Vessel Condition, Human Error Blamed for Loss of Thai Navy Frigate

U.S. Navy diver salvages the mast from the wreck of the Sukhothai, February 2024 (USN)

PUBLISHED APR 11, 2024 10:12 PM BY THE MARITIME EXECUTIVE

 

The Royal Thai Navy has completed its investigation into the sinking of the frigate Sukhothai in 2022, blaming a combination of bad weather, vessel condition and human error for the casualty. 

On the night of December 18, 2022, the 36-year-old frigate Sukhothai encountered heavy weather while operating about 20 miles off Bang Saphan, Thailand. Instead of continuing onward to Bang Saphan, where there would be no assist tugs, the commanding officer opted to reverse course and return to the naval base at Chon Buri, on the other side of the Gulf of Thailand. 

Conditions continued to worsen, and wave heights reached about 20 feet. The vessel lost power and began to flood, and her pumps were unable to keep up. Response vessels could not transfer over salvage pumps because the surface conditions were too rough. The vessel suffered progressive flooding, and at 0012 hours, the Sukhothai capsized and sank.

76 survivors were rescued, including 18 who were hospitalized. 24 deceased crewmembers' bodies were recovered, and five remain missing at sea.

After the casualty, divers from the Royal Thai Navy and the U.S. Navy inspected the ship and found evidence of physical damage. The wave breaker just forward of the main cannon had torn off, leaving a one-inch hole in the deck where water could enter. The gun turret also showed signs of impact damage from an unknown object, and there were two substantial penetrations on the port side above the waterline, about one foot long each - also from impact with an unidentified object. In addition, the hatch for a line locker was unsecured, and the hatch for the cannon's gun bay compartment was not possible to close, according to The Nation Thailand. All of these factors could potentially contribute to flooding in heavy seas. 

In addition, the investigation found fault with the commanding officer's decision to turn back and head for Chon Buri. Bang Saphan was closer, and the decision "was made hastily and without thorough consideration," the investigators concluded. 

The former CO, Capt. Pichitchai Tuannadee, acknowledged that the decision had been his, though he said that he and his crew had acted with the best intentions to save their ship. Tuannadee resigned from the Navy at the same press conference, and said that his departure would preserve the honor of the post he held. Before leaving, he will serve out a 15-day punitive detention.

The Thai government initially pledged to raise the wreck of the Sukhothai, but the project proved to be too expensive and risky. Instead, it opted to work with the U.S. Navy's salvage specialists to remove or decommission the ship's weapons, munitions and sensitive materials.  

 

South Korea's President Wants $4B Fund to Build More Boxships

Office of the President of the Republic of Korea

PUBLISHED APR 11, 2024 10:26 PM BY THE MARITIME EXECUTIVE

 

South Korea's president has pledged to invest $4 billion in financing to expand the nation's container ship fleet, adding about one million TEU in capacity to the global fleet. 

"We will provide 5.5 trillion won ($4 billion) worth of eco-friendly ship financing to national shipping companies to increase the size of their fleets and make them more eco-friendly," said President Yoon Suk Yeol. "Through this, we will expand the fleet of national shipping companies to a total of 2 million TEU by 2030, and increase the proportion of eco-friendly vessels among national ocean shipping companies to 60 percent."

If carried out, this would effectively double South Korea's fleet and add about 900,000 TEU to the global supply of cellular capacity, an increase of about three percent. The fleet is expected to remain oversupplied, because of a rash of new deliveries this year and next. 

National champion carrier HMM stands to benefit from the financing. The Korean government is HMM's majority owner with a 58 percent stake.

Yoon also pledged to boost Korea's port-automation technology sector with financing worth about $360 million, and to give Korean companies an edge in the green transition with a $725 million fund for green corridors and bunkering infrastructure. 

Japan has previously filed two trade complaints with the WTO over Korean industrial-policy programs of this type. The Korean government has historically denied that it subsidizes its shipbuilding industry, but Japan takes exception to the state financial support programs that Korea has implemented for domestic yards and vessel operators. The WTO's rules put limits on state-backed funds, loans and guarantees, though enforcement is difficult. 

