments related to the transactions are generally cleared through US correspondent banks.

US export controls also have not changed as a result of the JCPOA. This means that exports of export-controlled USorigin goods, software and technology continue to require a license to be exported to Iran. A number of goods related to oil and gas are on the US export controls list, including many types of pumps, valves and filters.

Certain EU sanctions provisions related to the defence sector, metals and software have not changed upon Implementation Day; they will be suspended in 2023, eight years after the JCPOA was adopted (a date known as ‘Transition Day’).

The United States government has stated several times that it will continue to enforce the sanctions that remain in place after Implementation Day against both US and non-US persons.

Opportunities remain limited for US persons. While US persons can attend conferences on the general business environment in Iran (including conferences that take place in Iran, as there is no travel ban under US sanctions), engage in general discussions about the market, and provide general, public-domain information about specific industries or the business environment, it is very important that this information remains general and informational in nature, and is limited to publically available information. US persons must exercise caution in all interactions related to Iran, and be careful that they are not involved in developing or referring business opportunities that can then be taken forward by their non-US subsidiaries.

What has not changed?

Many US sanctions have not changed, however. The ‘primary’ US sanctions that apply to US persons and US export controls remain in place with very limited exceptions.

The primary US sanctions on Iran are comprehensive.

US persons (and non-US persons acting within the United States) are essentially prohibited from undertaking any type of transaction or dealing involving, directly or indirectly, Iran, its government (including government owned or controlled entities, which have been moved from the SDN list to a new list of entities that are now only subject to primary US sanctions, the ‘Executive Order 13599 list’), persons on the SDN list, and entities in which SDNs directly or indirectly hold an aggregate 50% or greater ownership interest.

US sanctions also prohibit any US person from approving, assisting, financing, guaranteeing or otherwise ‘facilitating’ any business involving sanctioned countries or persons. US persons are still not permitted to engage in business with Iran, apart

“The United States government has stated several times that it will continue to enforce the sanctions that remain in place after Implementation Day against both US and non-US persons” For non-US persons, even though many more opportunities are now available, some US secondary sanctions have not been lifted. Many entities and individuals remain on the SDN list and subject to secondary sanctions for reasons related to terrorism, human rights abuses, affiliation with the Islamic Revolutionary Guard Corps (IRGC) and proliferation of weapons of mass destruction, among other reasons. Non-US persons and financial institutions can be penalised under US secondary sanctions for providing material support to, or engaging in a significant transaction with, an Iranian person remaining on the SDN list.

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“US individuals in senior management or director roles may wish to formally recuse themselves before a company conducts any Iran-related business”

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Companies should also ensure that any information provided to Iran or Iranian parties does not contain technical data that may be subject to US export controls.

Ongoing compliance challenges

In this post-Implementation Day world, the mismatch in US and EU sanctions will lead to challenges for sanctions compliance. One key compliance consideration for non-US companies is that all US persons need to be ring-fenced from any involvement in Iran business. This includes US subsidiaries and offices as well as US citizens and permanent residents (even located outside the US), including dualnationals.

US persons may not approve, assist with, or otherwise facilitate transactions involving Iran, and should not delegate authority for these Iran-related tasks to non-US persons. Because of these limitations, US individuals in senior management or director roles may wish to formally 46

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recuse themselves before a company conducts any Iran-related business. Companies should also look carefully at employees in support areas, including HR and IT, to ensure that no US persons could become involved in Iran-related business.

Even if no US persons are involved, business in Iran cannot involve US dollar payments. Any such payments are likely to be rejected or even blocked as they pass through US correspondent banks. There is a potential US enforcement risk for attempting to process such payments. Because US sanctions enforcement and penalties have been heavily focused on international banks, it is likely that banks even outside the United States will remain conservative with respect to Iran business.

Payments to and from Iran, even payments that are not denominated in US dollars, may continue to present a challenge. Many banks have policies in place not to do any business involving Iran, and banks may be slow to change these policies, even after sanctions are suspended.

• Iran US sanctions can be re-imposed very quickly, and with respect to US sanctions there will likely be no grandfathering of preexisting contracts. The EU sanctions suspensions have also been structured in such a way as to enable rapid re-imposition of the EU sanctions; generally, however, EU sanctions allow for some grandfathering of existing contracts, unlike under US sanctions.

How can companies prepare themselves?

These challenges raise an important question. How can companies looking to do business in Iran prepare themselves?

In addition to imposing safeguards around US person involvement as described earlier, there are several steps companies can take that can help. As a first step, companies should review their finance agreements and insurance contracts, as well as any other commitments that may contain sanctions-related representations and covenants, such as certifications made in order to obtain US Export-Import Bank financing or related to US federal government contracting.

These representations and covenants could go beyond legal requirements of the sanctions post-Implementation Day, and as a result it may be necessary to obtain waivers or enter into discussions with the relevant parties prior to doing business in Iran.

“Even if no US persons are involved, business in Iran cannot involve US dollar payments”

As US export controls remain in place, any items that are to be exported to Iran should be checked for the possibility of US-origin content or components that are controlled under US export controls (US goods, software or technology that are listed on the Commerce Control List or the US Munitions List, or exports regulated under OFAC sanctions). Violations of US export controls occur when US items that are controlled for export, or items produced outside the US but contain 10% or more export-controlled US-origin content by value, are exported or re-exported to Iran without an export license.

Furthermore, certain particularly sensitive US-origin items cannot be sent to Iran at all.

It is also important to keep in mind that the JCPOA contains a so-called ‘snapback’ provision, under which EU and US sanctions will come back into effect if Iran is seen as having failed in its commitments to reduce its nuclear arms. Should such a ‘snapback’ take place, companies doing business in Iran or with Iranian persons will be required to cease such business.

It will be important to conduct due diligence on Iranian counterparties to ensure none of the parties that will be involved in the Iran business remain on the SDN list or the EU designated persons list. It remains problematic under US secondary sanctions and EU sanctions to engage in dealings with Iranian individuals and entities that remain on these lists.

