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Offshore Assets – The “Terra Incognita” Of Ship Recycling

Recycling has been widely described as “the 4th Pillar of the Shipping Industry”, behind the Newbuilding, Chartering, S&P sectors. The majority of shipping professionals have indeed heard or were involved at some point in time with an Asset that had to be recycled, was about to be recycled, or simply liquidate an Asset in a constantly active market and always guarantees the minimum residual value of their Vessel. The tricky part is though, that despite the fact that everyone has heard of the recycling of normal Bulkers/ tankers/ containers when it comes to offshore Assets (mainly jackups, floaters - rigs in general, offshore support Vessels), the understanding of the Industry is not to the same extent as on the normal commercial Vessels.

The reason behind the fundamental lack of experience in this sector can be justified. 

Such Units are not considered as part of the normal shipping industry but mainly constitute part of the Oil & Gas – Energy sector, as they have been used on exploration, drilling and support, not in the actual transportation of the commodities.

Owners of these Assets have not been considering the residual value of their Units since the spread between the  NB prices, and the recycling rates is the biggest that anyone can find across the shipping sector. Just for comparison purposes, while the price of a VLCC tanker in the NB market would be in the 70-80mil range, her residual value would fluctuate in the 16-20mil, indicating approximately a 25% return when selling for recycling. On the other hand, when an NB price of a Jackup Rig would say in the $250mil, her recycling value will marginally come to $3mil (on average), which indicates a 1-1.5% return on the investment. Commercially rig Owners were never dependent on the recycling market for cashing out on their Units.

Regarding the charter Hire for the Offshore Units, one can observe that “when it rains, it pours”. Retaking the JUR as an example, the Units, depending on the region and specs, when on charter - can easily earn anywhere from $50,000- 150,000 per day, exceeding the typical historical average earnings of commercial Vessels. In times of turmoil of the Oil Industry, when oil prices fell to the $25-30/bbl, the decision was clear for Owners to lay up their Units and wait for the next upside- instead of immediately sending them for scrap – who would normally get rid of a cash cow, mainly if she can be laid up cheaply and have proper maintenance at logical rates to avoid huge reactivation bills?

On the 2 points above, we have taken only the example of the JURs. When looking into floaters, such as semi-submersible rigs, or even drillships, the NB prices as well as the daily earning, are even more significant.

Furthermore, let’s not forget the Ownership of these Units. Mainly rig Owners tend to be either state-owned companies or stocklisted companies – eitherway  firms that can have easy access to substantial financing lines to perform their operations and stockholders that need to be involved in the process. Owners described above have always been conscious and hesitant to sell their Units for recycling, especially in the subcontinent, in view of the lack of a necessary framework & regulations governing the recycling activity. Owners had to wait for the IMO guidelines of the Hong Kong Convention to be exercised and implemented, with India leading the charge and Bangladesh slowly following, for considering the recycling of their Assets as a viable solution.

Additionally, we can not avoid the issue of the logistical nightmare of transporting the Assets. For example, the majority of Drilling Rigs, since operating in major oil fields all around the globe, are often located in the middle of the oil fields, or in layby berths/ anchorages in jurisdictions and locations far away from the actual recycling destinations. Taking into account the weather restrictions on transporting the Units (US hurricane season, COGH winter season, monsoon season in the subcontinent), the principal dimensions (leg protrusion on JUR/ thrusters in Semi-sub Rigs, increased beam, heavy drafts, reduced stability), the means of transportation (wet or dry tow) it is evident that transporting these Units was never a ‘‘stroll in the park” and not compared to normal towing of a ship shaped Unit. It certainly requires tremendous logistical preparation and increased cost for bringing such Units to the subcontinent destinations. Adding to the above, the low LDT of such Units (f.e. JUR has on average 6,000-10,000 LDT) can make the exercise futile, and the transportation cost may overcome the residual value of the Asset.

