Watching the World: The Suez Canal and oil trade

April 4, 2005
The Suez Canal Authority announced record income last week, saying it had earned close to $4 billion in transit fees for the first time since nationalization of the waterway in 1956.

The Suez Canal Authority announced record income last week, saying it had earned close to $4 billion in transit fees for the first time since nationalization of the waterway in 1956.

Led by a 16% rise in the number of oil tankers paying transit fees over the year, the SCA's receipts rocketed to $3.8 billion in 2004. That's an increase of 45%, or $1.2 billion, over the preceding year.

Increased business from oil trade is very much on the mind of the Egyptians who now run the canal.

"We are very sensitive to everything around us," said SCA Chairman Ahmed Aly Fadel, speaking at a recent press conference. He is particularly sensitive to the oil industry.

Price effect

Fadel says the canal has benefited in the past 2 years from high oil prices. But continuation of current prices of about $50/bbl would hurt both world trade and the canal. "The normal price [of about $30/bbl] is good for everyone," he said.

Assuming the world does not see a major economic downturn, he is confident that the canal can sustain high revenues if it keeps its fee structure competitive and upgrades to take bigger ships.

Discussion, apparently, is continuing over further deepening of the waterway to 72 ft to allow transit of vessels larger than 300,000 dwt.

There is no small irony in that regard, for closure of the Suez Canal in 1956 increased the sea passage from the Persian Gulf to Europe by 5,000 miles. That led to the development of very large crude carriers (VLCCs), ships too large for the canal.

Construction of the 100,000-dwt Universe Apollo in 1959 was a signal event, reducing the cost to transport a ton of oil by half or more.

In 1966, however, oil traffic through the Suez Canal really began to wane with construction of the 206,106-dwt Idemitsu Maru, the first tanker to exceed 200,000 dwt and aptly described as the world's first VLCC.

New directions

But the Egyptians remained steadfast.

Their waterway has clearly had its impact on the oil industry, not only changing the course of shipping but also spawning new directions in shipbuilding.

That's evidenced also by the Suezmax tanker, named for the 150,000-dwt class of vessel, the largest able to transit the Suez Canal.

Building vessels in this class is an up-and-coming business. Last week, China Shipping Co. was reportedly close to a $290 million deal for four Suezmax tankers from Bohai Shipbuilding Heavy Industry, the yard's first order for that size of vessel.

"There has been a remarkable increase in the growth rates in China and the European imports of commodities, which has led to a record amount of revenues and traffic figures," Fadel observed.

If this trend continues, the Egyptians may never have to try reversing history by deepening their waterway.