Finally, it will be essential to include safeguards in any contracts involving Iran, as US and EU sanctions can snap back into place at any time if Iran fails to fulfil its commitments under the JCPOA. This can be particularly problematic under US sanctions, as it is a violation of the sanctions to negotiate the winding down of a contract with an SDN absent authorization from OFAC. The inclusion of specific sanctionsrelated force majeure provisions and sanctions termination and wind-down provisions can provide contractual protection in the event that sanctions are re-imposed.

The year ahead promises new opportunities for the oil and gas and shipping industries. It will be vital to approach business with Iran with an appropriate amount of caution and concern for compliance to protect against sanctions risk.

Stuart Grider is a partner in the London office of Freshfields Bruckhaus Deringer LLP. Stephanie Brown Cripps is a senior associate in Freshfields’ New York office.

With thanks to Lukas Bauer, a principal associate in Freshfields’ Vienna office, for his assistance.

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or many companies involved in the shipping industry, 2015 turned out to be a tough year. Despite a short upside at the beginning of 2015 the shipping market plummeted over the course of the summer and autumn.

This happened not only within heavy lift/break bulk, but across a wide range of industries including container and bulk. Where the short upside at the beginning of the year

factors, but the most significant factor is likely the oversupply of vessels, which causes an ‘evil spiral’ in freight rates. “With the steady supply of new built vessels, it is my opinion that many have been built without thoughtful consideration,” says Toshi Yamazaki. “This I see as a major cause of the troubled conditions.”

Many owners now feel the heat of squeezed margins

“With the steady supply of new built vessels, it is my opinion that many have been built without thoughtful consideration” pointed to better utilization of MPV/project carrier fleets, the sector instead witnessed the stinging tail of a low oil price, a tremendous downturn in the global offshore sector, project deferments and layoffs by the thousands.

The low oil price was not the only catalyst for the decline in the MPV/project carrier segment however. Geopolitical unrest and stagnating global growth are influential macro-economic 50

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despite the welcome short upswing that lower bunker prices brought along. These lower operational costs were a short-lived gain, however, quickly upheld by the fact that the supply of vessels significantly exceeds the volume of cargo offered in the market. This situation, paired with deferred projects, especially within the formerly lucrative offshore sector, has caused troubled times for several

• Troubled waters for shipping

More troubled waters for shipping The shipping industry can expect more troubled waters in 2016, says Toshi Yamazaki, COO of SAL Heavy Lift MPV/project carriers.

Ship owners have no influence at the macro-economic level, so the challenge is to adapt the business to the given market conditions. “We continue to see that the expectations of our clients are high and their demand for scope of service is rising,” says Yamazaki. “Some feel that they have to shave their offering in order to maintain a competitive edge, others strive to develop even higher standards and seek out the businesses where the scope of service matters as much as the price. SAL belongs to the latter pool.”

The markets are under constant change – as an effect of the decline in one business area, fleets look to other segments to find a foothold where revenues can still be earned. The offshore sector, for instance, sees vessels originally destined for oil & gas, now looking at wind and renewables. The MPV/project carrier segment has seen a similar trend with the entrance of bulk and other vessel types. When price and position are key attributes for working in spot markets, those with smaller fleets become more exposed.

SAL knows that understanding the complexity in every step and delivering suitable solutions to receive the trust of clients will pay off in the end. “We see our strength in the expertise

of our people and in the significant difference they bring when they are in unity. That is the way to outperform the market.” Concentrating on and improving its core competences will strengthen SAL’s position, even despite the general overcapacity of vessels. “With the challenged times in shipping, it is necessary to identify niches a shipping company can successfully operate in,” says Yamazaki. “I think that the fleets that remain focused on their core business and competences, and which manage their costs well, will be able to navigate through 2016, which in my view will be a time of troubled waters.”

SAL Heavy Lift was involved in some magnificent projects in 2015, one of the most remarkable being the challenging offshore gas platform installation of the Kitchen Lights Unit over the course of the summer. Among other projects were the transport and part installation of two Ardelt Tukan 3000 slewing cranes with their flagship, the MV Lone. After shipping the cranes from Bremen, Germany, to Corpus Christi, Texas, one of the biggest challenges was the tandem lift installation of the machinery houses due to the hoisting height. The MV Lone was the first vessel to call at the new built jetty where the SAL crew assisted in installing the cranes directly onto the dock.

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s of 1 January 2016 vessels are no longer able to discharge ballast in US waters unless their ballast water treatment (BWT) systems are compliant with stringent demands from the USCG. Experts believe that now, more than ever, it is imperative that shipowners make the right BWT choice.

“There’s so much confusion surrounding the issue of ballast water treatment now,” opines Optimarin CEO Tore Andersen, the head of the firm that brought the first ever commercial BWT system to market back in 2000. “The IMO Ballast Water Management (BWM) convention is close to ratification, but yet

waters, then they must act now.”

Two standards, one answer

The fact that there are effectively two sets of regulations regarding BWT standards has muddied the waters for shipowners, making it difficult to find the solution they need.

Classification societies are well aware of this, but aren’t as keen to go on record to explain the situation. An environmental solutions expert at one of the world’s leading classification bureaus agreed to speak, but only on the condition of anonymity. “Ballast water gets by far the most questions of any

“USCG judges BWT systems on the basis of ‘living/dead’ organisms in ballast water, whereas IMO views them in terms of ‘viable/unviable’” to be rubber-stamped, and meanwhile the USCG has taken the bold move to act unilaterally to protect the environment with its own regulations.

“So let’s cut through that uncertainty and state a fact: All shipowners that discharge ballast must get a BWT system, preferably an environmentally friendly one, if they want their ships to operate in the future. And, if they want to sail in US 52

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issue we deal with,” our commentator noted with a smile, “and it’s easy to understand why.

“There’s a major difference between USCG and IMO regulations. Basically this centres on standards. USCG judges BWT systems on the basis of ‘living/dead’ organisms in ballast water, whereas IMO views them in terms of ‘viable/unviable’.

In other words, for USCG approval, systems have to kill the

• Ballast water treatment

Ballast water treatment is top of the bill in 2016 The stringent US Coast Guard ballast water treatment standards must be front for mind for shipowners in 2016, says Optimarin

organisms, while for IMO they don’t, but must ensure they don’t reproduce.