 

Turkey Disagrees with Greece’s Marine Park Plans in the Aegean Sea

Greece wants to turn 11 uninhabited islands in the Aegean into a marine park (NASA file image)

PUBLISHED APR 11, 2024 11:03 PM BY THE MARITIME EXECUTIVE

 

 

Turkey has issued a stern response following an earlier announcement this week by Greece that it was looking to establish two new marine parks, one in the Aegean Sea and the other in the Ionian Sea. The Greek Ministry of Foreign Affairs unveiled these plans ahead of the ninth Our Ocean Conference, scheduled to be held in Greece next week from April 16-17.

“In the context of the conference, the Greek government will announce the immediate creation of two large national marine parks. These two parks will be among the largest in the Mediterranean. For their surveillance, state-of-the-art monitoring system will be used including drones, radar, satellites and boats, in real time,” said the ministry.

However, the move has upset Turkey, with the Turkish foreign ministry swiftly issuing a statement cautioning Greece to desist from making unilateral decisions on matters Aegean Sea, where the two countries have overlapping claims. Greece and Turkey disagree on the extent of their territorial waters in the area and delimitation of the continental shelf. Most importantly, Turkey rejects what it refers to as militarization of some islands in the Aegean by Greece.

In its statement, Turkey said that Greece is trying to exploit environmental issues for its benefit on the outstanding maritime dispute in the Aegean.

“We recommend Greece not to involve within its agenda the outstanding Aegean issues, regarding the status of some islands and islets, whose sovereignty has not been ceded to Greece by the international treaties,” remarked the Turkish Foreign Ministry. “We would also like to advise third parties, including the EU, not to become a tool for Greece’s politically motivated attempts regarding environmental programs.”

Greece has responded to these claims asking Turkey to stop politicizing a “purely environmental issue”. The Greek foreign ministry added that environmental protection should raise awareness among governments rather than be used as an instrument of geopolitical gain. Greece emphasized that its goal of expanding marine protected areas is in tandem with the global ambition of protecting 30 percent of the ocean by 2030. The government also gave a commitment that at around the same time, commercial fishing will not be allowed in 10 percent of its seas.

In December, Turkish President Erdogan paid a visit to Greek Prime Minister Kyriakos Mitsotakis in Athens, in a diplomatic effort to manage the longstanding tensions between the two countries.

Budget Watchdog Forecasts Big Cost Overrun for Marine Corps' Landing Ships

The heavily-modified OSV HOS Resolution shows one possible configuration for a Marine Corps landing ship (USN)

PUBLISHED APR 11, 2024 11:27 PM BY THE MARITIME EXECUTIVE

 

The cost of procuring a fleet of small amphibious ships to support the Marine Corps is expected to be three times higher than the U.S Navy expects, the Congressional Budget Office (CBO) has said.

In a new review of the Navy’s Medium Landing Ship (LSM) program, CBO also reckons that apart from costing more, the class of 18 to 35 new ships is also facing uncertainties in terms of design, capabilities, size, and survivability features.

The LSM program is critical to the Marine Corps' new operational concept, dubbed Expeditionary Advanced Base Operations (EABO), which calls for dispersing small units around an island archipelago. The Navy's FY2024 budget submission calls for buying the first ship at a cost of $188 million in 2025. The cost for the subsequent ships would fall to about $150 million.

CBO has dismissed the Navy’s estimates, and believes that the program will cost significantly more. In its report, CBO projects that it will cost the Navy between $6.2 billion and $7.8 billion in 2024 (inflation-adjusted) to procure 18 ships under the program. This translates to between $340-430 million per ship.

If the Navy changed the LSM’s design to make it equivalent to an amphibious warfare ship, then each vessel could cost between $475 million and $600 million, adding between $2 billion and $3 billion to the costs of an 18-ship program and between $5 billion and $6 billion to the costs of a 35-ship program.

The Navy could save on costs if the LSMs were designed to more commercial standards, as sought by the Marine Corps. This would mean between $110 million to $140 million per ship, dramatically reducing cost. 

Uncertainties also linger on design characteristics to potential shipbuilders.

Part of the uncertainty emanates from the fact that the Navy is struggling to make a final decision on the preferred design from concepts presented by five companies. Besides, the Navy is yet to make a decision on whether a single shipyard should build all the ships or have them built in multiple yards.

In terms of size, the ships are expected to be 400 feet long, have a beam of 55 feet, displace 2,522 long tons and have a 12-foot draft. They are also expected to have a transit speed of 14 knots with a range of 3,500 nautical miles, have a capacity of 70 sailors and a service life of 20 years.

Marine Corps leadership is pushing for 35 ships, nine for each Marine Littoral Regiment, plus a handful of extras expected to be in maintenance availabilities at any given time. 

