Tuesday, May 22, 2018

Counting the cost of Iranian tanker spill

Insurers are preparing to pay claims on the Iranian oil tanker Sanchi, which sank last weekend after burning for eight days, once again highlighting the poor marine safety record in Asian waters.

The Sanchi was carrying close to 1 million barrels of condensate on the way to Korea when it collided with another ship in the East China Sea, roughly 300 kilometres east of Shanghai, on January 6. All 32 crew aboard the vessel were killed.

“Sanchi exploded again around 12pm January 14, which caused the whole vessel to burn, with flames as high as 800 to 1,000 metres,” China’s Ministry of Transport said in a statement.

The tanker, which was operated by the National Iranian Tanker Company (NITC), had protection-and-indemnity (P&I) insurance from Bermuda-based Steamship Mutual, which will cover marine liability exposures, including pollution.

This will clearly form the biggest part of the loss. The magnitude of the spill is similar to the official estimate of the Exxon Valdez disaster off the coast of Alaska in 1989, though condensate is a very different type of oil. Formed from the cooling of natural gas, it is light, volatile and highly flammable.

The nature of condensate tends to mean that clean-up costs are far lower than for heavy crude oil. Most of it will have burned off already or will evaporate into the air before reaching land, while some will dissolve into the sea. However, this is not to say that condensate spills are harmless. Its volatile nature means that it is extremely toxic and it is impossible to contain with booms.

“Surveillance and assessment by authorities is critical to understand the extent of the potential environmental impact and for deciding on the appropriate next steps in terms of salvage and recovery of the potential condensate spill,” said Paul Johnston of Greenpeace International’s Science Unit at the University of Exeter in a news release.

Now that the vessel has sunk, the remaining colourless condensate will be extremely difficult to track and its effect on local fisheries could be long-lasting. Greenpeace said that the area is an important spawning ground for commercial species such as the bluefin leatherjacket and the swordtip squid, and is used as wintering ground by edible species such hairtail, yellow croaker, chub mackerel and blue crab.

Norway’s Skuld is the lead hull insurer for the tanker and the P&I insurer for the CF Crystal, the Hong Kong-registered freighter that was also involved in the collision. The Sanchi was reportedly insured at a hull value of US$32 million.

The Norwegian insurer said in a statement that 30% of the hull value of the Sanchi is placed through Iran’s insurance market, while the remaining 70% of the hull value is covered via the international insurance market through 11 different insurers, with Skuld’s share being 15%.

The condensate cargo, which had a reported value of about US$60 million, had been sold to Hanwha Total, which intends to claim for the loss under its own insurance programme.

International reinsurance coverage for Iranian tankers only recently resumed, with the International Group of Protection & Indemnity Clubs restoring near full-coverage of US$7.8 billion per tanker since the partial lifting of US and EU sanctions against Iran in January 2016.

However, US insurers are still reportedly banned from paying claims on Iranian risks under the current terms of the sanctions. The International Group has therefore removed US insurers from the programme for NITC.

The incident is another black mark for marine safety in Asia. More than a quarter of shipping losses during 2016 occurred in the Asian maritime region, which has been the biggest loss hotspot for a decade, according to Allianz Global Corporate & Specialty’s Safety and Shipping Review 2017. Losses in Asia are almost double that of the next highest loss region, the East Mediterranean and Black Sea.

It remains to be seen how big the loss will be for the Sanchi, but it is expected to be yet another significant claim in Asia’s troubled waters.

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