Australia Says Island Overflights Will Continue, China Threatens Response, by Marex

Australian flights

File photo

By Reuters

Australia will not bow to Chinese pressure to halt surveillance flights over disputed islands in the South China Sea at the center of rival claims between China and some of its neighbors, Defense Minister Marise Payne said on Thursday.

The Australian Defense Department said on Tuesday one of its aircraft had flown “a routine maritime patrol” over the South China Sea from Nov. 25 to Dec. 4, just as the U.S. Pacific Fleet Commander warned that a possible arms race could engulf the region.

China claims most of the South China Sea, through which more than $5 trillion of world trade ships every year, a fifth of it heading to and from U.S. ports.

Vietnam, Malaysia, Brunei, the Philippines and Taiwan also claim parts of the South China Sea.

China is building seven man-made islands on reefs in the Spratly Islands, including a 3,000-metre-long (10,000-foot) airstrip on one of the sites, according to satellite imagery.

Such activity has fanned regional tension. In October, a U.S. guided missile destroyer sailed close to one of China’s man-made islands, drawing an angry rebuke from Beijing. U.S. defense officials say another U.S. patrol this year is unlikely.

Payne said Canberra would not be deterred by warnings from Beijing, which again responded angrily to the Australian patrol, and described the flights as a routine part of Australia’s role in helping to maintain regional stability and security.

“We always navigate in a very constructive way in the region,” she told reporters in Adelaide.

China’s Foreign Ministry, asked about the Australian flights, said this week countries outside the region should not “deliberately complicate the issue”.

Ministry spokesman Hong Lei said on Thursday he had nothing to add.

Chinese media has not been so restrained.

On Wednesday, influential tabloid the Global Times, published by the ruling Communist Party’s official People’s Daily, implied there could be military retaliation if Australia persisted with the patrols.

“Australian military aircraft had better not regularly come to the South China Sea to add to the trouble, and especially not test China’s patience by getting close to China’s islands and reefs,” it said in an editorial.

China and Australia are friends and should act that way, it said.

“It really ought not to happen that one day, due to a freak combination of factors, coincidentally an aircraft was downed and it just happened to be Australian.”

(Additional reporting by Michael Martina and Ben Blanchard in Beijing; Editing by Paul Tait)

Vietnamese Submarine Patrols South China Sea, by Marex

Vietnam subs

Kilo-class submarine (file photo)

By Reuters

 Vietnam’s military is steeling itself for conflict with China as it accelerates a decade-long modernisation drive, Hanoi’s biggest arms buildup since the height of the Vietnam War.

The ruling Communist Party’s goal is to deter its giant northern neighbour as tensions rise over the disputed South China Sea, and if that fails, to be able to defend itself on all fronts, senior officers and people close to them told Reuters.

Vietnam’s strategy has moved beyond contingency planning. Key units have been placed on “high combat readiness” – an alert posture to fend off a sudden attack – including its elite Division 308, which guards the mountainous north.

The two countries fought a bloody border war in 1979. The likely flashpoint this time is in the South China Sea, where they have rival claims in the Spratly and Paracel archipelagos.

“We don’t want to have a conflict with China and we must put faith in our policy of diplomacy,” one senior Vietnamese government official, who spoke on condition of anonymity, told Reuters. “But we know we must be ready for the worst.”

Most significantly, Hanoi is creating a naval deterrent largely from scratch with the purchase of six advanced Kilo-class submarines from Russia.

In recent months, the first of those submarines have started patrolling the South China Sea, Vietnamese and foreign military officials said, the first confirmation the vessels have been in the strategic waterway.

Militarily, the tensions are palpable northwest of Hanoi at the headquarters of Division 308, Vietnam’s most elite military unit, where senior army officers talk repeatedly about “high combat readiness”.

The phrase is on billboards beneath images of missiles and portraits of Vietnam’s late revolutionary founder, Ho Chi Minh, and its legendary military hero, General Vo Nguyen Giap.

Perched between Vietnam’s craggy northern mountains and the ancient rice paddies of the Red River Delta, 308 is Vietnam’s oldest division and still effectively guards the northern approaches to Hanoi.