Finally, the values of the Drilling rigs in terms of recycling are heavily dependent on the extra equipment that remains onboard at the time of the recycling, which is included in the recycling sale. While price fluctuations in normal Vessels could be in the $10-20/lt for 2 similar size Vessels, 2 rigs are most probably never the same, and one can observe $40-50/lt differences in the recycling rates for 2 similar rigs. The main reason behind this is the extra equipment, especially on the drilling side. Riser pipes, BOP, cementing Units, mud pumps, raw water towers, thrusters are equipment that can considerably increase the value of the Asset if left onboard. Rig majors though, due to the value of these items being great, tend to remove the equipment for further use in other Assets (or due to these being 3rd party hired items), literally stripping them and leaving only the basic shell to be recycled, which of course will not be demanding any premium over a normal, more accessible to cut, Bulk Carrier. Discounting the already reduced recycling price of a Rig was not leading Owners towards seriously considering the demo market.



Over the past 6-7 years, we have observed that oil prices have not been anywhere near the excess $100/bbl levels, which would make the exploration and drilling highly lucrative for Owners. The two significant downturns of the Oil price, in 2015-2016 and just recently during COVID-19, have normalized the prices in a prolonged period of lean cows. Rig Owners have been forced to look more actively into the recycling market, especially for their unemployed laid-up Assets.

Locally, the tolls for improving the recycling industry are well known and adhered to. The Hong Kong Convention has strong roots in India, with more than 80 yards being certified by IACS classes as compliant to the relevant guidelines, for which the yards are vetted regularly for certification renewal. This is a token to an evolving industry that had come a long way since 2014 when only 4 yards had taken the initiative to invest in such a direction. With only a handful of yards not being certified yet, but working towards this direction, India has emerged as the primary location for recycling Offshore Assets (and preferred), with many Owners opting also for a 3rd Party monitoring reporting service during the recycling process. Following India, Bangladesh already has its first HKC approved yard, with several more yards working towards the certification. For those who have experienced the early stages of HKC implementation in the subcontinent, our hope is that we will see Bangladesh rapidly increasing in the number of HKC yards within 2021-2022 and Pakistan to join overall, providing more solutions to Offshore Rig Owners for recycling their Assets.

Closing this explanatory article, I need to mention that what many believe to be a super cycle for commodities has affected the residual values. We are currently experiencing the most robust recycling market of the past 5-6 years, with prices well above $500/lt for normal commercial Vessels and the mid- high $400s for Offshore Assets- Rigs. In such an environment, the ideal conditions are there for Rig Owners to get the best residual value in many years for their Assets.

It should be pointed out that at the time of this article being written, there are more than 20 Offshore Rigs in the recycling market, either being marketed or already sold to Cash Buyers, which is a historical high for the Offshore Recycling Industry and a sign of things to come.

Everyone is looking forward to an era where Offshore Assets recycling will no longer be a “terra incognita” but rather a “Terra Nova”.



Mr. Faidon Panagiotopoulos

Senior Trader,
GMS Dubai



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Demystifying Ship Recycling - Issue 22

Number of Recycling Facilities Having Hong Kong Convention Statement of Compliance

In Demystifying Ship Recycling issue number 21 we discussed the process for issuance of Statement of Compliance (SOC) to recycling facilities by classification societies. Do we know when the first SOC was issued? Which classification society stepped forward for technical consultation of the yards? Which recycling facility got the HKC SOC for the first time? How many yards have presently held HKC SOC?

The International Maritime Organization (IMO) adopted the Hong Kong International convention in 2009. The HKC would come in force provided the three conditions mentioned in the convention are met. However, until 2015 there was not much progress on meeting the three conditions. 

In 2015, ship recycling facilities based in India voluntarily came forward to develop the infrastructures by heavily investing in recycling ships as per HKC guidelines. ClassNK was the first classification society who developed guidelines to issue SOC to the recycling facilities. After persistent efforts of recycling facilities and continuous guidance of ClassNK, four recycling facilities in Alang, India, were issued SOC for the first time in November 2015. 

This was the trigger point in the history of ship recycling. Classification societies like Lloyd’s Register, RINA, Indian Register of Shipping, and Bureau Veritas came forward and developed guidelines for recycling yards to recycle ships for HKC compliance. 

Recycling facilities had options to get guidance for developing infrastructure from multiple classification societies. 

Few recycling facilities in China, Turkey, and Bangladesh also developed their premises to recycle ships in a safe and environmentally sound way.