The ships are intended to transport, deploy, and, if necessary, resupply and redeploy Marine littoral regiments in and around a theater of operations, particularly in the western Pacific and in any potential conflict with China. CBO said that the Navy could do more to clarify how LSM will be used - and particularly, how or whether it would be used in an active conflict zone. 

“A ship that is not expected to face enemy fire in a conflict could be built to a lesser survivability standard, with fewer defensive systems than a ship that would sail in contested waters during a conflict,” observed the CBO.

Orlen Trading Switzerland Investigated for Possible Sanctions Breach

By Julianne Geiger - Apr 11, 2024

Polish special services are currently investigating whether Orlen Trading Switzerland, a subsidiary of Polish refiner Orlen (PKN.WA), may have violated sanctions regarding the import of oil from Russia or Iran, broadcaster Radio Zet reported on Thursday.

This investigation represents just the latest inquiry directed at the state-controlled company, following allegations of artificially lowering prices ahead of the 2023 election and selling assets below fair value for the purposes of acquiring a smaller peer.

Orlen has denied breaching any sanctions. The ongoing scrutiny comes amidst allegations that the previous nationalist Law and Justice (PiS) administration had exerted political influence over state-controlled entities.

The report from Radio Zet surfaced shortly after Orlen announced on Wednesday a substantial write-down of 1.6 billion zloty ($403.82 million) on the value of Orlen Trading Switzerland (OTS), consequently impacting the group's 2023 profit.

In August 2023, Orlen's utilization of tankers that previously carried Russian crude to Asia for importing oil from the Middle East raised concerns about adherence to EU and G7 price caps for Russian crude. "All our activities, including those related to the delivery of crude oil, are in line with the applicable sanctions," Orlen said at the time.

Despite Orlen's then denial of involvement in Russian oil shipments, the company's strategies shifted amidst geopolitical sanctions to focus on purchases from Middle Eastern and U.S. crude, as well as Asian fuels.

Orlen was previously one of the biggest buyers of Russian crude oil for use in its refineries in Poland and Lithuania.

Last summer, PKN Orlen's Chief Executive Daniel Obajtek likened the act of losing Russian oil to forfeiting $27 million per day because of the price difference between Russian oil and these alternative supplies. Obajtek clarified that PKN Orlen was still purchasing Russian oil through the Druzhba network for its Czech refinery in Litvinov, which was not covered by sanctions.

By Julianne Geiger for Oilprice.com

China Moves to Stabilize Long-Term Coal Supply and Prices

By Tsvetana Paraskova - Apr 12, 2024

China’s top economic planning body has finalized plans to create a reserve system for coal production by 2027 to avoid new shortages and ensure stable supply and prices.     

China aims to have 300 million metric tons of annual “dispatchable” coal production by 2030, according to the plan from the National Development and Reform Commission (NDRC).  

In 2021, when China was hit by blackouts, the world’s second-largest economy set a goal to have coal reserves stocked at mines, power plants, and ports equivalent to 15% of its annual production.

Now China is looking to set up a new coal reserve system to have spare coal production capacity, with coal ready to be mined when and if needed.

The coal mines that will be included in the capacity reserve system should be ready to send coal supply whenever authorities consider the domestic market is tight or prices move above a “reasonable” range, according to a notice of the planning body cited by Reuters. 

Big and modern mines in the biggest coal-producing areas in Shanxi, Inner Mongolia, and Xinjiang with good track records of safety will be first in line to be included in the new coal reserve plan, the Chinese state planner says. 

The creation of a coal reserve system will aim to ensure enough coal supply during peak power demand periods or in extreme weather conditions. It is also viewed as a way to stabilize coal prices in tighter market conditions.  

So far this year, coal output in China has wobbled after authorities in the northern province of Shanxi, the top coal-producing region, ordered in February miners to reduce production and carry out safety inspections between March and May, following several fatal incidents at mines in China in recent months.

In January and February 2024, total Chinese coal production declined by 4% compared to the same period of 2023.

Weaker coal prices and demand and mine closures due to safety checks are set to reduce coal output in the Shanxi province by 4% this year, for the first time in seven years, according to a plan announced by the provincial government.  