“USCG tests this using the FDA/CMFDA method, which uses a dye to identify living organisms, while the IMO does not list one specific methodology. The MPN (most probable number) test is the norm here, having been used for almost 40 years, but procedures vary from laboratory to laboratory. This is an issue for USCG – it wants a simple, reliable and reproducible testing method. Until this is established, and there are hurdles in doing so, both with validation and law making, FDA/CMFDA will remain the USCG standard.”

No alternative

Some readers may now be feeling lost in a sea of abbreviations.

So, here’s the lowdown – USCG regulations are much more exacting. Which means fewer systems will make the grade.

For the time being USCG is temporarily accepting the use of Alternate Management Systems (AMS), whereby vessels with solutions that have already been approved by another flag state can discharge ballast in US waters. However, USCG approved AMS systems will only be accepted for a period of five years after the vessel’s compliance date, and, if they haven’t met the USCG’s own stringent standards by that point, will have to be changed. That burden of potential cost and uncertainty is not one today’s shipowners, operating in a climate of squeezed margins and aggressive competition, may be willing to accept.

They need to be sure.

Unfortunately, the systems that many industry observers seem to prefer for their simplicity, ease of operation and environment credentials (utilising no chemicals) are struggling with USCG approval. “UV systems are easy to operate, don’t require chemical storage and are a good option for the industry,” opines the classification specialist. “But caution is needed.”

The specialist explains that the majority have been made with the ‘viable’ standard in mind and therefore lack the power – “and you might require a lot more power” – to tackle the tougher FDA/CFMDA test. “That’s where Optimarin has been smart,” the expert states. “They’re focusing on USCG current requirements and approval. And the first UV system to get this will have a real market advantage.”

Optimarin is coming to the end of a $3 million USCG approval programme. Its technology is the first UV system to meet the USCG marine water requirements, successfully satisfying the FDA/CFMDA criteria. Further tests of remaining water salinities are scheduled for spring 2016, after which point approval is expected later in the year.

“Passing the initial tests puts us in pole position in the market for final approval and is a great endorsement of our system’s effectiveness,” comments Andersen. “Each of our system lamps has a 35kw capacity. This power instantly kills any potentially harmful invasive organisms and that’s exactly what USCG wants to see. We’re delighted to be leading the way in our segment - something that we put down to decades of work, sector expertise and investment.”

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Forces of nature The development of the oil industry in Belize has all the ingredients of a modern day fairy tale. Martin Ashcroft gets an insight into energy from Susan Morrice, Josh Stewart and Dr. Gilbert H. Canton of Belize Natural Energy •

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• Belize Natural Energy

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ith the initial discovery of oil in their country a little over ten years ago, followed by the ambitious but realisable vision to become the major energy solution in Central and South America, not to mention a unique trade partnership with the United Arab Emirates, the people of Belize must feel like all their dreams are coming true.

To save you looking it up, let me explain that Belize is a country on the Atlantic side of Central America, bordered on the north by Mexico, on the south and west by Guatemala, and on the east by the Caribbean Sea. Remember this, for its position is one of its key advantages. It’s the only country in Central America whose official language is English, but it has a diverse society with many other cultures and languages, including Mayan, Creole, Hispanic, African and German Mennonite.

When Belize gained its independence from Great Britain in 1981, the economy of the former crown colony of British Honduras was largely agricultural. It may well have continued so to this day had it not been for the combination of a unique

group of people and circumstances.

The main early protagonists are geologist Susan Morrice, originally from Northern Ireland but who relocated to Denver, Colorado, and Mike Usher, a native Belizean with a strong desire to transform his country. Both had an unshakeable belief that there was oil to be found there.

Usher’s dream

These two forces first came together in 1988. Morrice had been trying to find oil in Belize for a year or two already, having been invited there by legendary industry figure Sir Ian Rankin.

She had done her research and the science had told her there had to be oil there. It didn’t take her long to fall in love with the country and its people, but five million dollars later, she had found no more oil than the major companies before her who had spent $450 million between them drilling 50 dry wells before taking their bits home.

Mike Usher was not a geologist, but he had always believed there was oil in Belize and that finding it would transform his country. He talked about his dream to anyone who would listen, and Susan Morrice was listening. They searched for oil together in pursuit of Usher’s dream for 15 years but continued to find nothing until another ingredient was added to their mix – the ‘mind technology’ and holistic business model they learned in an Educo seminar (Latin for ‘to draw out from within’).

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“I was interested in finding out why some people achieve so much and others achieve nothing,” Morrice tells me. “Then I found this course and was surprised to discover it was run by an Irishman called Tony Quinn. Mike and I took the course in January 2002 and two weeks after finishing, along with others who had also completed the same course, set up Belize Natural Energy.”

You might call the Morrice/ Usher/ Educo combination an example of ‘serendipity’, were it not for the implication of luck the word carries. There has to be more to it than that.

This partnership soon became a force of nature and ‘natural energy’ was an inspired choice of words for the company’s name.

“I realized that our dream and commitment to the people of Belize was a key component to a successful oil discovery. That understanding of how our minds work was the turning point for me” Oil and gas are natural resources that can be converted into energy to power our machinery, drive our cars and keep our lights on. The science behind those processes is pretty well known, but human beings run on energy, too, and science

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is not so good at understanding that. One day we can wake up feeling on top of the world, but the next we’re grumpy and dispirited. Excepting hangovers and sleeping pills, what affects our energy levels like this? What is this force that drives us today but abandons us tomorrow?

Susan Morrice discovered something about this force, this ‘natural energy’, at the Educo seminar she attended in 2002.

“I knew a lot about geology at the time,” she tells me, “but I didn’t know much about people, how our minds work and the creative force we all have inside us. It was not until I took part in the Educo seminar that I realized that our dream and commitment to the people of Belize was a key component to a successful oil discovery. That understanding of how our minds work was the turning point for me.”

The first thing the new company needed was capital, but the oil industry was reluctant to pour good money after bad into a country that had refused to yield any commercial discoveries in 50 years of drilling. So Morrice tapped into another source, people who had attended Educo seminars, who understood about the dream and the creative force and the can-do spirit.

