How Oil Tankers Function

Main Points to Remember

As soon as entrepreneurs in the 1850s began to tap into crude oil as an energy source, the fledgling oil industry faced a challenge. How could early oil explorers transport this 'black gold' from remote locations to areas where it could be refined, sold, and utilized?

It didn't take long for these early oil moguls to devise a solution. The first oil tankers were constructed in the 1860s and powered by wind-driven sails. In 1873, the Palmers Shipbuilding & Iron Company created the first steam-powered oil tanker, named Vaderland. At the same time, oil producers in Pennsylvania were utilizing barges—large, unpowered vessels that required towing by other ships [source: PortCities Southampton].

The first modern oil tanker was the Zoroaster, created in 1878 by Ludvig Nobel of Sweden. Ludvig and his brother Robert were the leading figures in a large oil company called Branobel. (Ludvig and Robert were also brothers to Alfred Nobel, the inventor of dynamite and the namesake of the Nobel Prizes) [source: Frantz].

Today, oil tankers are categorized into two main types: crude tankers and product tankers. Crude tankers are the larger of the two, transporting unrefined oil from extraction sites to refineries where it's turned into fuel and other products. Product tankers, on the other hand, are smaller and carry refined petroleum products to markets for sale and use [source: Strauss Center].

Corporations are always in search of the most efficient methods to maximize profits. Due to their vast size, oil tankers offer an inexpensive and effective way to transport oil over great distances. In fact, the cost of shipping oil via a typical tanker is only about two to four cents per gallon.

Like many other groundbreaking technologies, oil tankers have propelled us forward as a society—but they’ve also caused significant issues. Without oil tankers, many of the freedoms we enjoy today would be unattainable. However, some of the worst environmental disasters have been caused by oil tanker accidents polluting our waters and shores.

This article examines the development of the oil tanker and its historical influence. We will also consider the future of oil tankers.

To learn more about the various types of vessels that transport oil, proceed to the next page.

Explore More Types of Oil Tankers

In addition to classifying these powerful ships as crude tankers and product tankers, they can be further divided. Some tankers are specifically designed to transport oil between locations, while replenishment oilers are meant to transport fuel to ships at sea and refuel them. Occasionally, when tankers become too old or economically unfeasible for operation, they are repurposed as floating storage units.

If you're involved in the oil transportation industry or simply have an interest in it, you're likely to encounter the following terms:

There are two main classification systems for categorizing ships. The ship descriptions above follow the Average Freight Rate Assessment (AFRA) system. Another system, known as the flexible market scale, has slightly different weight limits for certain ship size categories.

In the following section, you'll discover the rules and regulations that dictate how oil tankers are designed, operated, and maintained.

Oil Tanker Incidents, Stricter Regulations

On March 24, 1989, the world watched in shock as one of the most devastating environmental oil spills in history unfolded in Alaska's Prince William Sound. The disaster, caused by the Exxon Valdez tanker running aground, would make the ship's name synonymous with environmental catastrophe. The Valdez spill would become a tragic example of how operator fatigue, environmental factors, and poor decision-making can combine to create catastrophic consequences.

The tanker ran aground just after midnight on Bligh Reef, releasing almost 11 million gallons (41.6 million liters) of oil into the sound. The thick, foul-smelling oil killed countless birds, sea otters, and other marine life. The once-pristine shoreline was coated in the oil, which spread across 120 square miles (310.8 square kilometers) of ocean surrounding the tanker [source: Mauer].

If there's any silver lining from the Valdez spill and similar incidents, it is that stricter global standards for design, safety, and maintenance have since been enforced. A key change in the supertanker industry has been the shift from single-hull to double-hull construction. While double hulls are less likely to suffer breaches that lead to oil spills, they are not entirely fail-safe. Some critics argue that the protection they offer is somewhat overstated. Nevertheless, authorities are pushing for a rapid transition to a global fleet of double-hulled oil tankers.

The United States and various international organizations have set deadlines for the implementation of the double-hull design. In 2007, the European Union (EU) made double-hull construction mandatory for ships carrying heavy oils to use EU ports or anchor in their waters. In the U.S., a law was passed in 1990 to phase out single-hull tankers by 2015, though this deadline was later moved up to 2010. The International Maritime Organization (IMO), a United Nations body overseeing global shipping regulations, also called for the elimination of single hulls by 2010.