Reflecting deep-set official sensibilities towards offending Beijing, one senior officer, Colonel Le Van Hai, said he could not talk about China. But Vietnam was ready to repel any foreign force, he told Reuters during a rare visit by a foreign reporter.

“Combat readiness is the top priority of the division, of the Ministry of Defence and the country. We can deal with any sudden or unexpected situation … We are ready,” he said.

“High combat readiness”, along with references to the “new situation”, increasingly feature in lectures by senior officers during visits to military bases and in publications of the People’s Army of Vietnam. The phrases also surface in talks with foreign military delegations, diplomats said.

“When Vietnam refers to the ‘new situation’, they are using coded language to refer to the rising likelihood of an armed confrontation or clash with China, particularly in the South China Sea,” said Carl Thayer, a professor at Australia’s Defence Force Academy in Canberra who has studied Vietnam’s military since the late 1960s.

While ramping up combat readiness, Hanoi’s once-reclusive generals are reaching out to a broad range of strategic partners. Russia and India are the main source of advanced weapons, training and intelligence cooperation. Hanoi is also building ties with the United States and its Japanese, Australian and Filipino allies, as well as Europe and Israel.

The outreach covers weapons purchases, ship visits and intelligence sharing but will have its limits. Hanoi shuns formal military alliances under a staunchly independent foreign policy.

Indeed, increases in Vietnam’s military spending have outstripped its South East Asian neighbours over the last decade, according to estimates by the Stockholm International Peace Research Institute (SIPRI).

“They are not doing this for national day parades … they are building real military capabilities,” said Tim Huxley, a regional security expert at the International Institute of Strategic Studies in Singapore.

While communist parties rule both Vietnam and China and share political bonds, the two countries have a history marked by armed conflict and long periods of lingering mistrust.

Fresh academic research has revealed how the Sino-Vietnamese war in 1979 was more intense than is widely known, rumbling on into the mid-1980s. The two sides then clashed at sea in 1988 when China occupied its first holdings in the Spratly archipelago of the South China Sea – a defeat still acutely felt in Hanoi.

China also took full control of another South China Sea island chain, the Paracels, after a naval showdown with then South Vietnam in 1974. Hanoi still protests China’s occupation.

More recently, China’s placement of an oil rig in disputed waters for 10 weeks in the middle of last year sparked anti-Chinese riots across Vietnam.

The rig’s placement on Vietnam’s continental shelf 80 nautical miles from its coast was a game-changer, officials in Hanoi privately said, hardening suspicions about Chinese President Xi Jinping among political and military leaders.

Hanoi dispatched dozens of Vietnamese civilian vessels to confront the 70 coastguard and naval warships China sent to protect the oil rig in mid-2014.

“It was a reminder to all of us just how dangerous the South China Sea has become,” said one retired U.S. naval officer.

For its part, China’s military strategists have long been frustrated at the two dozen military outposts that Hanoi has fortified across the Spratlys since losing the Paracels in 1974, Chinese analysts say. China is building three air strips on man-made islands it is building on reefs in the Spratlys that it took from Vietnamese forces in 1988.

A statement to Reuters from China’s Defence Ministry said the two militaries had close, friendly relations and China was willing to work hard with Vietnam for regional peace.

“Both sides have frank exchanges of view on the South China Sea … both sides should look for a basic, lasting solution both sides can accept,” the statement said.

China’s historic claim to most of the South China Sea, expressed on maps as a nine-dash line, overlaps the exclusive economic zones of Vietnam, the Philippines, Malaysia and Brunei. Taiwan also has claims in the area.

Some $5 trillion in ship-borne trade passes through the waterway every year, including most of the oil imported by China, Japan and South Korea.

The importance to China of protecting its submarine base on Hainan Island – the projected home of its future nuclear armed submarine fleet – could be another flashpoint. Beijing also has jet fighters and many of its best warships stationed around Hainan Island. This South Sea Fleet is close to Vietnam’s northern coast and its vital deep water access channels to the South China Sea and beyond.