An initial investor group came together that included over 75 members, mostly from Ireland, the UK, the United States and Belize itself.

“We presented a business model to the government of Belize that offered a triple-win partnership,” she says. “Tax revenues generated from the oil would help the government balance its budget and deal with mounting debt. A separate stream of funds would be set aside to create a trust dedicated to helping people help themselves in the areas of education and social environment, and finally, the investors in BNE would be able to realize a fair return.”

The government granted BNE an onshore license for almost

• Belize Natural Energy

“I was interested in finding out why some people achieve so much and others achieve nothing” 470,000 acres, but the company had only enough capital to drill two wells. “Somewhere in this vast acreage,” Morrice remembers, “we were going to have to choose where to drill two 20-inch, 4,000-foot-deep holes and hope to find oil.”

In terms of odds, it was harder than finding a needle in a haystack, but they found it in the first well they drilled. I would hate to have to calculate the probability of that first crude discovery!

Sadly, Mike Usher did not live to see his dream come true. He died, aged 52, on 24 June 2004. Was it just coincidence, then, that BNE made its first discovery of light crude at Spanish Lookout on 24 June 2005, the first anniversary of his death?

Naturally, the well was named Mike Usher #1. There are now ten producing wells named after him, and another promising discovery was made in 2007 at the Never Delay site, which was declared commercial in November 2009.

As the company grew, BNE attracted another force of nature in September 2006 when Belizean engineer Gilbert H. Canton agreed to become CEO. Through his phenomenal commitment to the company’s vision he has emerged as an inspirational and effective business leader.

Within three years of its founding, BNE became the single largest contributor to the government’s tax revenues, fulfilling the first win in the business plan. The second was realized in March 2009 with the launch of the Belize Natural Energy Trust, which has subsequently built and furnished a public library and classrooms in different areas of the country, and partnered with volunteers to develop youth camps and other training programs.

There was no oil and gas infrastructure or skilled labour in Belize in 2005, but Belizeans showed their entrepreneurial spirit by turning up in their own trucks to transport the crude from the Mennonite agricultural community in Spanish Lookout in the west of the country, over the Maya Mountains to the Big Creek Banana Port for export to the US Gulf coast.

What usually takes over three years to bring to market took less than three months, and BNE was able to transport its first crude out of the country in record time.

BNE has employed over 300 people and maintains its holistic business model by sending all its recruits on an Educo seminar. Every employee is thus aligned with the vision of the company’s founders. The workforce is 98 per cent Belizean and •

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“On 1 October 2015 Belize and the United Arab Emirates signed a bilateral trade agreement that will bring investment into Belize from the UAE”

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• Belize Natural Energy

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“I’d been travelling throughout Africa for 15 years wondering about the meaning of life, wanting to know what the ‘more’ was” they are all energized by this project. When other people talk about going the extra mile, at BNE they call it ‘extraness’.

Jet energy

To bring you up to date with recent developments, we need to introduce a new force; Josh Stewart, cousin of Susan Morrice, founder and president of international aviation business XJet with operations in Denver, London and Dubai, and now a fellow director of Belize Natural Energy.

Stewart had an early passion for travel and flying, eventually finding his way to Africa where he spent eight years flying a range of aircraft, looking at first for the perfect job and then dreaming of starting his own company. “Something was always missing,” he says. “I’d been travelling throughout Africa for 10 years wondering about the meaning of life, wanting to know what the ‘more’ was.”

Susan suggested he take the same course she had been on, and while he was there he visualised exactly the nature of the company he wanted to create. “I went out there with a loosey goosey dream with my energies all over the place and by using the Educo system, I came home with a rock solid crystal clear invincible vision,” he tells me.

Ten years later, XJet has grown into a world leader in services for private aviation, so how much did Stewart really see at the seminar? “It was pretty amazing,” he remembers.

“It was the first time I actually understood how the mind works. I had a clear vision of a company I could be proud of that would be No 1 in the Americas and then No 1 in the world. Lots of the vision has been realized, much of it bigger than I could ever imagine and the best is yet to come, but one thing is for sure - I was certainty itself when I came off that seminar. There was no doubt about it. With those tools and 64

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understanding I was able to super-focus on my clear, invincible vision – to build the world’s finest private aviation company – XJet.” Stewart founded XJet in Denver, Colorado in 2004, using the same Educo model but exactly how his vision was realized is a subject begging for another article, so I’ll leave it there in the hangar for the time being. Suffice it to say, however, that his joining the board of BNE was a natural next step for all concerned.

2020 Vision

Stewart’s role in BNE is all about investment, and he is perfectly placed to introduce the high-level investment network he has developed through XJet in the Middle East, Europe and the USA, to the opportunities being created as Belize pursues its dream to become the regional energy solution for the Caribbean, Central and South America.

On 1 October 2015 Belize and the United Arab Emirates signed a bilateral trade agreement that will bring investment into Belize from the UAE. It’s not an association you could have predicted without knowing about XJet and the critical role Josh Stewart played in the transaction, but it does have its own synergies beyond that connection.

Belize shares a similar vision as the UAE’s founding father, the late Sheikh Zayed, who believed that the discovery of oil was just the start of an economic success story for his country.

BNE believes that Belize can emulate in its own region the achievements of UAE in the Middle East, assisted by the financial backing and experience of the Emirates.

“The 2020 vision is about becoming the Central American and regional energy solution,” explains Stewart. “Belize is perfectly positioned geopolitically between the United States,

• Belize Natural Energy

“The 2020 vision is about becoming the Central American and regional energy solution.

Belize is perfectly positioned between the United States, South America and the Caricom to facilitate being the region’s major energy player” South America and the Caricom (Caribbean Community and Common Market - an organization of 15 Caribbean nations to promote economic integration) to facilitate being the regional central energy player. The key ingredient, however, is the Educo BNE model and together they form the perfect platform to bring the 2020 vision into reality.”

The UAE agreement wouldn’t have happened without the connections that Stewart has made in the Middle East, nor without the growing global recognition of the model itself.

“However, it is critical to realize that the BNE team is 98% Belizeans and that they have undergone unique training in the vision and are a major aligned force propelling us towards this outcome.”