By Tsvetana Paraskova for Oilprice.com

 

ADNOC Considered Buying Oil Giant BP

By Tsvetana Paraskova - Apr 12, 2024

Abu Dhabi National Oil Company (ADNOC) has recently weighed buying BP, but talks didn’t go far and ultimately the state firm of the United Arab Emirates decided not to pursue a takeover of the UK supermajor, sources with knowledge of the discussions have told Reuters.

ADNOC has recently held preliminary talks with BP and has contacted investment banks for advice on a potential takeover, according to two of Reuters’ sources.   

The reported approach by ADNOC comes as the U.S. oil and gas industry is undergoing a major consolidation, with many multi-billion deals announced in America in recent months.

The mergers and acquisitions (M&A) wave hasn’t reached Europe yet, although analysts have said that BP could be a target of a potential takeover by a rival.

BP’s stock suffered early this decade when the company announced its net-zero strategy. In early 2023, investors cheered BP’s reversal of some goals and its commitment to invest more in resilient oil and gas projects than previously planned and pump more hydrocarbons for longer to meet the world’s needs.

BP said in February 2023 it would be producing more oil and gas for longer and increase investment into oil and gas projects by an average of up to $1 billion a year until 2030. 

For the European majors, the focus “is to narrow and even close the structural valuation gap to their premium-rated US peers,” Wood Mackenzie’s analysts said in the wake of the Exxon and Chevron announcements of mega all-stock mergers.

In ADNOC’s pursuit of a takeover target, BP was one of the companies the UAE firm has looked at, one of Reuters’ sources said.

There were some direct talks between ADNOC and BP but “It didn't go far,” the source told Reuters.

BP and ADNOC have been partnering on projects for more than five decades. The most recent collaboration was the creation of a natural gas joint venture in Egypt.

By Tsvetana Paraskova for Oilprice.com

 

Biden Administration's SPR Plans Derailed by Oil Price Surge

By Robert Rapier - Apr 11, 2024

• Department of Energy cancels solicitations for Bayou Choctaw SPR site deliveries, citing oil price increases.
• 
  
• Despite promises to refill the SPR, Biden Administration halts purchases as market dynamics shift.
• 
  
• Predictions of limited SPR replenishment align with historical trends of presidential actions in election years to manage oil prices.
• 
  

Despite indicating they would refill the Strategic Petroleum Reserve (SPR) by the end of this year, the Department of Energy has now canceled solicitations offered last month.

Citing rising oil prices, the DOE said, “We will not award the current solicitations for the Bayou Choctaw SPR site and will solicit available capacity as market conditions allow.” Three million barrels of oil had been slated for delivery to the Bayou Choctaw SPR site in August and September.

The SPR is the world’s largest supply of emergency crude oil. It was established primarily to reduce the impact of disruptions in supplies of petroleum products and to carry out obligations of the United States under the international energy program.

The SPR is maintained by the U.S. DOE and its oil stocks are stored in huge underground salt caverns at four sites along the coastline of the Gulf of Mexico. The size of the SPR (authorized storage capacity of 714 million barrels) makes it a significant deterrent to oil import cutoffs and a key tool in foreign policy.

Following Russia’s invasion of Ukraine, the Biden Administration made the largest withdrawal in SPR history to curb the oil price spikes that happened in the wake of the invasion. The DOE has consistently promised to refill the SPR as market conditions allow.

One of the 2024 energy predictions I made in January had been “The Biden Administration won’t replace more than 10% of the oil removed from the SPR since Biden was inaugurated.”

The reasoning behind the prediction was that in election years, presidents have tended to withdraw from the SPR to prevent rising oil prices leading up to the election.

My prediction concluded with “By the time the summer driving season and the change to summer gasoline blends arrives in May, I think the SPR purchases will be suspended.”

The DOE added, “As always, we monitor market dynamics to remain nimble and innovative in our successful replenishment approach to protect this critical national security asset.” However, with production cuts in Saudi Arabia and Russia starting to impact the market, it is unlikely that there will be significant oil price relief ahead of the election. Thus, we will likely go into the election with the SPR at the current significantly depleted level.

By Robert Rapier

U.S. Crude Production To Decline In 2024 As Shale Activity Stalls

By Alex Kimani - Apr 11, 2024

• High decline rates for shale wells usually set in soon after commissioning.
• 
  
• The U.S. oil rig count is currently 20% below its post-pandemic peak after flatlining for the past six months.
• 
  
• The EIA agrees with StanChart’s assessment and has predicted that production will continue to fall in the second and third quarters of 2024 before rebounding in 2025.
• 
  

Over the past three years, the U.S. energy sector has enjoyed an oil price boom that has been accompanied by soaring crude production. According to data by the U.S. Energy Information Administration (EIA), crude production climbed from 11.0 mb/d in July to 2020 to an all-time high of 13.3 mb/d in December 2023 as producers ramped up output to meet heightened demand as well as take advantage of high prices in the post-pandemic period. 

