Oil-eating Whale or ‘white elephant’?

/ Source: msnbc.com

The fancifully named A Whale, a seagoing behemoth converted into what its owners are calling the world’s biggest oil skimmer, is being billed as a cleanup hitter in the effort to prevent millions of gallons of oil spewing from BP’s ruptured well from ever reaching shore.

TMT, the Taiwanese company that owns the massive ship, estimates that it can suck as much as 500,000 barrels of oily water a day through its “jaws” — six ports cut into each side near its bow — and remove much of the crude through a “decanting” process using internal separation tanks.

“In the final stage, the filtered water can be returned to the ocean while the heavy oil residue is transferred to tankers for storage and final disposition,” TMT says in promotional materials outlining what it calls “the best solution to the Gulf of Mexico spill crisis.”

It will float across the Gulf “like a lawnmower cutting the grass,” effectively doubling the skimming capability of the oil response effort, CEO Nobu Su told reporters last week in Norfolk, Va., during a stopover at which company officials revealed what they hope will be the A Whale’s new mission.

But before the 1,115-foot-long ship with the big blue whale on funnel has even undergone testing, some experts are questioning whether it can fulfill those lofty expectations.

“I don’t think the concept is that bad, but I don’t see how in this situation it’s going to be a significant player,” said Dennis Bryant, a former Coast Guard officer who worked on implementing regulations required by the Oil Pollution Act of 1990 before retiring and starting a maritime consulting business in Gainesville, Fla.

“In a case like the Exxon Valdez spill, where you had a lot of oil on the surface in a confined area, a vessel like this could have gone in and sucked up a whole lot,” he said. “But in the Gulf, where the oil is pretty well dispersed over a vast area, I don’t see how it’s going to make a large dent.”

No commitment from BP
Whether the A Whale, a Taiwanese-owned, Liberian-flagged ship, will even join the cleanup is unclear. TMT converted the oil/bulk ore carrier at a Portuguese shipyard over 10 days in early June without first obtaining a commitment from BP, which would need to sign the contract to enlist the ship in the spill response. Nor did it check with the U.S. government to ensure that the skimming operation would meet U.S. environmental and maritime standards.

Also, while the company says it conducted a successful test of the A Whale’s ability to draw in oily water using fire foam, the concept has not undergone outside review. And Bob Grantham, a spokesman for the TMT Offshore Group, said Thursday that it’s not yet clear how much oil can be removed from the water.

“Until we test the vessel in the oil spill environment, it is impossible to predict precisely how well it will perform,” he said in a written response to questions from msnbc.com. 

The Coast Guard plans to witness a demonstration of the A Whale’s skimming capabilities as soon as high seas caused by Hurricane Alex subside. In the meantime, the ship remains anchored near the mouth of the Mississippi River.

Grantham said that the company is engaged in a “constructive dialogue” with BP and the Coast Guard.

“We look forward to continuing to work in close cooperation with all parties to reach an agreement in order to get to work on the oil spill cleanup effort,” he said.

Shrewd or risky?
Shipping industry observers appear divided on whether TMT’s gamble is a shrewd business move or a reckless gamble.

Bryant, the former Coast Guard official, said his research suggests that TMT had difficulty lining up business for the A Whale — the first of eight hybrid oil/ore carriers it has ordered from South Korean shipbuilder Hyundai Heavy Industries — since it was delivered early this year.

“If the ship were gainfully employed, would the owner have gone through this conversion?” he said. “If it’s making a profit, you don’t take it out of service to convert it on a whim like that.”

And Michelle Wiese Bockmann, markets editor for the seafaring chronicle Lloyd’s List, speculated that TMT CEO Su, who owns 51 percent of the privately held company, may be using the attention focused on the BP disaster to publicize his new vessel.

“He likes to have an air of mystery and be seen as very influential,” she said. “And when he wants publicity, he’s very good at getting it.”

But Grantham, the TMT spokesman, said Su acted decisively because of the severity of the spill and because he felt the A Whale was the right tool for the job.

“Mr. Su recognized at the onset of the spill that a large-scale solution was necessary to deal with such a large scale problem and moved quickly to retrofit the vessel,” he said. “The effort was pursued as a highest priority in consultation with teams of engineers working day and night to make sure that solutions could be enacted as quickly as possible.”

'Savvy ship investor'
Scott Burk, a maritime transportation analyst with Oppenheimer & Co., said that with rates for shipping oil and dry bulk goods at the low end of their ranges, Su is more likely pursuing a solid profit play.

“He’s been a pretty savvy ship investor through the cycles,” Burk said, speculating that because of the specialized nature of the cleanup work, TMT could charge BP a day rate almost double the going price for hauling oil or ore. “I would suspect he saw an opportunity to make a really good rate fighting the oil spill.”

The conversion of the vessel from oil/bulk ore carrier, or OBO in industry parlance, to skimmer also represents a small risk for TMT, which currently has a 71-vessel fleet of oil tankers and bulk goods carriers, Burk said.

“This one ship makes up only 3 percent of their fleet,” he said. “In terms of taking away revenue opportunities, it’s not too big a risk.

Su has overseen strong growth of TMT, originally the Taiwan Maritime Transportation Co., now rebranded as Today Makes Tomorrow.

A Lloyd’s List article in February 2008 quoted a report by the British shipbroker Galbraith’s as saying that Su had “parked” — or idled — chartered oil tankers to push up low freight rates.

“He’s waiting to get the rates that the market justifies, so he’s being very brave and very adventurous, and it is helping the market,” it quoted the firm’s weekly tanker report as saying. “It is one of the reasons why the market has been a little bit better than expected.”

A profile in the British newspaper Financial Times in June 2008 described Su as being “an adroit player of the volatile, relatively new paper market in freight futures.” It quoted a rival in the shipping industry as saying the 52-year-old businessman possessed an "enormous appetite for risk."

'White elephant?'
TMT’s Gulf gambit with the A Whale appears to fit that profile.

It is not clear whether Su and other TMT executives envisioned using the ship as an oil skimmer before BP’s Deepwater Horizon drilling rig exploded on April 20, unleashing a torrent of oil at the bottom of the Gulf.

But Su told reporters last week that the decision was made quickly after it became apparent that the oil spill would require extraordinary measures.

Even given the speed of the decision, Bryant said, the lack of planning before sending the ship to the Gulf is confounding.

“They apparently made the conversion to the ship prior to talking to the Coast Guard or EPA or BP,” he said. “They just sailed over and said, ‘Here we are.’”

He also wonders what TMT will do with the ship if it is not able to join the cleanup or after it ends its work for BP.

“Converting a large ship like that is not inexpensive, and now that it’s done, are they stuck with a white elephant?” he asked. “Do they have a ship that is designed for one mission that, thankfully, doesn’t occur very often?”

Grantham, the TMT spokesman, suggests the company may have a long-term mission in mind for the A Whale.

“Our focus is on contributing to the oil spill mitigation effort, which will no doubt require a longer-term commitment,” he said. “Beyond that, we look forward to helping establish an effective global response capability for oil spills.”

TMT officials declined to say how much it cost to convert the A Whale from to a skimmer at the Lisnave shipyard in Portugal, but Alan Thorpe, editor of the Ship Repair Journal in London, said that the 10-day job probably cost less than $1 million because the work was done without putting the ship in dry dock.

And he believes the ship will revert to cargo-carrying duties when its skimming days are behind it.

“If it only took 10 days to do the conversion, it would only take 10 days to undo it,” he said.