But why would the UAE be interested in Belize? “The UAE has been incredibly successful in its diversification strategy,” explains Stewart. “They have a deep global investment platform but they have not had a strong presence in South and Central America for a number of years. Belize can be a great facilitator for that. The UAE gets an opportunity to move into the region through a company that’s incredibly well established in a country that’s very well positioned.”

BNE’s chief executive, Dr. Gilbert H. Canton, sums up the company’s achievements and sets out the stage for the realisation of the next vision. “BNE has established itself as a Belizean company with world class standards,” he says, “and has achieved rapid success by focusing first on developing its human potential – its people. BNE’s achievements include winning many local and global awards but most important to us is the appreciation that we have made a difference in their everyday lives that is conveyed to us by many Belizeans.

“We firmly believe that this evolution to the premier oil and gas producer in Central America is rooted on the institution

of a company culture that mines human potential and underscores social and environmental responsibility in our practices and procedures.”

The vision for 2020 involves growing BNE’s upstream and downstream oil and gas portfolio and expansion into power generation and other unique investment opportunities. To achieve it, BNE and Belize will need help from the forces of nature. The investment potential of the UAE represents the scientific side of the project, and Belizeans themselves will provide the human energy.

“As our employees embrace the new vision they become partners in working to achieve this big goal,” concludes Canton. “This is the main ingredient to BNE’s success. We invite you to ‘know the vision, no division’.”

www.susanmorrice.com

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INTERVIEW

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ow on dry land but still passionate about cruise ships, Keith Maynard has spent the last 15 years in the cruise industry. After 12 years at sea, including three as the Entertainment Director of the Cunard Queens, Keith has spent the last three years as the co-presenter of the Planet Cruise TV Show.

How has your experience in the cruise line industry helped in your current role?

The unique environment that’s created when working at sea either makes you or destroys you. Long hours and potentially being on call 24/7, along with the fact that the main reason you are there is just to work, means that you learn to be very job centric and focused. You can’t escape ‘home’ at the end of the day or have a refreshing weekend off, so you have to face up to any work issues head on and solve them - or work through them - if you want to succeed.

It’s made me an incredibly focused and dedicated individual, which has really helped me forge a new career with TV and video. Unlike many other presenters and actors I don’t rely on my agent to bring in work – in fact, I create 95% of my own job opportunities.

Why are you so dedicated to the cruise industry?

The cruise industry gave me the chance to see the world while entertaining people and making them happy… well most of them! It’s an incredibly exciting industry to work in where you get to work in a truly international environment and it’s been very good to me.

But to be honest, I never intended to work in the cruise industry. It was a purely chance conversation with a bronzed actor friend in a freezing greenroom in Yorkshire that eventually led to me being offered the chance to work at sea… and at that point, anything seemed better than huddling round a gas heater in an old freezing cloth mill in Holmfirth!

How popular are cruise holidays in the UK?

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Keith Maynard, TV presenter, actor, voice artist and cruise travel expert, talks about the cruise industry and his love for the Cunard ‘Queens’ market, with an estimated two million Britons taking a cruise in 2015. South East Asia and the Caribbean are two of the most popular areas to cruise to, though for most people it’s still the Mediterranean and the Fjords. With those they can cruise directly from the UK, avoiding the discomfort of a flight and its limiting luggage allowance.

Also, in the last couple of years, river cruising has really begun to captivate the imaginations of British cruisers with its more relaxed and personal experience, attracting an audience who seek really inclusive destination-intensive holidays, sailing down some of Europe’s greatest waterways.

Cruising has expanded due to attractive destinations, beter port infrastructure and majestic new ships. Can it continue to grow?

The short answer is ‘yes’. There are still new deeper water ports being built all over the world to attract the new brand of super ships ushered in with Royal Caribbean’s Oasis Class.

The competition to attract cruise lines to dock at their port is worth millions to the local economies. I remember checking out potential new docks and destinations for a couple of the lines I worked for, and we were wined and dined and treated like lords in an attempt to seal the deal.

And as I write this, 36 brand new cruise ships are on order taking us right through until 2022, and with Viking now moving into Ocean and Richard Branson deciding to enter the fray, there is no sign of the market slowing down!

What are the main differences between cruising in Europe and the US?

Cruising in the US is seen very differently. It’s a more saturated market which is loved by young and old alike. In the UK, cruising is still shaking off the misconception of it only attracting the ‘grey pound’ but that is beginning to happen and the potential for expansion in the UK is far greater as there is such a huge untapped market.

The US is also still the main market innovator. Long gone are the days when British-built ships led the way, not only in design, but in holding the fame of winning the coveted blue

• Interview

riband. These days the new groundbreaking designs are being built in Germany and Italy for the big US giants of Carnival and Royal Caribbean.

How resilient has the cruise market been to the recent economic crisis?

Due to the ever growing number of cruise ships to choose from and the ensuing price war to attract new customers and retain the old, you could say that prices have been going down at the right time. Cruising is definitely the best value holiday available and therefore has not suffered unduly. In fact, because so much of the cost is paid upfront, cruise holidays have been seen as a safer option where people can budget more effectively.

What do you think of Gibraltar as a port for cruise calls?

Gibraltar was always one of my favourite ports of call and it’s always one of the main highlights on any cruise ship itinerary.

Laurie Lee once said it’s like a “piece of Portsmouth sliced off and towed 500 miles south” and, it’s that little piece of Britain abroad reputation that captures the hearts and imaginations of cruise passengers from all over the world.

The exciting history, the magical fortified old town and the super friendly locals create a winning combination and with the addition of the numerous pods of dolphins that call the Straits their home, Gibraltar will always have more requests for berthing than it can physically manage.

What tips do you have on booking a cruise?

Today there is more choice than ever and however you like to holiday there is a cruise line and ship that will be a perfect fit.

For me, it’s smaller ships that spend longer in port and focus more on the food. For others, it might be bigger ships with more entertainment or the chance to sail under canvas and climb the rigging.

