SUEZ CANAL - 13th port of call - Sunshine Route

Transport costs and reductions by using the Suez Canal









One of the most important waterways in the world, the Suez Canal runs north to south across the Isthmus of Suez in northeastern Egypt. This image of the canal covers an area 36 kilometers (22 miles) wide and 60 kilometers (47 miles) long in three bands of the reflected visible and infrared wavelength region. It shows the northern part of the canal, with the Mediterranean Sea just visible in the upper right corner. The Suez Canal connects the Mediterranean Sea with the Gulf of Suez, an arm of the Red Sea. 


The artificial canal provides an important shortcut for ships operating between both European and American ports and ports located in southern Asia, eastern Africa, and Oceania. With a length of about 195 kilometers (121 miles) and a minimum channel width of 60 meters (197 feet), the Suez Canal is able to accommodate ships as large as 150,000 tons fully loaded. Because no locks interrupt traffic on this sea level waterway, the transit time only averages about 15 hours.





The idea of connecting the Mediterranean Sea to the Red Sea is as old as the pharaohs. The first canal in the region seems to have been dug about 1850 BC, but many attempts to complete the task failed. Desert winds blew into the canal and clogged it. About 150 years ago, Great Britain had a thriving trade with India, but without a canal, British ships had to make a long journey around the entire continent of Africa. A canal through the Isthmus of Suez would cut the journey by 6,000 miles. An isthmus is a narrow strip of land connecting two larger pieces of land.


A French company led by Ferdinand deLesseps made a deal with Egypt to build the Suez Canal. After ten years of work, the canal opened in 1869. The Egyptian ruler, Ismail, celebrated by building a huge palace in Cairo. Ismail treated royalty from around the world to a celebration in honor of the new canal. The heavy spending for the celebration came at a time when the price of Egyptian cotton plunged. Egypt had gone into debt to pay for the Suez Canal. Ismail took out loans from European banks, but he was unable to repay them. Egypt was forced to sell the canal to Great Britain. Soon after, the British sent soldiers into Egypt, saying they were concerned for their property. For many years, the English controlled the Suez Canal.

In 1956, Egyptian president Gamal Abdel Nasser seized the canal and declared it to be the property of the Egyptian people. Egypt fought three bitter wars with Israel during this period, and denied Israel the use of the waterway. Egypt and Israel agreed to a peace treaty in 1979, and since then the Suez Canal has been open to every nation.

Egyptian cotton plunged. Egypt had gone into debt to pay for the Suez Canal. Ismail took out loans from European banks, but he was unable to repay them. Egypt was forced to sell the canal to Great Britain. The British sent soldiers into Egypt in 1882, saying they were concerned for their property.  In 1956, Egyptian president Gamal Abdel Nasser seized the canal and declared it to be the property of the Egyptian people. Britain France, and Isreal invaded Egypt, but the United Nations ordered them to leave and decreed the Suez Canal to be the property of Egypt.


The canal closed for eight years in 1967 after Egypt lost a disastrous six-day war with Israel. After the war, Israel controlled the Sinai penisula, which includes the east bank of the canal. The canal reopened in 1975 after tensions cooled. Egypt and Israel agreed to a peace treaty four years later. Today the Suez Canal is open to every nation.





The Suez Canal (Qan el Suweis) forms a 163 km (101 mile) Ship Canal in Egypt between Port Said (Br Sa'd) on the Mediterranean and Suez (El Suweis) on the Red Sea.  The canal allows water transport from Europe to Asia without circumnavigating Africa. Before the construction of the canal, some transport was conducted by offloading ships and carrying the goods overland between the Mediterranean and the Red Sea.

The Canal was built between April 25, 1859 and 1869 by a French company led by Ferdinand de Lesseps.   The canal was owned by the Egyptian government and France. The first ship to pass through the canal did so on February 17, 1867. It is estimated that 1.5 million Egyptians worked on the canal and 125,000 died, many due to cholera. External debts forced Egypt to sell its share in the canal to Great Britain, and British troops moved in to protect it in 1882.


On July 26, 1956, Egypt seized the canal, which caused Britain, France and Israel to invade in the week-long Suez War. The United Nations declared the canal Egyptian property.  After the Six Day War in 1967, the canal remained closed until 1975. A UN peacekeeping force has been stationed in the Sinai Peninsula since 1974.


