Life Without Oil

Sunday 5 October 2008 – The Port of Singapore

The Shinyo Ocean is carrying 180,000 tonnes of oil from Fujairah in the United Arab Emirates down the Malacca Straits, around Singapore and then up past the east coast of the Malay peninsula, Vietnam and across the South China Sea to the island of Taiwan. It's a regular route – owned by a European, the Hong Kong flagged very large crude carrier (VLCC) is contracted to make the run several times a year by Taiwan's plastics industry, which has a thirst for oil that requires constant quenching.

The ship doesn't stop at Singapore, just slows down to pick us up along with some supplies and the essentials of shipboard life – newspapers and SingTel mobile phone top-up cards for the crew. Nobody buys anything else in Singapore – supplies for the run are taken on board in Fujairah – tax free – everything from cigarettes to booze to ice cream.

We head out just over an hour from Singapore's World Trade Centre Ferry Terminal to meet the Shinyo Ocean aboard a small supply vessel, the Jolly Rachel, owned and crewed by three guys from Indonesia's Aceh province who lost their village to the tsunami and seem to have stayed at sea ever since. The tanker is late – caught in traffic, as the shipping lanes around Singapore are packed. Roughly 80 per cent of the world's seaborne freight and oil passes down Malaysia's coast, round Singapore and into the South China Sea or vice versa. We bob about for an hour starting to feel nauseous from the choppy sea and the endless shrill Indonesian pop music blasted at us courtesy of the Jolly Rachel's captain.

The Shinyo Ocean lives up to its 'very large' designation -1,100 feet long, 200 feet wide and riding about 66 feet out of the water – basically a floating island fully loaded with oil and a twenty-two-man Indian crew. The ship is plenty big enough to allow you to go for a jog around the deck if the sea is calm. She's an expensive piece of floating real estate too – the ship alone is worth US$130 mn, while she's carrying a cargo of oil worth over US$120 mn and, in addition, she needs 62 tonnes of 'bunker fuel' a day to power the ship – at US$800 a tonne that means we're spending nearly US$50,000 a day just to keep moving. Factor in the additional costs of all the necessary lubricants, fresh water and food we need aboard and you start to understand how expensive it is to move the 'black gold' around the world.

The captain slows to 7 knots to pick us up, dropping her side ladder as the supply boat comes alongside. At sea level with a VLCC tanker looming up 66 feet above you, 7 knots feels like a hundred; you jump the small gap and then climb up the sixty or so stairs to the deck with your head down, concentrating on putting one foot in front of the other. The Jolly Rachel pulls away sharply as soon as we're aboard – even at these slowed speeds a small boat is fairly powerless against the Shinyo Ocean – if either captain isn't paying attention and lets the speed drop then the Jolly Rachel could get sucked as if by a magnet onto the side of the Shinyo Ocean and then pulled underneath it. If they weren't looking, the crew of the tanker wouldn't even notice the Jolly Rachel being pulverised. Once we're aboard, the captain can increase speed to 14 knots and by nightfall we're passing out of the Singapore Straits, into the South China Sea and close by the Riau Islands of Indonesia.

It's six days constant sailing across the South China Sea to Taiwan.

The imperative of Strategic Reserves

Oil tankers are the behemoths of the world's oceans and absolutely vital to the smooth running of the global production process. Email can go down for a few days, mobile phone signals be lost temporarily, pipeline supplies interrupted intermittently, but if oil tankers stopped sailing for a matter of days or weeks then the world's economy would literally grind to a halt.

The situation is potentially very serious – according to a March 2001 agreement, all twenty-eight members of the International Energy Agency (the IEA) must have an inventory, or 'strategic petroleum reserve', equivalent to ninety days of the prior year's net oil imports for that country. Only a few net-exporter members of the IEA are exempt from the reserve requirement: Canada, Denmark, Norway and the UK. Recently even Denmark and the UK have both created strategic reserves to protect their economies from any interruption in supply.

Currently most nations are operating below the IEA-proposed ninety days – the United States current inventory of 724 mn barrels equates to just thirty-four days of oil at current daily US consumption levels (21 mn bpd). Japan's reserve would allow it to function for just over ninety days. In the EU the situation varies – usually between fifty to ninety days – while in Australia the strategic petroleum reserve equates to just ten days' supply.

However, the emerging powerhouse production economies of East Asia and India, which are the fastest-growing importers of oil, are on far shorter timelines and thus considerably more vulnerable to interrupted flows of delivery. South Korea and Taiwan have approximately thirty days of reserves but China has barely a fortnight's strategic reserve in stock, though it might last out thirty days if stocks held by enterprises are also factored in. India, similarly, has approximately a fortnight's reserves in hand.

Any interruption to the world's SLOCs – whether it were war, internal conflict, piracy or industrial action that blocked any of the vital choke points between the Middle East and the major consuming markets to the West or East – would rapidly be a problem of global proportions. As more and more oil is moved east of the Middle East to East Asia any escalation of problems in the Straits of Hormuz, the Indian Ocean, the Malacca Straits, the Singapore Straits, the South China Sea or the Taiwan Straits could bring the world's new centres of production to a grinding halt. Consider that the Straits of Hormuz at their narrowest are just 33 miles wide, yet approximately 25 per cent of the world's oil supply and over 75 per cent of Japan's oil passes through them daily (something approximating a daily oil flow of 16.5–17 mn barrels or roughly two-fifths of all seaborne traded oil). The Malacca Straits – the crucial connecting passage between the Indian Ocean and the South China Sea – are barely 1.5 miles wide at their narrowest, yet a quarter of all oil carried by sea passes through them, mainly to the markets of East Asia. Vulnerability is the hallmark of the SLOCs.

Most people never see an oil...