At present, India (92), Turkey (14), China (2), and Bangladesh (1) have recycling facilities that comply with HKC and have valid SOC. 

As of today, ClassNK (44), Lloyd’s Register (18), IRS (11), RINA (72), and Bureau Veritas (2) are the classification societies that issue SOC.  

Many yard owners have received multiple SOCs from different classification societies for a single recycling facility. 

At least 20 yard owners are working on building infrastructure to comply with HKC guidelines, and in the next year, it is expected that 100% of yards in Alang will be HKC compliant.

Shipowners and Capital providers started vetting the recycling facilities that have valid SOC to ensure ships are recycled as per HKC. It has given them the confidence and assurance that their vintage ships would be recycled sustainably in HKC compliant yards. Admittedly, many responsible ship owners recycle their superannuated ships ONLY at HKC compliant yards.

The responsible role played by classification societies is significant in changing the face of ship recycling. Although HKC is not in force, the willingness to comply with HKC shown by the recycling facility owners is praiseworthy. 

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The Process of Hong Kong Convention Statement of Compliance issuance

Demystifying Ship Recycling - Issue 21

Hong Kong International Convention for Safe and Environmentally Sound Recycling of Ships (HKC) was adopted in 2009. For the HKC to come into force, three criteria were mentioned. Out of the three, only the first has been fulfilled as of today. Shipping industry stakeholders expect the last criterion to be fulfilled by 2023. But during this decade-long journey, recycling facility owners in India, Bangladesh, Turkey, and China came forward to comply with HKC Recycling Standards voluntarily. A Classification Society issues a Statement of Compliance (SOC) after technically verifying that a recycling yard is in line with the HKC-2009. Presently, ClassNK, IRS, RINA, LR, and BV are the leading classification societies that have developed the guidelines to issue a SOC to recycling facilities.

Did we ever wonder, what is the procedure to get SOC? How much time does it take to issue SOC?

Any recycling facility that develops the infrastructure and demonstrates the recycling process as per HKC regulations is eligible for a SOC by a Classification Societies. The verification process by classification society is stringent and involves multiple stages.

Stage 1: A recycling yard that wishes to get SOC must develop infrastructure within its premises. The infrastructure includes the construction of impermeable floors and drainage systems to wash oily blocks, cutting zones, training facilities, SOPs, segregation, and temporary storage of hazardous wastes recovered from the vessels, etc. 

Stage 2: The recycling facility should prepare a Ship Recycling Facility Plan (SRFP) and submit an application to the Classification society.


Stage 3: The classification society reviews the application and SRFP to verify that operations and procedures followed by the recycling yard comply with IMO Resolution MPEC. 210(63). As per the review, the required amendments are directed to the recycling yards. The time taken to complete this stage is between 2 to 12 months.

Stage 4:  The classification society carries the site inspection to examine the operations and procedures described in the SRFP are followed in actual practice. Major Non-Conformities (MNC) and Non-Conformities (NC) are raised during the inspection. Supplementary audits are carried to check the corrective actions are being taken. It takes 3 to 12 months to conduct site inspections and implement corrective measures.

Stage 5: After completing site inspection, document review, and closure of MNCs & NCs, a SOC is issued. Like any other class certificate, SOC has an expiry date and is subject to annual and renewal audits. 

In general, a yard takes around 10 to 12 months to get a SOC after developing an infrastructure; sometimes, it even takes longer.

As of now, 92 yards in India, 1 yard in Bangladesh, 2 yards in China, and 14 yards in Turkey have received SOC.

Getting a SOC for a recycling yard is a rigorous and time-consuming process and requires commitment and considerable investment in infrastructure from recycling facility owners. The efforts and persistence shown by recycling facility owners are simply commendable. The classification societies have come forward to verify technical guidelines to improve the process of ship recycling globally. 

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Demystifying Ship Recycling - Issue 20

Pulling of ships towards the recycling yards

In major ship recycling destinations such as Turkey, India, Pakistan, and Bangladesh, ships are recycled at the sea-shore interface. Superannuated ships are delivered to the recycling facilities, where the hull is cut into big slices. These gigantic slices are shifted to the secondary cutting zones for the extraction of steel plates. The ship’s hull needs to be gradually pulled towards the ship recycling yard to cut further slices. Have you ever wondered how the massive hull of a ship is pulled towards the recycling facility?