According to commodity analysts at Standard Chartered, the U.S. shale patch did much of the heavy lifting, with the horizontal rig count (a proxy for shale oil activity and a leading indicator of output trends) rising for three straight years at a time when an output gap remained, with supply still below its pre-pandemic peak. Given these tailwinds, output hit an all-time high in the final two months of 2023 with year-over-year growth clocking in at over 1 million barrels per day. 

However, it appears that the U.S. shale patch will not be able to sustain that clip much longer. High decline rates for shale wells usually set in soon after commissioning, meaning extra well completions are required to offset declines from existing wells if output is to be maintained. Unfortunately, StanChart has reported that the horizontal rig count started to decline sharply in early 2023, and is currently 20% below its post-pandemic peak after flatlining for the past six months. 

The analysts point out that whereas the completion of previously drilled wells and technical change provide an offset, a significant fall in activity, more often than not, leads to a lagged decline in growth. The analysts have predicted that U.S. crude output will clock in 300 kb/d lower than the pre-pandemic peak by the end of the year.

This thesis appears to be playing out, with the EIA reporting that U.S. crude output declined from 13.3 mb/d in December 2023 to 12.5 mb/d in January 2024. The EIA agrees with StanChart’s assessment and has predicted that production will continue to fall in the second and third quarters of 2024 before rebounding in 2025.

Source: EIA

Source: Standard Chartered Research

 Bullish Demand Growth

Luckily for the oil bulls, most experts have predicted that global oil demand will continue to grow in the coming years. OPEC Secretariat has forecast demand growth of 2.247 mb/d in 2024, StanChart at 1.719 mb/d, the EIA’s forecast is 1.43 mb/d while Paris-based International Energy Agency (IEA) currently has the lowest 2024 demand growth forecast at 1.33 mb/d. For 2025,  the OPEC Secretariat forecast is 1.847 mb/d; StanChart's at 1.424mb/d while EIA 2025 demand growth forecast is 1.379mb/d. The IEA will report its first demand growth forecast for 2025 when it releases its latest Oil Market Report (OMR) on 12th April.

Interestingly, demand growth might even surpass those predictions due to an unsuspected factor: the war in the Middle East. Last month, the IEA made a 110,000 barrels per day (bpd) upward revision of its global oil demand from its previous forecast saying shipping disruptions on the Red Sea caused by Hamas attacks would lead to higher fuel consumption as ships take the 4,000-mile detour around the African continent.

“Disruptions to international trade routes in the wake of turmoil in the Red Sea are lengthening shipping distances and leading to faster vessel speeds, increasing bunker demand,” the agency said, using a term for the fuel needs of ships.

Brent crude recently broke out above USD 90/bbl even as volatility remains subdued.

According to StanChart, the realized 30-trading day volatility stood at a six-month low of 17.5% at settlement on 8 April, quite unusual given the significant geopolitical uncertainty as well as low and falling inventories. StanChart says this implies the oil market is being pushed higher by tightening fundamentals rather than speculative action. Last week, front-month Brent climbed USD 2.96/bbl w/w to settle at USD 90.38/bbl on 8 April, briefly hitting a five-month high of USD 91.91/bbl intra-day on 5 April. 

The same can, however, not be said about natural gas markets. Last week, European gas futures rose 5% toward €29/MWh, driven by fears of attacks on Ukrainian gas storage facilities and escalating geopolitical tensions in the Middle East. However, there’s not much scope for a big rally at the moment with Europe flush with gas. The European gas injection season has already begun, with inventories building for seven consecutive days. 

According to Gas Infrastructure Europe (GIE) data, inventories stood at 69.58 billion cubic meters (bcm) on 7 April, good for a 5.54 bcm Y/Y increase and 21.27 bcm above the five-year average. StanChart has pointed out that the current inventory level was not attained until early May last year and the five-year average reached the same level in early June. StanChart has also predicted that lower prices may be needed early in the 2024 season to prevent maximum storage being reached prematurely in the current year.

By Alex Kimani for Oilprice.com