Vietnamese generals make clear to foreign visitors they know their limitations. Two decades of double-digit increases in defence budgets have given China a vastly larger and better equipped navy, air force and army.

Foreign military envoys say they struggle to gauge Vietnam’s actual capabilities and how well they are integrating complex new weapons. They are given little access beyond Hanoi’s gilded staterooms.

Vietnamese military strategists talk of creating a “minimal credible deterrent” – raising the costs of any Chinese move against Vietnam, whether it is a naval confrontation or an attack across the 1,400-km (875-mile) northern land border.

If conflict did break out, Hanoi could target Chinese-flagged merchant container and oil ships in the South China Sea, said Thayer, who said he was told this by Vietnamese strategists.

The aim would be not to defeat China’s superior forces but “to inflict sufficient damage and psychological uncertainty to cause Lloyd’s insurance rates to skyrocket and for foreign investors to panic”, Thayer said in a paper presented to a Singapore conference last month.

Vietnam’s foreign ministry did not respond to requests for comment on this story.

(Additional reporting by Ben Blanchard in Beijing and Ho Binh Minh and My Pham in Hanoi.; Editing by Dean Yates and Bill Tarrant.)

DNV Tests Drones For Hull Surveys, by Marex


By MarEx

DNV GL has announced testing of drones for use by the classification society during hull surveys. Its team in Gdansk, Poland recently used the specially equipped drones to perform preliminary examination of interior compartments on two vessels.

DNV says that the procedure has the potential to reduce risk for its teams and save cost and time for its customers by cutting down on the use of scaffolding.

“We have been looking at ways we could help our customers by accelerating the survey process,” says Cezary Galinski, team manager in Gdansk. “Camera equipped drones are now much more widely available and affordable, and by using them for a first screening we can identify areas that require closer inspection quickly and without extensive staging.”

The tests used a camera-equipped drone to visually evaluate structural components through video streamed to a tablet. One surveyor operated the drone, while a second checked the video feed in real time.

The drone is able to produce a video good enough for initial inspections, and in the event any damage is detected, the team can conduct a traditional close-up survey.

“We used a modified off-the-shelf drone for our tests,” explains Galinski. “Because there are currently no drones formally certified as explosion-proof commercially available, we performed a risk assessment . . . we also ensured that the cargo tank was gas-free and certified for safe entry.”

The next step is the use of a custom-made drone designed for DNV’s surveying, he says, and future testing could lead to additional remote – or even autonomous – inspection technology. And, through DNV’s advanced software research, the imagery returned by the drones could one day be integrated into an algorithmic evaluation of overall hull condition.

DNV’s use of drones for inspection is innovative, but others have also been working with the concept.

In early November, Cyberhawk Innovations announced its first ever remotely operated aerial vehicle inspection of a cargo oil tank on an operational FPSO.  

The world-first inspection took place on board Maersk’s Gryphon FPSO in the North Sea. Like other FPSO operators, Maersk Oil has requirements to visually inspect cargo tanks for integrity, damage assessment and class certification.

This type of inspection is usually conducted by technicians suspended on ropes to inspect the tank structure, focusing on areas of high stress such as stiffeners, brackets, bracing, webs and stringers.

One of Maersk Oil’s main priorities was to reduce the human risk factors presented by rope access and confined spaces. 

Inspecting the tank with Cyberhawk’s drone allowed Maersk Oil to undertake a quick and safe audit of the tank, allowing them to plan for contact based inspections, says Cyberhawk. The inspection of the tank was completed within a day, in comparison to three to four days for rope access.

Cyberhawk said that this inspection technique could be applied to all large internal tanks on vessels such as FPSOs, bulk carriers and tankers.

Freighter Sinks in the Straits of Singapore, my Marex

Thoroco Cloud

The Thorco Cloud going under (Photo: EPA)

By MarEx

 The Antigua-flagged freighter Thorco Cloud went down following a collision on Wednesday with the chemical tanker Stolt Commitment in the Singapore Strait, six nm north of Batam.

The two vessels were on crossing courses after both entered the Strait’s traffic separation scheme, and the Commitment allegedly struck the Cloud amidships, holing her below the waterline.