The canal has no locks because there is no sea level difference. The canal allows ships with up to 15 meters (50 feet) of draft to pass, and improvements are planned to increase this to 22 m (72 feet) by 2010 to allow supertanker passage. Presently supertankers can offload part of their load onto a canal-owned boat and reload at the other end of the canal. There is one shipping lane with several passing areas.  Some 15,000 ships pass through the canal each year, bearing about 14% of world shipping. The passage takes between 11-16 hours.





Over 35 million barrels per day (bbl/d) pass through the relatively narrow shipping lanes and pipelines discussed below. These routes are known as chokepoints due to their potential for closure. Disruption of oil flows through any of these export routes could have a significant impact on world oil prices.




Given the fact that oil consumption occurs mainly in the industrialized West, while oil production takes place largely in the Middle East, former Soviet Union, West Africa, and South America, a significant volume of oil is traded internationally. This oil is moved mainly by two methods: oil tanker ships and oil pipelines. More than three-fifths moves by sea and under two-fifths by pipeline. Tankers have made global (intercontinental) transport of oil possible; they are low cost, efficient, and extremely flexible.


Pipelines, on the other hand, are the mode of choice for transcontinental oil movements. Pipelines are critical for landlocked crudes and also complement tankers at certain key locations by relieving bottlenecks or providing shortcuts. Pipelines come into their own in intra-regional trade. They are the primary option for transcontinental transportation, because they are at least an order of magnitude cheaper than any alternative such as rail, barge, or road, and because political vulnerability is a small or non-existent issue within a nation's border or between neighbors such as the United States and Canada. (Pipelines are also an important oil transport mode in mainland Europe, although the system is much smaller, matching the shorter distances.)


Oil transported by sea generally follows a fixed set of maritime routes. Along the way, tankers encounter several geographic "chokepoints," or narrow channels, such as the Strait of Hormuz leading out of the Persian Gulf and the Strait of Malacca linking the Indian Ocean (and oil coming from the Middle East) with the Pacific Ocean (and major consuming markets in Asia). Other important maritime "chokepoints" include the Panama Canal connecting the Pacific and Atlantic Oceans, the Suez Canal connecting the Red Sea and Mediterranean Sea, and the Bab el-Mandab passage from the Arabian Sea to the Red Sea. "Chokepoints" are critically important to world oil trade because so much oil passes through them, yet they are narrow and theoretically could be blocked -- at least temporarily. In addition, "chokepoints" are susceptible to pirate attacks and shipping accidents in their narrow channels.


According to Intertanko, the world tanker fleet as of January 2002 included approximately 3,500 ships. These range greatly in size and include: "Ultra Large Crude Carriers" (ULCCs) of more than 300,000 dead weight tons (DWT); "Very Large Crude Carriers" (VLCCs) from 200,000 to 300,000 DWT; "Suezmax" tankers between 125,000 and 180,000 DWT; "Aframax" tanker between 75,000 and 125,000 DWT; "Panamax" tankers of around 50,000 DWT; "Handymax" tankers of around 35,000 DWT; and "Handy Size" tankers of 20,000-30,000 DWT.


Not all tanker trade routes use the same size ship. Each route usually has one size that is the clear economic winner, based on voyage length, port and canal constraints and volume. Thus, crude exports from the Middle East - high volumes that travel long distances - are moved mainly by VLCCs typically carrying over 2 million barrels of oil on every voyage. The VLCC's economies of scale outweigh the constraints imposed: they are too large for all the ports in the United States except the Louisiana Offshore Oil Port (LOOP). Thus, they must have some or all of their cargo transferred to smaller vessels, either at sea (lightering) or at an offshore port (transshipment). In contrast, ships out of the Caribbean and South America are routinely smaller and enter ports in the United States directly. Because of such ship size differences, a long voyage can sometimes be cheaper on a per barrel basis than a short one.


The recent growth in United States dependence on its Western Hemisphere neighbors is an illustration of a "nearer-is-better" phenomenon. Western Hemisphere sources now supply around half of U.S. oil import volume, much of it on voyages of less than a week. Another quarter comes from elsewhere in the area called the Atlantic Basin -- those countries on both sides of the Atlantic Ocean. This oil, from West Africa and the North Sea mainly, takes just 2-3 weeks to reach the United States, and boosts the so-called short-haul share of U.S. imports to over three-quarters. Most North Sea and North and West African crude oils stay in the Atlantic Basin, moving to Europe or North America on routes that rarely take over 20 days. In contrast, voyage times to Asia for just the nearest of these, the West African crude oils, would be over 30 days to Singapore, rising to nearly 40 for Japan. Not surprisingly, therefore, most of Asias oil comes instead from the Middle East, only 20-30 days away.





