By R. Bruce Striegler
One of the world’s largest tanker companies
Incorporated in the Marshall Islands, and having its corporate headquarters in Bermuda, but with operational headquarters in Vancouver, Teekay Corporation with its 150-vessel fleet is among the world’s largest tanker companies, moving an estimated 10 per cent of the world’s seaborne oil. In 2011, Teekay transported over 800 million U.S. barrels without a single litre spilled.
Along with the company’s publicly listed subsidiaries, Teekay Corporation is engaged in the marine transportation of crude oil and gas. In addition, the company operates shuttle tankers and floating storage and take-off units for offloading and transportation of cargo from oil field installations to onshore terminals, and provides floating storage services for oil field installations. The company’s FPSO segment provides floating production, processing and storage services through floating production, storage and off-loading (FPSO) units. The company provides liquefied natural gas (LNG) and liquefied petroleum gas (LPG) carriers. Its conventional tanker segment operates conventional crude oil and product tankers that are employed on long-term fixed-rate time-charter contracts. The company’s customers include energy and utility companies, oil traders, oil and LNG consumers, petroleum product producers, and others.
During the year ended December 31, 2011, Teekay produced cash flow from operating activities of US$107 million on revenues of US$1,953 million. These results compare unfavourably with cash flow from operating activities of US$412 on revenues of US$2,096 during the previous year. Analysts, though, appear to believe that an improving economy and a reduction in the oversupply of tanker capacity` will allow rates to rise, and should enable Teekay to show improved results in 2013.
Teekay takes its name from the initials of its founder, Danish-born J. Torben Karlshoej. He founded Teekay in 1973 in New York before moving operations to Long Beach, California following the early 1970’s Suez crisis oil market collapse. He ultimately settled in Vancouver in 1991 where the company’s global operations headquarters remain. Torben Karlshoej passed away at the age of 49, but the company he founded has grown 10-fold in assets, created four publicly traded subsidiary companies and established numerous joint ventures.
Around the world, approximately 3.5 billion tonnes of crude oil is produced annually. Almost half of that is exported from countries in the Middle East, Africa and Latin America to countries in North America, Europe and Southeast Asia. Half of the oil consumed is transported by sea, with shipping industry organization Equasis estimating more than 9,000 oil tankers worldwide. In 2011, total world oil production amounted to approximately 88 million barrels per day (bbl/d), with over one-half moved by tankers on fixed maritime routes.
Looking for growth in a volatile market
Graham Westgarth, Executive Vice-President for Innovation, Technology and Projects Teekay Corp. says, “For more than a decade we’ve sustained our growth largely on one product, Aframax tankers, in largely one market, the Indo-Pacific region. A few years ago, we conducted a strategic review and concluded we had a number of strengths which included a strong balance sheet, a good reputation due to competent people, and we were well positioned for growth.”
Mr. Westgarth says the company wanted to grow in areas that were less cyclical, noting that much of the Indo-Pacific business was spot charters. He explains the company’s global footprint, saying, “We’ve always believed we needed operating units close to our customers, close to our ships. They would deal with day-to-day decisions and operations in their part of the world.” The company has 25 offices in 16 countries and more than 6,000 employees. Mr. Westgarth notes that with technology, it is easy to link it all together.
Balance-sheet solutions to over-capacity
Teekay operates the world’s largest fleet (150 vessels) of tankers which include Aframax, vessels with a capacity of 80,000–120,000 deadweight tonnes (DWT), long-range, medium long-range, and very large crude vessels (200,000–320,000 DWT). Teekay transports a range of crude oil, fuel oil, diesel, jet fuel, LNG, and also has an interest in some ships that carry liquefied petroleum gas.
Mr. Westgarth comments that there is significant over-capacity in the tanker market, as there is in the international container shipping business, and rates reflect that overcapacity. In 2011, the world tanker fleet grew by 26.1 million deadweight tonnes, or 5.8 per cent, compared to 17.7 million deadweight tonnes in 2010. Rental is the principle method of charging for very large crude carriers (VLCC). On the benchmark route between Saudi Arabia and Japan, rates ranged wildly in the month of April, between $16,000 and $40,000 per day. Rates on the benchmark route in the North Sea plummeted in February before slight rebounds took the rates to US$10,500 per day.
Costs to operate a tanker, which include bunker fuel and port fees, can average $10,000 per day. Shipowners employ a range of tactics to reduce costs, which may include ‘slow steaming’, reducing the ship’s speed on return voyages after unloading. Across its fleet, Teekay has installed a fuel optimization program and recently began using a web-based service which allows ships to exchange real-time data with onshore offices. According to Graham Westgarth, “The system gives us the ability to analyze the shipboard performance and compare system optimums so we can make decisions as to operational efficiencies. It gives us an engineering preview so we can make engine adjustment or other systems modifications.”
Expansion in the liquefied natural gas market
Teekay LNG Partners L.P. is the third-largest independent owner of LNG carriers and began providing LNG service in 2004. Teekay LNG now has interests in 27 LNG vessels, five liquefied petroleum gas (LPG) carriers and 11 conventional tankers.
Current projections of the total global demand for natural gas indicate an increase of 44 per cent through to 2035, at an annual growth rate of 1.4 per cent. These projections are based upon a number of factors including environmental demands for cleaner energy, increased use of natural gas as a fuel source for power generation and deregulation in some key markets. LNG prices have dropped due to lower costs of liquefaction and regasification, a result of technological improvements and increased competition. An estimated 84 per cent of growth in this period is expected from non-OECD regions, with high demand from China and projected increases in demand from North America and Europe.