Oil spills are one environmental threat, but explosions and the fires that follow them also pose significant risks to crew members aboard oil tankers. Even in a seemingly empty cargo compartment, a single spark can ignite fumes, leading to a dangerous inferno. To mitigate this risk, tankers with a capacity of 20,000 DWT (22,046 tons) or more are equipped with inert gas systems. These systems take gas from the ship's boiler flue and inject it into empty or partially filled oil tanks, making the air inside nearly impossible to ignite [source: International Maritime Organization]. The IMO mandates that all new oil tankers be fitted with these inert gas systems.

Oil tankers are equipped with extensive safety and security systems to prevent accidents. But how do crews handle threats from individuals with malicious intent, like pirates?

Fully Loaded Oil Tankers: A Prize for Present-Day Pirates

While petroleum products like gasoline might seem affordable at the gas station, the cargo of a fully loaded tanker can be worth tens of millions of dollars. This substantial value has drawn the attention of pirates, who target tankers at sea, taking the crew and cargo hostage in exchange for hefty ransoms.

In November 2008, the public became acutely aware of modern piracy when pirates off the coast of Kenya hijacked the Liberian-flagged MV Sirius Star supertanker, which was carrying 2 million barrels of oil. The pirates demanded a $25 million ransom for the release of the ship's crew. This incident sparked a wave of similar attacks in the perilous Gulf of Aden, prompting shipping companies and the navies of developed nations to step up efforts to enhance security on the high seas [source: Paphitis].

Pirate activity surged in early 2009, particularly in the Gulf of Aden. However, pirates found it increasingly difficult to seize vessels as crew members became more aware of the risks involved in transporting such valuable cargo, and as the presence of naval ships in the area grew. To aid in the fight against piracy, the International Association of Independent Tanker Owners (Intertanko) issued a guide titled "Best Management Practices to Deter Piracy in the Gulf of Aden and off the Coast of Somalia." The pirates' motivations often stem from political instability and extreme poverty in their home countries, making the high-risk, potentially lucrative attacks seem worthwhile. The Intertanko guide provides several effective strategies that have helped thwart pirate attacks on vessels sailing in dangerous waters:

It is generally advised that crew members fully cooperate with pirates to minimize the risk of violence.

Clearly, the oil shipping industry is a major economic enterprise. To learn more about the financial side of oil tankers, proceed to the next page.

The Economics of Oil Tankers

Before an oil tanker can transport any oil, the owning company must finalize a comprehensive agreement known as a charter. There are different types of charters, including the bareboat charter, where a company agrees to cover all operational expenses for a set period, typically spanning several years. Other charter options include the spot charter, where the ship is contracted to transport a certain quantity of cargo between ports within a specified time, and the time charter, where a party rents the ship for a designated period of time.

In the shipping industry, profits depend heavily on understanding market dynamics. Generally, the demand for tankers outpaces the available capacity, which makes long-term charters lasting from several months to years quite common [source: Platou Report].

A large oil tanker typically requires a crew of around 24 people and can cost upwards of $100 million. After covering operational costs, owners of VLCC-class ships can earn at least $60,000 daily. This profit can fluctuate based on factors like tanker availability and oil market conditions. When oil demand is high, daily profits for tankers can soar dramatically [sources: Strauss Center and Wright].

When the global financial crisis struck in 2008, it seemed like the era of fuel-hungry vehicles such as cars, trucks, and SUVs had come to an end. Growing concerns over dwindling oil supplies and the looming threat of climate change from burning fossil fuels sparked a global push for the development of vehicles, including cars, trucks, and even airplanes, that could operate on more sustainable fuel sources.

So, what lies ahead for the oil tanker industry? In February 2009, Frontline, the largest owner of oil tankers, expressed concerns about "weak fundamentals" impacting the industry for the year. Despite this, tankers' earnings have been relatively strong compared to other types of ships like dry bulk and container ships that transport different goods.

For example, falling oil prices and reduced demand for tankers contributed to a significant decline in Frontline's fourth-quarter 2008 profit, dropping to $52.7 million from $201 million the previous year, when oil markets were more robust [source: Wright]. However, the long-term outlook for the industry appears positive, as older, single-hulled tankers are being decommissioned and must be replaced to meet ongoing global oil demands.