Suez Canal and Sumed Pipeline


Location: Egypt; connects the Red Sea and Gulf of Suez with the Mediterranean Sea

Oil Flows (2001E/2002E): 3.8 million bbl/d. Of this total, the Sumed Pipeline transported 2.5 million bbl/d of oil northbound (nearly all from Saudi Arabia) and the Suez Canal around 1.3 million bbl/d total.

Destination of Sumed Oil Exports: Predominantly Europe; also United States.

Concerns: Closure of the Suez Canal and/or Sumed Pipeline would divert tankers around the southern tip of Africa (the Cape of Good Hope), adding greatly to transit time and effectively tying up tanker capacity.  The Suez Canal transported around 1.3 million bbl/d of petroleum in 2001. Southbound trade consisted of about 300,000 bbl/d of petroleum, over 80% of which was refined products and the rest crude oil. Northbound trade consisted of about 955,000 bbl/d of petroleum, around 60% of which was crude oil. For the first eight months of 2001, an average of about 238 oil tankers passed through the Suez Canal each month, 20% of the total, and significantly below the canal's capacity. 


Currently, the Suez Canal can accommodate ships with drafts of up to 58 feet, which means that very large crude carriers (VLCCs) and ultra large crude carriers (ULCCs) cannot pass through the Canal. The Egyptian government plans to widen and deepen the Suez Canal, so that by 2010 it can accommodate VLCCs and ULCCs. In 2001, the Suez Canal Authority (SCA) launched a 5-year program to reduce tanker transit times (from 14 hours to 11 hours) through the Canal. The SCA also is moving ahead with a project to widen and deepened the Canal to allow for transit of larger ships than the 200,000-dead-weight-ton maximum now.


The Sumed pipeline, with capacity of around 2.5 million bbl/d, links the Ain Sukhna terminal on the Gulf of Suez with Sidi Kerir on the Mediterranean. Sumed consists of two parallel 42-inch lines, and is owned by Arab Petroleum Pipeline Co., a joint venture of EGPC, Saudi Aramco, Abu Dhabi's ADNOC, three Kuwaiti companies, and Qatar's QGPC.


Sources include: APS Review Oil Market Trends; Australian Financial Review; Business Week Online; Central Intelligence Agency; Energy Compass; Intertanko; Lloyd's List; National Defense Univeristy ("Chokepoints: Maritime Concerns in Southeast Asia"); National Post; Office of Naval Intelligence ("The Strait of Hormuz,"The Suez Canal/Sumed Complex"), Oil Daily; Platt's Oilgram News; Reuters; U.S. Energy Information Administration









Almost 35,000 ships transited the Suez Canal in 2009, of which about 10 percent were petroleum tankers. With only 1,000 feet at its narrowest point, the Canal is unable to handle the VLCC (Very Large Crude Carriers) and ULCC (Ultra Large Crude Carriers) class crude oil tankers. The Suez Canal Authority is continuing enhancement and enlargement projects on the canal, and extended the depth to 66 ft in 2010 to allow over 60 percent of all tankers to use the Canal.

There are restrictions on the tanker size that can fit through the canal. This is mainly based on draft, or the depth of the tanker underwater, which has to be less than the 66 ft depth of the Canal, but there is also a bridge over the canal that the tankers must pass under. Those that fit into this range are designated as Suezmax tankers. In terms of the classification of tanker sizes they lie in the mid-range of those available. In a typical day about 1.8 mbd of oil passes through the Canal, which is about 5% of the global oil tanker trade.

The smallest of the tankers are those that act as coastal tankers. Typically from 300 to 670 ft long, with a draft that can go from 20 to 52.5 ft, they are used locally for the trans-shipment of refined fuel products. Ranging from 1,000 to 50,000 tons deadweight they are, most typically, the small local vessels that are often the only tankers that folk will see coming into harbor.

The design objectives for coastal tankers are demanding and sometimes contradictory, maximum volume in minimum dimensions. Operation in coastal service means frequent harbor calls, often through very restricted waterways having high currents and winds. Good manoeuvring capabilities are thus also required and, of course, high system availability to avoid incidents and accidents in case of system malfunction.

One of the more modern ones is fitted to carry either oil or liquefied gas.

