McQuilling Services, LLC Ocean House ~ 1035 Stewart Avenue ~ Garden City, New York 11530 Tel: 516.227.5700 ~ Fax: 516.745.6198 ~ Email: [email protected] T a n k e r s ice Class Tankers - March 2006

Murmansk

Primorsk The ice class tanker fleet is expecting a large influx over the next three years as owners continue to order larger (MR size and bigger) tankers with ice class capabilities. Ports, including Murmansk, Vysotsk Primorsk, and St. Petersburg continue to increase their oil exporting levels which in turn has increased St. Petersburg the demand for ice class tankers. Ports located in the northern Baltic and in the Russian Arctic demand Tallin that tankers be classified ice class during their harsh winter months, primarily November to March. During the winter months the traffic restrictions are modified depending on the ice conditions, mainly Ventspils vessels bound for the must have a minimum ice class IA. On the other hand if ice Butinge conditions are minimal requirements are lessened to IC. Map courtesy of worldatlas.com Tankers are commonly classified under the Finnish-Swedish Ice Class Rules. Ice class classification is Finnish-Swedish Russian Maritime Finnish-Swedish Ice primarily driven by two criteria, hull structure and propulsion. The hull structure design requires heavier Ice Class Ice Rules Ice Class Thickness scantlings in the side shell structure where the ship is transiting ice, commonly referred to as the "ice 1A Super LU5 Ice Class IA Super 1.0m belt" of the hull. In addition to hull structure the vessels must have sufficient propulsion for maintaining 1A LU4 Ice Class IA 0.8m speed in ice and preventing damage. The shaft must be of a larger diameter and a thicker blade root is 1B LU3 Ice Class IB 0.6m needed. Additionally, ice classes 1A Super and 1A require that the rudder stock and upper edge of the 1C LU2 Ice Class IC 0.4m rudder need to be protected against ice pressure by an ice knife (this is to help protect the steering gear Class II/III LU1 Class II/III No ice strength and rudder against damage during maneuvering astern in ice). Table 1 Table 2 Finnish-Swedish Equivalence Table Finnish-Swedish Ice Thickness Table In the Baltic and Regions Russian Maritime Register of Shipping is common and may be easily paralleled to the Finnish-Swedish Ice Class Rules. (Table 1) Ships with ice class IA Super or IA Thousand Bbl/day are intended for year round operation in the area and designed for an ice thickness of 1.0m 12,000 and 0.8m respectively. Ships with ice class IB or IC have limited access to area ports for part of the Saudi Arabia USA year and designed for an ice thickness of 0.6m and 0.4m respectively. Class II and III have no ice strengthening and are considered open water vessels. 10,000 The ports located in the Gulf of Finland, although minor oil producers, occupy strategic locations 8,000 enabling them to transport Russia's northern oil exports. Russia exported 251.5m tones of crude in 2005. According to the Federal Energy Agency export of Russian oil will come to 265.5 million tons in 2006, this is an increase of 9.7% from 2005. Primorsk is the Baltic's busiest port owned and operated 6,000 by Transneft, the state monopoly. In 2005 oil exported from Primorsk increased 28.7% from 2004. By the end of the first quarter of 2006 Transneft is expected to complete construction of the 8th interim oil 4,000 pumping station Sestroretskaya increasing the ports capacity even more. During the winter months tankers traveling to and from Primorsk must have double hulls with at least an ice notation of 1A. The port of Primorsk on average has 210 ice free days a year. 2,000 Ventspils located in Latvia was the second largest oil export terminal for Russian crude after 0 Novorossiysk but in 2002 Transneft announced that Russian oil which traditionally moved through the Baltic state would be re-routed to Primorsk, dramatically dropping Ventspils exporting capabilities. 2001 2002 2003 2004 2005 Ventspils remains ice free all year round. Graph 1 Top 3 Oil Producers 2001-2005 The terminal at Vysotsk, on the northern shore of the Gulf of Finland is a Lukoil terminal and has been under major expansion projects for the last four years. Vysotsk currently allows access for tankers with Russia has consistently been part of the top three oil producers for the past five years. But unlike Saudi deadweights up to 80,000 tons. Vysotsk, similar to Primorsk is approximately ice free 210 days a year. Arabia and the USA Russia has always increased production where the other two countries have shown inconsistencies in their total annual oil production. The terminal at Varandey was built in 2000, it is located on Russian's northern coast in the Sea of Barclay Pechorskaya. In 2005 Lukoil and Conocophillips created a joint venture for the Narian-Mar project, 9% Interorient using Varandey terminal to ship to international markets by tankers. Lukoil with Conocophillips 8% participation will increase Varandey terminals capacity to 240,000 bbs/day. Currently small tankers of 1C Latvian 20,000 dwt and less are used in the summer months but Lukoil has entered into a joint venture with 1A Super Sovcomflot to build larger vessels to shuttle oil from the region year round. 