Trackline video released by does not appear to indicate attempts at evasive maneuvers by the vessels.

Singapore’s Police Coast Guard and Maritime and Port Authority (MPA) responded, with additional assistance from a merchant chemical tanker. Six of 12 crewmembers have already been rescued, and the search continues for the missing.

Media suggest that all 12 crewmembers went into the water before the vessel went down.

The Singapore Civil Defense Force also sent vessels to the scene, and evacuated the rescued crew to a hospital. Media report that Indonesian authorities have also joined the search effort.

The Norwegian-operated 40,000 dwt Commitment sustained only minor damage, according to Singaporean authorities.

The sunken freighter may pose a hazard to navigation, and authorities are working to mark it and notify ships in the area to maintain vigilance for missing crew and steer clear of the wreckage. However, authorities said that there would be no disruption to traffic due to the sinking.

As of Thursday there were no reports of pollution, but as the 10,000 dwt Thorco Cloud went down with over 500 tons of bunkers on board, authorities are keeping a watchful eye on the wreck site in order to respond appropriately to any spill.

The Straits of Malacca and Singapore (SOMS) have approximately 70,000 vessel transits annually, carrying about a third of global trade

Gorgon LNG Plant Nears Commissioning, by Marex

Gorgan LNG

By MarEx

Oil major Chevron announced Wednesday that its massive, $54 billion Gorgon LNG export project on Barrow Island would begin final preparation of its first liquefaction train shortly, with a cooldown shipment of LNG arriving within a week.

In a reversal of the plant’s product flow, the first cargo at Barrow Island will be inbound, to be used for commissioning.

The plant will serve as the export facility for gas flows from Chevron’s Jansz-Io and Gorgon offshore fields, approximately 80 nm off the coast of Western Australia. Plant design capacity at full production is 16 million tons per annum. The fields will also supply a large volume of gas to Western Australia’s domestic market.

“The Jansz-Io field subsea infrastructure is fully complete. The first two wells have been opened to the Jansz pipeline, confirming the full operability of these subsea systems,” the company said in a statement. “LNG cooldown cargo is planned to arrive in mid-December to assist in cooling down the LNG tanks and associated facilities prior to first LNG export.”

Last week, Chevron announced the layoff of 1,000 workers three months ahead of schedule as Gorgon approaches completion. The cuts come just before Christmas, and Australian Manufacturing Workers Union (AMWU) representatives responded with outrage as boilermakers, welders, pipefitters and others found themselves out of work in Western Australia’s worst job market in thirteen years.

AMWU leaders suggested that lead contractor Chicago Bridge & Iron had terminated the positions early in order to avoid a 2 per cent pay rise set to take effect on January 1.

Chevron responded in a statement that “similar to the construction phase of all resource projects, the duration of jobs is determined by the requirements of individual scopes of work . . . the Chevron-led Gorgon and Wheatstone natural gas projects alone have created 17,000 direct jobs in Australia and committed more than $45 billion in goods and services to local businesses.”

The company had previously announced that Australia would be a focus for job cuts, which are to expected to total up to 7,000 workers worldwide over several years.

World War Two Freighter Scuttled Off Delaware, by Marex

Old Freighter

By MarEx

The World War Two-era coastal freighter Shearwater, hull FS-411, was scuttled off the coast of Delaware by contractors for the state’s Department of Natural Resources, ending her long and varied service and creating a new artificial reef. 

Video and photos from local media are available here (best viewing may require the use of the Internet Explorer browser).

Shearwater is a great addition as reef structure,” said Delaware Department of Natural Resources (DNREC) official David Saveikis. 

Prior inspection determined that the Shearwater met Coast Guard standards for sinking as an artificial reef. All petroleum products, electrical cables, machinery, doors, hatches, and electrical navigation equipment were removed from the ship.

Reefing specialists Coleen Marine prepared her for sinking and towed her to the final destination. The Shearwater took six hours and several interventions to go under, including the cutting of holes in her bow to release trapped air. 