But before I go on, I now need to define deadweight (DWT). It is not the weight of the empty tanker, but rather the weight of the cargo and fuel that the ship carries. In other words almost everything but the weight of the ship (which, just to be confusing, is known as the lightweight). Put them both together and you get the displacement of the vessel. So, that a tanker with a 50,000 ton DWT, with 6.3 barrels to the ton, would carry 315,000 barrels of oil. Now this is not all cargo since perhaps 5% of that total would be the fuel oil to drive the ship, which in this case would be around 15,000 bbl, giving a capacity of around 300,000 bbl. The density of the oil varies, and I used a value from one of the shipping companies, rather than the 7.3 value I have used in the past when converting shipped product.

And remember that bridge over the Canal that I mentioned? Well that brings in the other measure, known as air draft. This is the head room that the tanker needs, and for Suezmax this is 223 ft.

The next significant size category up are known as Aframax, and for a long while I thought that this related to some African capability. However it actually refers to the Average Freight Rate Assessment (AFRA) for the classification. A typical tanker will have DWT range from 80,000 to 120,000 tons (i.e. typically a useful cargo of around 690,000 bbl), a draft of 49 ft and a length of 820 ft. It has a typical speed of 14.7 knots. For those interested, Venezuela just bought 10 of these for $70 million each from Russia. Lloyds see a continuing oversupply of this category, to the point that (until this weekend) they projected rental costs of $10,000 a day or less, below operating costs. However there is a current hope in the industry that the rates may now rise (hence the champagne).

The next category will be the Suezmax category which has the restrictions that I mentioned above. They range up to 160,000 tons DWT.

In addition to the air draft, the vessels are limited to a maximum width of 230 ft. Such a tanker might consume 410 barrels of oil a day, and travel at about 15 knots.

Those vessels that are too large for the Suez Canal, (and for that matter many ports) divide into two categories. The smaller is the VLCC (very large crude carrier) which are those carriers above 200,000 tons DWT, and then there are the ULCC (Ultra Large Crude Carriers) carriers, which are those above 320,000 tons DWT. These are large enough that they have been used for oil storage, as well as for transport. Just over a year ago there were more than 30 such supertankers parked around the globe. At that time rates of up to $75,000/day were being charged for the use of those tankers. In September 2010 Lloyds reported that the number was around 57, holding around 70 million bbl. These are the vessels that are very hard to turn, and take a long time and distance to stop. (Don't for example try throwing out an anchor.)

If one knows the intended travel speed, then one can look up the relative distances to be travelled (remembering that the vessel has to go both ways to complete one trip). The distance from Ras Tanura in Saudi Arabia to Port Sucre in Venezuela, for example, is 10,245 nautical miles. At 12.5 knots this would take 35.6 days at sea, each way (providing that the tanker was small enough to fit through the Suez Canal).

Going from Ras Tanura to Rotterdam via the Cape of Good Hope adds an additional 74% of the miles traveled going through the Suez Canal (from 6,399 to 11,109) while adding 20 days (from 41 to 61) to the round trip.

The costs incurred from going round the Cape is related to the extra fuel consumption but also to the extra capacity required and related insurance premium increase in order to lift the same quantum of cargo in the same amount of time. Conversely, the costs incurred in going through the Suez Canal consist of canal tolls, extra insurance risk premium and the use of services such as tugs, pilotage and mooring. Canal costs have decreased by 5% over the last five months.

The break-even point at the moment is related to the cost of bunker fuel. Should this be below $370 a tonne, then it is cheaper to go around the Cape, should it be over $370 a tonne then it is cheaper to go through the Canal. (It is currently well above that price). However the break-even is a function of charter rates and other values, and so varies with time.

There is one other way of shipping oil through Egypt and that is to put some of the liquid in a Suezmax vessel to transship the canal, and send the surplus up through the Suez-Mediterranean pipeline. With the enlargement of the canal this option is less favored, and the EIA note that volume in the pipeline dropped from 2.3 mbd in 2007 to 1.1 mbd in 2009.







For more information, see these other sources on the EIA web site:
EIA - International Energy Data
EIA - Oil Market Basics (trade)
Energy Supply Security
- The latest information on events that could affect energy security

Oil Market Basics: Transportation
World Crude Oil Flows 1997 - Map

Links to other U.S. Gov sites:
National Defense University, Institute for National Strategic Studies - The South China Sea
National Defense University, Institute for National Strategic Studies - Southeast Asian Chokepoints

Egypt State Information Service, Calendar - The Inauguration of the Suez Canal
Panama Canal Authority
Turkish Maritime Pilots' Association









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