The only advice I can give is that it’s no longer best to wait until the last minute – some lines are now offering to cover the reduction of any cruise you book early and certain companies

offer better deals the earlier you book. But my best tip is to tune into the Planet Cruise Show [blatant plug, but I can live with it! – ed] at 8pm GMT on Tuesdays on Ideal World, or watch it online at www.planetcruise.co.uk. Planet Cruise is the #1 UK cruise travel agent for most of the main cruise lines and therefore it gets exclusive discounts that you simply won’t see anywhere else. You can also follow me live on Twitter for the latest cruise information, updates and news via @beefikeefi .

What is your most memorable shipping experience and your favourite ship?

My favourite ship is my last - QM2 – I had three great years as an Entertainment (cruise) Director for Cunard and while I loved all three ‘Queens’, QM2 is one of a kind. The world’s last true ocean liner. Built to cross the Atlantic in any weather, to keep to a schedule despite mother nature’s best efforts, the only ship to welcome cats and dogs as well as humans and the fastest passenger ship in the world, capable of an incredible 32 knots. She has no equal and is a glorious reminder of the golden age of ocean travel, when countries flexed their industrial might by building the biggest, fastest and most beautiful ships.

My favourite experience was sailing through the Corinth Canal on board the little 11,000 ton Calypso, literally just squeezing through as I regaled our guests with its fascinating history and we watched foxes sprint along the near vertical walls of the manmade wonder that splits the Isthmus of Greece.

Oh, and then there was the time I interviewed Sir David Frost…. Or the day we met the replica of the HMS Bark Endeavour during our circumnavigation of Australia on QM2… and then… and then… and then….

Paul González-Morgan Editor, Gibraltar Shipping Email: shippinggib@gmail.com Twitter: @ShippingGib Web: www.gibraltar-shipping.com

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WATERFALL SECURITY Solutions

DEFENCE AGAINST CYBER PIRATES Andrew Ginter, vice president of industrial security at Waterfall Security Solutions, helps Martin Ashcroft to appreciate the increasing threat of cyber attacks at sea, and how shipowners can protect their vessels •

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P

icture the scene. The ship has run aground in shallow water. It shouldn’t have been anywhere near the sandbank it’s resting on, but the crew were unable to control it. It’s now listing badly and valuable cargo is falling overboard. The mystified captain is muttering something. The camera zooms in on him and we listen.

“We must have been hacked,” he’s saying. “We must have been hacked.” If this were the opening scene of the next James Bond film, most of us would think it a perfectly credible incident – and we’d be right, because it is.

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• Waterfall Security Solutions Sabotage by cyber attack is the latest threat to governments and industries all over the world, and the shipping industry is no exception. We all have enemies, be they political, economic or simply plain criminal, and the more equipment we connect to one network or another, the more vulnerable we become.

Ships today are completely computerized. In our continued attempts to reduce costs by increasing efficiency, more and more functions are being automated or remotely controlled, and gigabytes of data are collected every day to help us monitor the performance of our equipment. Navigation is heavily automated. Equipment usage is monitored to reduce costs through predictive maintenance. Everything from vessel position, speed and heading to fuel usage, hull stress and engine condition are monitored automatically for use in advanced optimization and prediction algorithms. Everything is connected to the network, so we can see what’s going on and adjust it for optimum performance. Even the containers can be equipped with communications technology now, to give us 24/7 feedback on their comfort levels, from temperature to humidity to good vibrations. Systems can be fitted which remotely control and adjust the temperature of refrigerated containers.

Connectivity trade-off

“The more equipment we connect to one network or another, the more vulnerable we become”

The problem is, once we introduce connectivity into our operations to make it possible to interact remotely with a motion sensor in a container or, more importantly, a navigation device in a ship’s control network, we make it possible for someone else to interact with our equipment, too.

“The trade off between increased efficiency and increased vulnerability is one that businesses in many industries are failing to take into account,” says Andrew Ginter, VP industrial security, Waterfall Security Solutions. “We see the benefits more clearly than we see the risks.”

One barrier to understanding is visibility. The most visible attacks are common viruses, malware and attacks by insiders.

There’s a new generation of attackers out there now, though, who work hard at invisibility. Most victims have no idea they have been compromised until months after the fact, if ever.

A more subtle barrier is the difference between espionage and sabotage. Over the last five years most of the high-profile cyber attacks were espionage attacks – stealing information. The big risk to shipping is not espionage, however, but cyber sabotage.

“Most security practitioners are much more aware of espionage risks than sabotage risks,” says Ginter. “As a result we install security systems that are reasonably good at preventing the theft of data, but do little to prevent equipment damage, or worse. The prevention of cyber sabotage needs a different approach,” he stresses.

“Common wisdom has it that a control system can be secured with a firewall and a bit of encryption,” continues Ginter.

Unfortunately, there is more wishful thinking than wisdom here. “Firewalls forward messages between networks, and they do what they can to identify and eliminate attack messages, but no firewall is or can ever be perfect. All firewalls forward some attack messages into protected networks.”

In practice, all software can be hacked, Ginter explains, because all software has bugs, and many bugs are security vulnerabilities. “I wrote software for 25 years,” he says. “I did not deliberately put bugs into every piece of software I wrote, but every piece of software I wrote still had bugs.”

This is why intrusion detection is fundamental to defending •

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against cyber espionage. If every message through the firewall could contain an attack, and all software can be hacked, then intrusion detection is critical. We need to assume we will be compromised, we need to search out those compromised computers, and we need to erase those computers and restore them from clean backups.

From espionage to sabotage

This approach fails us in the world of cyber sabotage, however. We cannot take a grounded ship and “restore it from backup.” Fundamentally, intrusion detection takes time; recent studies show that it takes months to find the average intrusion. For all of that time, an invisible intruder has remote control of our vessel: falsifying data and misoperating equipment. This is unacceptable.

While reports of stolen bank details and credit card numbers are becoming commonplace on our TV news, we don’t hear so much about cyber attacks on infrastructure or industrial assets, but this doesn’t mean they’re not happening. If we were a multinational industry giant with 76

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customers all over the world, how likely would we be to admit that our security had been breached if we were not legally bound to disclose breaches?

Worse, attackers with no desire to be discovered are likely to disguise their interventions to look like random system failures, so their victims never know they were attacked.