The 180-foot Shearwater, classified as a miscellaneous auxiliary, was built by California yard Hickenbotham Brothers at the end of the Second World War for use by the Army (not Navy). She was operated by a Coast Guard crew in the Central and Western Pacific, including Hawaii, Saipan, Tinian, and Guam. 

She was transferred to the Navy in 1950, and later served as a Military Sea Transportation Service survey support ship with civilian crew from 1964 to 1969. At the end of this service she was transferred back to the Army. 

After her useful life as a military vessel was over, she was sold to fishing company Omega Protein and gutted for use in the menhaden fishing fleet. Her 70-year seagoing career ended in 2012 when she was sold to Coleen Marine and DNREC for stripping and sinking. 

Delaware’s artificial reef system includes more than 1,300 former New York City subway cars, tugboats, smaller commercial fishing boats, decommissioned military vehicles, and the ex-USS Arthur W. Radford, sunk four years ago and at over 600 feet the longest ship reefed on the East Coast to date.

Prelude FLNG Nears Completion, by Marex

Prelude 1

By MarEx

Samsung Heavy Industries (SHI) is nearly finished with the construction of the world’s largest floating offshore facility, the 600,000 ton Prelude FLNG. Delivery and commencement of production are scheduled for 2016.

The two turbine-driven LNG trains on the Prelude are designed for a nominal production capacity of 3.6 million tons per annum (mtpa). It will also produce 1.3 mtpa of condensate and 0.4 mtpa of LPG.

The facility will be moored at the Prelude and Concerto offshore gas fields in the Browse Basin, off Western Australia. Its LNG is intended for sale on the Asian market, and it has an estimated service life of 20 to 25 years.

The Prelude’s hull was launched in December 2013. At 600,000 tons displacement at full load, she is six times heavier than a full-size aircraft carrier, and only ten percent lighter than the record-holding ULCC Knock Nevis (formerly Seawise Giant).

Embedded below her decks is the world’s largest non-disconnectable mooring turret, which permits the vessel to weathervane while remaining connected to its wells.

With additional capacity coming online in the U.S. and Australia, plus new export LNG trains planned in Iran and Russia, analysts warn that she may prove to be less profitable than originally forecast as global supply rises – especially in light of her $12 billion predicted construction cost. For comparison, Cheniere’s shoreside Sabine Pass facility in the United States is estimated to have a total built cost comparable to Prelude’s, but with six times the production capacity at 21 mtpa.

U.S. Set to Lift Crude Oil Export Ban, by Marex

US Crude Ban

By Reuters

The United States appears on the brink of ending a four-decade ban on most exports of crude oil, which would end a years-long fight brought about by a boom in domestic shale output that contributed to a supply glut and depressed prices.

The measure is part of a sprawling deal wrapped up by congressional leaders late on Tuesday to keep the U.S. government open through September. The $1.15 trillion spending bill, negotiated in secret talks over the last two weeks, would be difficult for President Barack Obama to veto despite his opposition to ending the oil export ban.

In a partial victory to Obama and other Democrats, the spending bill also includes granting tax incentives to boost wind and solar development, according to lawmakers involved in the talks. Shares of solar companies rose sharply.

Republican and Democratic lawmakers will meet separately on Wednesday to discuss the bill and hope to vote on it as soon as Friday.

Allowing oil exports would be a win for the U.S. oil industry and Republicans, who had argued the ban was a relic of the 1970s Arab oil embargo.

Exploration and production companies, many saddled with billions in debt and struggling to avoid bankruptcy after a 60 percent slide in oil prices forced them to halt most new drilling, had viewed exports as a lifeline of sorts.

But with U.S. output now falling as oil prices slump to seven-year lows, traders say foreign buyers may not materialize in a glutted global market.

Some Democrats in the Senate say lifting the ban would put oil refining jobs at risk and that more drilling would harm the environment, though Democratic Sen. Heidi Heitkamp, from the number two oil state North Dakota, has supported its repeal.

The drop in oil prices, now below $40 a barrel, has helped ease worries about higher gasoline prices for consumers.