1B 1% Other Shipping 1% 19% 43% 8% Butinge located in Lithuania underwent significant expansion in 2003 increasing oil exporting capabilities Sovcomflot but in January 2005 the area was hit by a hurricane which completely halted all oil shipments. Lithuania 7% produces approximately 12,400 bbl/day placing them in the 81st spot for overall production worldwide Tsakos but because Butinge's major shareholder is Russian (Yukos) the port has the capability of becoming a Dynacom 7% larger Russian oil exporter. Butinge remains ice free all year round. Novoship 3% Stena Blystad 5% Barbaro4% Murmansk is located in the Arctic region of Russia but is ice-free year round due to the influence of the 1A 3% 3% Gulf Stream from the Atlantic which raises the sea temperatures. Oil is a promising segment of the 79% regional economy. Major projects such as the Prilazlomnoye oil field which has an estimated reserve of Graph 3 610 million barrels continues to increase interest in this region. Sevmorneftegas, a joint venture Orderbook Owners between Rosneft and Gasprom plans to load tankers from a platform and then transport the oil to larger Top 10 tankers which will be in the bay near Murmansk. Murmansk does not have the capability to moor large Graph 2 tankers in the port but there are three temporary loading terminals in the bay. Other Baltic ports are Breakdown of Ice Class Notation expected to increase oil exports in 2006 and beyond primarily due to increase in oil production, primarily In the Orderbook South Korea dominates the newbuilding ice class in Russia. tanker market making up 74.5%. Hyundai Shipyards has the highest number of firm orders with 38% of As the market expands in these regions so does the demand for tankers that are able to transit the area Other the total orderbook. A majority of the tankers on year round. Development of oil and gas deposits on Russia's Arctic Shelf is expected to increase oil 20% order (64.3 %) at Hyundai are smaller vessels transport to 40m tones by 2010. In 2003 a large number of ice tankers were ordered and these tankers (37,000 dwt and 47,000 dwt) while only 35.7% is are now starting to deliver. In 2004 20% of all firm orders were ice class and in 2005 this number Hyundai comprised of Suezmaxes and Aframaxes. dropped to 10%, but this drop may be due in part to new orders for tankers not disclosing ice class 38% notations. Approximately 80% of all the ice class tanker orders are classed 1A or 1A Super. Currently 3 Maj 14% of all ice class orders are for Suezmax size tankers, incidentally all of these are ice class IA. MR 5% Brod.Split and STX (Ice Class 1A) shipyards both boost the highest number of Panamax ice class Tankers have the most ice class tankers on order with 36% and Panamax tankers come in close second with 31%. Aframax tankers consist of 20% of all ice class tankers on order, all class 1A. VLCC's have Split orders. 3Maj shipyard also makes up a large part of no ice class on order at this time, although Stena and Sovcomflot, in a co-operative agreement, have 9% the Panamax ice class fleet (ice Class 1B) on order, many included in the Latvian Shipping order. recently announced the concept of the B-Max tanker. The B-Max would have a wide body and a shallow draught and could load as much as 250,000 tons. The vessel would be able to shuttle 6-7m tones of oil Stx The Suezmax ice class orders were reported in 2003 a year out of the Baltic, approximately 10% of annual exports from Primorsk. 11% Samsung and 2004 with expected deliveries in 2007-2009. 17% Most of the tankers will be built at Hyundai Shipyard Russian state oil firm Rosneft recently ordered 2 ice class tankers, with one option, from Spanish Graph 4 in South Korea with prices ranging from $50m to shipyard Vulcano to ship oil products from its Arctic Terminal Belokamenka (loading terminal at Builders of Ice Class Tankers $65m. Murmansk) to European markets, both vessels are scheduled to deliver in 2008. Rosneft expects to 10 or more firm orders export 3.4m tones of oil in 2006 through Belokamenka. Tsakos recently purchased three Western Petroleum ice class 1A tankers, pushing Tsakos into the lead in terms of total ice class tank vessels. 70 Sovcomflot has three panamax "Varandey" Tankers on order from Samsung, these tankers will be used 1A Super 1A 1B 1C to ship oil from the transfer terminal in Varandey and will be capable of operating in winter through 1.5 60 meters of ice without the assistance of ice breakers. Interorient Navigation has 13 ice class ships on order of which 9 are reportedly entering the Norient Product Pool (a joint venture between Interorient 50 and Norden).

40 Stena recently took delivery of the Stena Arctica, the highest class specification for a tanker of its size. The vessel is 117,100 dwt and is classified by Det norske Veritas Finnish - Swedish ice class 1A Super. 30 The ship is the first of two scheduled to delivery this year. The vessel will have 10% more steel and feature over 50% more engine output than conventional aframaxes. The vessel will enter a 10-year 20 charter to Russian company Progetra transporting oil out of the Gulf of Finland.

10 There is much to expect over the next few years as oil production in the Baltic and Russian Arctic regions continue to grow. Ice class tanker fleets will continue to expand as the market grows and more 0 and more oil will able to be exported from these regions. Suezmax Aframax Panamax MR Sources: Lloyds, EIA, McQuilling Databases, Transneft, Lukoil, www.bisnis.doe.gov, Picture sources: smhi.com / offshore- Graph 6 technology.com / encarta / fma.fi / virtual.finland.fi / Minerva Marine Orderbook by Sector