“This is why we don’t hear about attacks,” confirms Ran Pedhazur, Waterfall’s VP of Business Development, “but if you look at surveys, 70 to 80 per cent of people say they have been compromised in the last 12 months and an even greater number expect to be compromised next year.”

Where have these threats come from? Why are attackers now starting to target infrastructure rather than data? There is an element of ‘because they can’ in there, as our headlong rush towards connectivity has made it possible for them to attack us, but the big question is about motive. What do they have to gain? There will always be terrorists with political motives and pirates with ransom demands, but the new breed of cyber attacker is more likely to be looking for an economic advantage over a rival, or to make a killing on the stock market. There has

• Waterfall Security Solutions

“I wrote software for 25 years. I did not deliberately put bugs into every piece of software I wrote, but every piece of software I wrote still had bugs”

to be a profit motive.

It is generally accepted today that organised crime is behind the most visible attacks on home computers and corporate systems, because they have proven paths to profit from such attacks. “The average credit card number is worth 25 cents on the black market,” says Ginter. “The average bank account number and password is worth between a dollar and a hundred dollars, depending on how much money is in the account.

There’s a whole industry for laundering the money, and more recently, a whole industry has been developed around stealing corporate secrets. The question that people are asking now is, how soon will an industry be developed around simulating random failures on ships or at other industrial sites to manipulate markets, or for other profit motives? Many are also asking, is this happening already, silently?”

Ginter has an example from close to home that illustrates the potential threat very well. “I live in Alberta in Canada,” he says.

“A pipeline that used to send gasoline from east to west across the country was recently reversed and now sends crude oil back east for refining. Alberta now has local refiners that can provide us with gasoline. But in the middle of last summer, at the time of peak gasoline consumption, the biggest refinery in the region mysteriously went down. In spite of the worldwide collapse in oil prices, we were paying through the nose for gasoline.

“The refinery didn’t tell us why it went down,” he continues.

“It didn’t have to. News reports talked about some kind of equipment failure. But think about it - if someone broke into the refinery’s network and caused some equipment to fail without leaving obvious traces of cyber attack behind, and then went long on gasoline futures in our geography and made a killing on the commodities market, would anybody notice? These guys are very good at what they do. This kind of opportunity is something that if organised crime isn’t doing it today, we’re certainly worried about it happening in the future. These guys are professionals. They’re going to cover their tracks.

“So the question is, who profits when a ship is delayed by mechanical problems or computer problems with its navigational systems? Everything on the ship is delayed, so what’s on the vessel? Is it something that somebody can profit by? Can they go short on the shipping company or can they go short on the company that owns the goods? If goods are delayed it may affect someone’s profits for the quarter. This is the kind of thing that people are worried about. Where there’s opportunity, somebody is going to take advantage.”

Somebody took advantage in 2013 in an attack on the US retailer, Target, which resulted in costly court proceedings over the insurance claim, and incalculable damage to the company’s reputation. How did they do that? “This was a data theft attack, but the attackers used the same kind vulnerability that we see with control systems on ships and in every industry,” says Ginter. “They got into Target through a vendor. The attackers did not come after Target. They were just poking around, systematically breaking into one business after another to see what profit they could make. Then they broke into a vendor that provided Target with refrigeration and HVAC hardware and services. They stole remote access credentials from the refrigeration vendor and used them to log into Target. They didn’t have to break through the Target firewall – they just logged in like any other user. How many vendors have remote access to our ships?”

Security awareness and preparedness vary greatly according to geography, says Ginter. “In North America there are regulations in the power sector. If the bad guys want to target •

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the North American power sector they’re going to come up against NERC CIP [the North American Electric Reliability Corporation’s Critical Infrastructure Protection standards].

Now, NERC CIP is far from perfect, but it is much better than nothing. In much of the rest of the world, there is nothing.”

If you get your regulations right in the first place, compliance will bring best practices into play. The question though, is how can best practices become standard practices for industries that are not regulated? “I don’t see any rules emerging for the shipping industry,” says Ginter. “There’s no body that can enforce rules like that.”

There have already been attempted attacks on the US power grid by the terrorist organisation ISIS, though these initial attacks were described by authorities as “low capability” attacks. Attack capabilities can be purchased, however, and ISIS has money. “These simple attacks are going to become more sophisticated,” says Ginter. “All it takes is a little money for ISIS to buy world class attack capabilities to come after the grid, and they have plenty of money.”

Defense capabilities

While the next target depends on the specific motivation of the next cyber attacker, it would be a mistake to base our security defence on the likelihood of an attack. What’s 78

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unlikely today may be more likely tomorrow, but tomorrow may be too late to prevent the attack.

“Prudent security practitioners defend against well-known attack capabilities,” says Ginter. “They do not defend against the motive of the moment. They do not look around and say ‘how many ships were stranded last year in the middle of the ocean like this?’ Motives can change in a heartbeat. Somebody can suddenly get a bee in their bonnet and decide to come after us. Capabilities evolve much more slowly. So industrial sites today are looking at the capabilities in the threat environment and defending against them before someone develops a motive to use those capabilities against their sites.”

If our organization is lucky enough not to have been targeted by a cyber attacker yet, what approach to security are we going to take? Are we going to look at the statistics of ships being attacked in this way and respond according to our perception of likelihood, or are we going to put protections in place before serious harm is done?

For those looking for credible sabotage-oriented protection, there are solutions available. Waterfall Security Solutions is a cyber security specialist that produces hardware-enforced security products, focused on preventing the cyber sabotage of ICS (industrial control system) networks. The hardware part of the solution is called a unidirectional gateway.

“We have a family of products but our flagship product is the

• Waterfall Security Solutions

“These silent, online, network-based attacks are the workhorse of cyber sabotage, and are the specific risk that comes with increased network connectivity.

Our gateways eliminate that specific threat vector entirely”

unidirectional gateway,” says Ginter. “The gateways enable safe network integration. The gateways let businesses monitor their control system equipment, but make it physically impossible to send any attack back in to those critical networks.

“We claim 100 per cent protection against network attacks coming from external networks,” he continues. “While there is no technology that can prevent absolutely all attacks, these silent, online, network-based attacks are the workhorse of cyber sabotage, and are the specific risk that comes with increased network connectivity. Our gateways eliminate that specific threat vector entirely.”