Ship recyclers who recycle ships at sea-shore interfaces have developed unique techniques to pull the hull towards yards. Strategic windows are cut on the ship’s side shell on the port and starboard side. Through these openings, giant chains are passed. These chains are connected to the steel wires with the help of robust shackles and pulleys. Steel wires are connected to the heavy-duty winches. These heavy chains, shackles, and pulleys are shifted and passed through the hull openings with the help of moving cranes.

The wires used for winching operation are typically 32 mm in diameter.

Usually, any ship recycling facility has two or sets of winches. These winches are powered by diesel engines. Winches are periodically load tested. Routine maintenance is carried out on the winches and their prime movers. Protective guards cover winches to guard the operator in case the wire snaps.

The ship’s hull is pulled towards the recycling yard during high tide because the aft part of the hull gets partially lifted due to buoyancy and significantly lessens the load on the winches. Before pulling operation, adjacent recycling facilities are alerted beforehand. Throughout this critical operation, none of the other tasks are allowed in the yard. 

Following the winching operation, the steel wire ropes are coiled and stored in the trays adjacent to the winches. Qualified inspectors regularly inspect the wires for any kinks, broken strands, corrosion, and any other defects. It helps to assess the real condition of the wires and the need for replacement. 

With the use of heavy-lift capacity cranes with more extended booms, larger slices are cut and lifted from the ship’s hull and kept on the secondary cutting zones, minimizing the use of winches to pull the hull.

The process of pulling the hull is periodic and needs to be conducted with absolute care and precautions. Few recycling facilities use the load cells to monitor the load applied on the wires as they have understood the significance of monitoring load. And they have developed the Standard Operating Process to execute these critical tasks seamlessly without any incident and accident. 

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Demystifying Ship Recycling - Issue 19

Used and unused spare parts recovered during ship recycling

Ships run round the clock transporting raw commodities and finished goods across the continents. Even in pandemic times, when the entire world was at a standstill, ships ran and kept global supplies uninterrupted. Did we ever wonder who keeps these ships moving? The answer is simple and straightforward: the machinery installed on ships and the seafarers who operate them.

An oil tanker takes around 18 days to sail from a load port in Arabian Gulf to a Far East discharge port. It simply means the Main Engine and other auxiliary machinery that started operating when the vessel is in Arabian Gulf will continuously run for the remaining 18 days to arrive in the Far East.

Machinery parts are subjected to have wear & tear and breakdowns because of nonstop operation. For the smooth functioning of this machinery, it is critical to carry out regular planned maintenance. Ships are supplied with adequate spare parts throughout her life for conducting planned maintenance and troubleshooting. These spare parts are periodically used to replace old used spares. Used spares are recovered and often reconditioned for reuse.

It is mandatory for ships to maintain an adequate inventory of critical spare parts. When ships complete their useful life, they are sent for recycling. The vessels delivered for recycling often carry used and unused spares. Ship recycling facilities recover these spares and sell them in the secondhand market. There are clusters of at least 700 shops along the road leading to Alang beach, India. These shops buy the recovered spares and stock them at the warehouse. Similar spares clusters are found in Chittagong, Bangladesh. 

spare parts recovered during ship recycling

The secondhand market covers all types of spares for the machinery used onboard vessels. Some vendors stock only specific types of spares. It is usual to find vendors who stock and sell only anchor and anchor chains. Some vendors stock the spare parts for the Main Engine, such as piston crowns, piston rings, liners, etc. 

In fact, some vendors stock critical spares for pneumatic and hydraulic systems. It is common to see a warehouse with only lathe machines and emergency generators storage.

It is easy to discover the spares for machinery at Alang, whose manufacturing is stopped by the original makers. Some of these spares are critical and need to be connected at short notice. 

Recovery, resale, and reuse of the spares from recycled vessels is the true example of the Circular Economy. The spares not only generate value but also serve the ships in critical moments. 

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