Liquefied natural gas is produced by cooling natural gas to about -260 degrees F, which results in condensation of the gas into liquid form. LNG takes up about one sixth hundredth of the volume of gaseous natural gas making it easy and economical to transport. Specialized tankers with insulated walls keep it in liquid form by autorefrigeration which is a process in which LNG is kept at a boiling point, so that any heat additions are countered by the energy lost from LNG vapour that is vented out of storage and can be used to power a vessel.
Floating production, storage and off-loading facilities
Teekay is the largest operator of FPSO vessels in the North Sea, and the fourth-largest leased FPSO operator globally. Either through conversions or newbuilds, Teekay supplies and operates these facilities under long-term contract, with two on the Norwegian shelf, three on the United Kingdom continental shelf and two off the coast of Brazil.
Graham Westgarth explains, “In the North Sea where the deep-sea oil industry developed, they often built pipeline systems from the platforms to shore. However, some fields were either too remote, or for a variety of reasons, a pipeline was not economically feasible. The answer was to create a ‘floating pipeline’ in which tanker ships (called shuttles) come right up to the platform and load directly or through a subsea installation at the platform.”
These offshore floating production, storage and off-loading facilities, store crude oil in their hull. They are used in deepwater or ultra-deepwater (6,000 to 10,000 feet) operations, and there are four widely used deepwater practices which include FPSO, fixed platform, production hubs, spar and tension leg platforms.
“When loading a shuttle tanker from a platform, it is important to remember the connector hoses are not elastic, and it is critical to keep the shuttle bow within a 10-metre oblong envelope in seas up to 6.5 metres.” Westgarth says that the shuttles require vast amounts of power along with dynamic positioning systems, a high-tech combination of GPS and other computer-coordinated systems, adding that most of the ships have three positioning systems, allowing them to pinpoint exact bow position. Shuttles employ thrusters and multiple propellers, since it is vital to the loading process to hold the shuttle steady, even in rough seas.
Oil spills and FPSO’s
Teekay, with an otherwise superb safety record, is not immune to spills. The rugged North Sea’s weather-related conditions add additional layers of safety and operational challenges. The company’s Health, Safety, Environment and Quality Control policy is straightforward, and includes instruction that employees are “to strive for zero harm to people and property, to strive for zero spills and to minimize operational impacts on the environment.”
However, the company was cited by Norway’s Petroleum Safety Authority in 2008 and ordered to identify and implement necessary improvements in the company’s planning and implementation of loading operations, particularly with respect to the management system for maintenance and inspection of the bow loading system.
On the morning of December 12, 2007, approximately 4,000 cubic metres of crude oil spilled into the North Sea at Statfjord, an offshore oil platform 200 kilometres West of the city of Bergen, Norway. Statfjord field is one of the largest Norwegian oil fields located near the border between British and Norwegian sectors. The spill occurred while the shuttle tanker Navion Britannica was loading oil from a loading buoy.
In January, 2008, a loading hose ruptured while the tanker Navion Scandia was loading oil from Dragugen, located 150 kilometres off the coast of Norway, spilling about 6 cubic metres.
At the forefront of a new generation of shuttles
Among its shuttle fleet, Teekay employs a new generation of tankers, the Explorer Class. Technologically advanced, and eco-friendly, the vessels received the Clean Shipping Award at the 2009 NOR-Shipping exhibition and conference in recognition of outstanding efforts to reduce emission of greenhouse gases.
The company continues to innovate and investigate new designs to minimize the risks from high winds and high seas at platforms, working on designs for future shuttle tankers. A revolutionary patented design, called a ‘flex shuttle’, which will incorporate stern loading, reduces the positioning thrusters from six to four and reduces the number of rudders required. Westgarth says, “The new designs will improve positioning performance, reduce maintenance and reduce the impact on the environment. The designs have undergone wave-tank testing and computer simulations, all validating the computer simulations. We now have fully developed specifications, we’re costing them, and estimate that they could be about 30 per cent more efficient than anything that currently exists. We’re now looking to have detailed consultations with customers before we proceed to construction.”
In 2011, Teekay signed a memorandum of understanding (MOU) with A2SEA, a Danish company whose mission is the transport, installation and servicing of offshore wind farms. The MOU encompassed the terms of cooperation between the two for the design, delivery and operation of floating transportation and installation vessels.
Transferring deepwater oil experience to wind farms
Europe is a leader in offshore wind energy that began with an installation in Denmark in 1991. As of 2010, there were 39 wind farms in waters off Denmark, Belgium, Finland, Germany, Ireland, the Netherlands, Norway, Sweden and the United Kingdom, and more than a 100 other offshore projects either in planning or development.
Westgarth explains that wind farm installations are moving into deeper and deeper water, and the technology currently being used to install the foundation of a wind turbine is what is termed a ‘jack-up’ system. The installation vessel has stilts that lower to the seabed, creating a steady platform for workers to construct the pilings, and assemble the wind turbine which rises above.
“These jack-up vessels have limited deck space, are not particularly manoeuvrable and they are expensive”, Westgarth says. “We thought we could take an existing shuttle tanker, which has a large deck area, the technology and crew expertise to stay on-position in extreme conditions, and with some modification, make it an effective platform for the cranes required for the installation of wind turbine foundations.” Teekay has been at work for two years on design and engineering plans and very recently have taken the design to shipyards for detailed quotations. “Should the plans meet our cost criteria, we believe we’ll soon begin converting some of our ships. This will be an effective use of aging vessels but most importantly, will be a much more efficient and cost-effective method of installing windmills.”
Westgarth says Teekay’s future looks strong. “We’ve got a solid balance sheet, and although not as profitable as we would have liked in recent years, we’re ambitious. When one combines that with the values instilled in the company by founder Torben Karlshoej, in spite of market volatility, our financial goal is still to be a good steward of our shareholder’s money, making sure we invest it in businesses which will give us the right return.”