Producers say eliminating the ban would help revive a U.S. drilling boom by closing the years-long gap between cheaper domestic crude prices and higher global rates. The move would also give U.S. allies alternatives to Russia and the Organization of Petroleum Exporting Countries for their supplies.

“Lifting the oil export ban is very important to our industry to enable them to compete on a global basis,” said Senator John Hoeven. The Republican from oil-producing North Dakota has pressured Congress to axe the trade restriction.

Chief executive officers of U.S. oil producers, from integrated global majors Exxon Mobil to frackers like Continental Resources had urged the ban be lifted.

Gregory Hill, president of U.S. oil independent Hess Corporation, said this month that ending the prohibition would boost domestic crude prices by about $3 a barrel, or about eight percent, from around $36.

Refiners have been divided on the issue, as exports of crude would increase their costs after a bounty of cheap domestic oil brought several years of surging profits.

Four U.S. independent refiners, three of which operate on the East Coast, have opposed exporting domestic crude. Their so-called CRUDE Coalition says lifting the ban will lead to higher pump prices when once-landlocked domestic crude commands higher prices in global markets.

Some pipeline and terminal companies have already started adding infrastructure along the U.S. Gulf Coast to handle potential crude exports, augmenting systems geared toward imports.

Republicans made lifting the ban a priority and swapped it for measures Democrats wanted to reduce carbon emissions and protect the environment.

For the solar industry, the deal marks its second big recent victory since a global agreement to curb carbon emissions and encourage investment in renewable energy, reached in Paris on Saturday. Individual solar firms, as well as the industry’s trade group, have spent more than $2 million lobbying Congress this year, according to public records compiled by the Center for Responsive Politics.

They pushed hard this month to safeguard the Investment Tax Credit for the industry, which they say has underpinned an annual growth rate of 76 percent in solar installations over the last decade.

SolarCity shares jumped 26 percent, First Solar rose 9 percent, SunEdison was up 19 percent, and Sunrun gained 21 percent.

The bill, posted early on Wednesday morning, allows the U.S. president to stop oil exports for one year if he or she declares a national emergency, or if the administration decides the exports are causing a domestic oil shortage or raising prices.

Russian and Turkish Ships Spar Over Disputed Rigs, by Marex


Ukrainian jack-up rigs (file photo)

By MarEx

Turkish media have reported that two Russian military vessels intervened in an altercation between a Turkish-flagged merchant ship and a convoy of towed Ukrainian jack-up rigs, ending what Russian sources called an illegal attempt to block the tow. Ukrainian authorities described the rig relocation by Russian-backed operators as an “internationally wrongful act.”

Russian media confirmed the incident and provided additional details. The sources allege that the Turkish ship ignored Rules of the Road requirements and refused to give way, crossing the convoy’s course and attempting to hold position on its intended route. The captain of the Turkish ship allegedly refused to answer calls, and changed course only when approached by a Russian Border Service gunboat and Black Sea Fleet missile boat.

The rigs, owned by blacklisted offshore firm Chernomorneftegaz, were being towed from Ukrainian to Russian territorial waters. The Ukrainian Ministry of Foreign Affairs described the removal of the rigs as “internationally wrongful acts . . . aimed at the systematic violation of the sovereignty, sovereign rights and jurisdiction over Ukraine internal waters, territorial sea, exclusive economic zone and continental shelf in the Black and Azov Seas.”

The tow to Russian waters was apparently completed without further incident, despite protests from Ukrainian authorities and some foul weather during transit. Russian media sources suggest that the two rigs taken, B-312 and B-319, are worth more than $350 million.

Rig owner Chernomorneftegaz was seized by the separatist Russian-backed government of Crimea during civil unrest last year. The Ukrainian government in Kiev has attempted to reaquire its interest in the company, legally a subsidiary of state-owned Naftogaz.

Chernomorneftegaz is on the U.S. Treasury’s list of sanctioned companies for economic contributions to the conflict in Ukraine. It owns a total of four jack up rigs.

Tensions between Turkish authorities and the Russian Navy are already high following a recent near-miss between a Russian naval vessel and a Turkish fishing boat in which shots were allegedly fired by Russian forces.