When a unidirectional gateway becomes the only connection between a more trusted network and a less trusted network, he explains, data travels only one way, so nothing gets back in to the ICS network. Waterfall makes the data available for anyone who needs it, by replicating industrial databases and devices.

“Anyone who wants the real-time data can ask the replicas and get the same answer they would have had by asking the live systems,” Ginter explains. “They get the same answer from the replica as the control system equipment would have given them, without ever sending a message to the control system and putting that equipment at risk.”

Waterfall Security Solutions produces a family of products that are based on or complement its unidirectional gateways.

The Waterfall FLIP is a kind of gateway that can reverse orientation on a schedule, to provide continuous monitoring and occasional batch updates of shipboard systems, such as security updates or weather forecasts. Inbound/outbound gateways can provide continuous updates of onboard systems through separate, independent replications, without ever introducing the kinds of attack paths that always come with firewalls. Application data control add-ons apply fine-grained policy-based controls to data in motion between networks.

All of these products frustrate modern, silent, remote-control cyber sabotage attack capabilities, as well as a host of older, more mundane attacks.

The 2015 Safety and Shipping Review by Allianz identified cyber sabotage attacks on shipping as “a major concern.”

Cyber sabotage attack capabilities have become much more sophisticated in the course of the last decade. Attackers use powerful software tools, and like all software, attack tools become more and more capable as new versions are released.

Basic security hygiene, such as firewalls, anti-virus systems, security updates, encryption and long passwords, provide little protection against modern attacks by criminals or ‘hacktivists’.

“In the shipping industry, we need to take inspiration from control system cyber security standards and regulations in other industries,” says Ginter. The French ANSSI standards for critical infrastructure protection prohibit firewalls at the boundaries of the most important control system networks, permitting only unidirectional gateways. The North American NERC CIP standards provide relief from one third of the security regulations when unidirectional gateways are used instead of firewalls at large power plants. The ISA, IEC, NIST and many other standards all position unidirectional gateways as stronger than firewall protections for control system security programs.

“We have a window of opportunity now, to protect the control systems and navigation systems on our vessels, before we start suffering very serious losses,” concludes Ginter. “Increased automation and connectivity brings increased opportunities and profits, but only if we address the risks.”

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urther widening of the supply-demand imbalance at the trade route level and insufficient measures to reduce ship capacity will lead to an acceleration of freight rate reductions and industry-wide losses in 2016, according to the latest Container Forecaster report published by global shipping consultancy Drewry.

The decline in global container shipping freight rates is anticipated to have been as great as 9% last year and Drewry is forecasting that carrier unit revenues will decline further

container respectively. These were easily the lowest since 2009 and with decent cargo growth and load factors of over 90% to the US west coast, the rate deterioration emphasises that carriers have been fighting for market share and are positioning themselves further for the potential shifting of cargo from the West to the East Coast after the Panama Canal widening. Spot rates of below $200 per 40ft container in the Asia-North Europe trade during June 2015 were also unprecedented. While spot rates have staged a recovery since

“A further two or three quarters of declining financial profitability may trigger a notable rise in the idle fleet as we enter the second half of 2016� in 2016, albeit at a slightly slower pace. Excluding 2009, the past 12 months has seen the lowest spot rates in most major trade lanes and all at the same time. This is not solely due to fundamental supply/demand imbalances caused by weak volumes and over supply.

End of year 2015 spot rates from Asia to the US West Coast and US East Coast were around $815 and $1,520 per 40ft 80

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the start of 2016, Drewry believes that these gains will prove short-lived.

Many stakeholders point to the fact that bunker prices of for example $140 per tonne in Rotterdam (IFO380) are clearly contributing to lower overall container freight rates, but Drewry believes that a new and worrying trend has become apparent for ocean carriers. Our most recent data

• Container shipping 2016

Container shipping profitability to deteriorate in 2016 Global shipping consultancy Drewry predicts an acceleration of freight rate reductions and industry-wide losses in 2016 suggests that they are no longer able to cut costs faster than the prevailing declines seen in the freight rate market. Drewry believes that oil prices have probably hit the market bottom right now and costs for the positioning of empty containers and vessel lay ups will increase this year. Our latest calculation is that a 10,000 teu vessel would incur a minimum of $450,000 in reactivation costs if laid up in Asia for three months or more. It should also not be forgotten that many lines no longer even quote a BAF on some trade lanes. The consequence of this is that Drewry expects industry losses to widen to over $5bn in 2016.

Ocean carriers believe they have taken a great deal of corrective action during the final three months of 2015 in order to lift very low freight rates. But the removal of six major east-west services and the blanking of 32 voyages in November and 21 in December did relatively little to improve trade route supply/demand balances. At the beginning of October 2015, average headhaul east-west load factors were only 85%, compared to 94% one year earlier.

The GRI initiatives implemented in late 2015 did not work for carriers on many trade lanes and in some cases were suspended or postponed because conditions were simply too feeble. Drewry believes that more needs to be done by the industry to bring about any kind of stability. Proposed or forthcoming industry consolidation may well reduce

the number of big market players and improve individual company efficiency, but this will not reduce industry vessel capacity in any way.

With the idle fleet touching one million teu in late 2015, or just under 5% of the global fleet, decisions need to be taken by lines to remove more vessels and re-structure more trade lanes with new operational agreements. Big vessels no longer guarantee decent profitability and should Asia to North Europe contract rates be signed at an average $900 per feu (and this could be too optimistic) for 2016, this equates to an estimated $1.4 billion loss for the carriers on one trade lane.

Neil Dekker, Drewry’s director of container research, said: “Comparisons are being made to 2009 when approximately 1.3 million teu was removed from a considerably smaller fleet.

The mass scale lay ups were triggered by the fact that lines ran out of cash. The industry is not there yet as some lines are still making a profit and the very low fuel prices are propping them up. But a further two or three quarters of declining financial profitability may trigger a notable rise in the idle fleet as we enter the second half of 2016.”

Container Forecaster is a quarterly report published by Drewry Maritime Research and is priced at £3,100 for an annual subscription. The report is available from the Drewry website www.drewry.co.uk.

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