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Friday, 30 January 15
CONTANGO AND TANKERS - SKULD
 KNOWLEDGE TO ELEVATE
Like an invitation to a dance, the word contango may have some people flustered, but for tanker owners this market phenomenon is a serious matter of securing revenue for their vessels, while ensuring that they remain safe when employing them as floating storage facilities.
The Association is grateful to Messrs. London Offshore Consultants and Andrew Moore & Associates for providing input towards this advisory.
Contango
This word encapsulates a specific situation on the commodity markets where the future price of a given commodity is above the expected future spot price.
It arises where buyers are willing to pay more for a commodity, in the future, than the actual expected price.
A driving factor may be due to a willingness to pay a premium for the commodity in the future, without incurring storage and transportation costs of buying it today.
The fall in oil prices, contango and the impact on the tanker market
The last time oil prices fell dramatically was during the financial crisis of 2008, when it dropped from a record USD145 per barrel to under USD40. While this led to a lot of financial losses, enterprising parties seized the opportunity to buy cheap oil and given the shortage of land based storage they used tankers as floating tank farms. When the price rebounded, the oil was likely sold at a profit.
Oil prices fell significantly at the end of last year and at present they remain very low. The impact of this is felt across the world particularly when a number of oil economies as well as development projects work towards a price of USD100. The current price of below USD50 per barrel puts them under pressure while providing a boost to intensive oil consumers.
Again this market situation has given rise to contango, and again this has meant that tankers found themselves in great demand towards the end of last year. At first this was due to the rush to buy perceived cheap oil, but as shore side storages started to fill up, increasingly tankers were hired to act as floating storage facilities. Either way this was a welcome development to tanker owners and long term period charterers who saw their vessels fetch a solidly improved rate in the spot market.
Risks arising from the use of a tanker as a floating storage facility
How long will this period of low oil prices last? That is a question on which a lot of money will turn. Not least because buying and storing oil now is based on the goal of being able to sell it at a profit in the future, but that requires oil prices to rise by more than the cost of shore or ship storage and subsequent transport to the actual receiver.
The future development of oil prices is beyond the scope of this advisory, but events in the middle east will no doubt have a bearing on it.
For tanker owners, however, there are a number of issues that need to be considered before fixing a vessel out as a floating storage facility. Issues include:
- the vessel may engage in multiple STS operations if cargo is sold off in parcels, this may lead to shortages given that sea conditions can make exact ullages difficult
- if the cargo on board is bunker fuel, there may be requests for blending on board to achieve particular specifications (this may specifically be in breach of SOLAS)
- the origin of the cargo needs to be carefully checked, as in some places in the world there have been issues with smuggling and sanctions breaches
- cargo quality may be affected by long term storage at sea and therefore a full understanding of the cargo specifications and the cargo properties is important: cargo may become unstable, produce sediment, have significant microbial activity, there may be settling of contaminants and sludge, separation of water content or otherwise deteriorate over time
- particularly with sludge / wax formation (made up of both organic and inorganic materials) may lead to very significant pumping and ROB issues
- tank coatings, pumps, lines and valves may be affected if cargo becomes unstable, separates or on loading contains a significant amount of aggressive materials, including any prolonged contact with hydrogen sulphide (H2S)
- tank cleaning: long term storage of crude is likely to mean that the tanks will need more than a usual COW wash and a full tank cleaning may be necessary
- otherwise routine tank vapour management may become an issue, as venting may not be possible in all locations, and this is exasperated if the oil had a high (H2S) content, say greater than 15 ppm
- temperature fluctuations can cause venting during afternoons which may be followed by a drop in pressure at night, thus necessitating the running of the TUG (Top Up Generator) to avoid air being sucked in to the tanks or risk the atmosphere reaching the explosive zone
- if the vessel will be at anchorage, suitable preparation and maintenance of the main engine and auxiliaries will be necessary
- the hull may become fouled if the vessel stays at any location for a significant amount of time, and that may occur during drifting as well as short voyages followed by lengthy stays at anchorage or drifting
- the vessel’s class will need to be consulted, at least for the arrangement of periodic surveys and maintenance of certificates
- manning will be important, including compliance with SOLAS, SCTW and the MLC, as well as arrangements for appropriate crew rotations and shore leave
- vessels drifting or at outer anchorages need to maintain safe levels of fuel, water and provisions
This is not meant to be an exhaustive list, but it should highlight some of the key issues that will need to be addressed if the planned operation as a floating storage facility is to be performed safely and successfully.
Physical and commercial loss prevention advice
Vessel suitability
The starting point for any long term storage will be an assessment of the vessel’s suitability for this purpose. An important factor will be whether the vessel will be at sea or anchorage or otherwise operating. The state of the tanks will also be key, as the long term storage of cargo may put strains on the coating and lead to deterioration and corrosion.
STS operations
There are a number of issues that must be considered with any STS operation, and a full exposition goes beyond the scope of this advisory, but ensuring that it can done safely is paramount (factors include weather, sea states, fendering, the compatibility between vessels, etc.).
If many STS operations are envisaged, with cargo being parcelled out then there is an added risk of shortage issues, as it may not be easy to ensure that ullages are accurate and that only the correct amount is transferred. Paying extra attention to this issue will be important.
Smuggling and sanction breaches
An additional factor is that in some locations it has been known that smuggling may occur or that sanctions breaching activities are undertaken. Members should at all times ensure that the cargo they are taking is legitimate and fully documented. More information can be found here: Origin of cargo and Iranian oil STS.
Blending
If members are asked to engage in blending of cargo, it is important to remember that this is not permitted under SOLAS for any time the vessel is on a sea voyage. Further information on this regulation can be found here: SOLAS and blending.
Blending can also be an issue for P&I cover, as a new product is created (as opposed to co-mingling the same cargo / grade from different sources), and may also pose bill of lading challenges.
It may be necessary to have a laboratory set up on the vessel with a suitable expert in attendance to ensure that repeat operations result in the desired outcome, or risk possible contamination claims.
Cargo quantity
Even if the vessel does not engage in frequent STS operations, it will be necessary to monitor the volume of the cargo on board with periodic dipping and ROB calculations.
If the cargo is of the kind that can lose significant volume over time then this must be understood as an on-going issue.
Cargo quality
While some cargo types are stable, and not easily affected by long term storage at sea, others may be very sensitive or otherwise suffer deterioration over time. The particular cargo to be laden and stored must be properly understood, as well as the time frame for the proposed storage.
Should storage exceed the safe “shelf life” of the cargo, then action may be necessary to ensure it does not deteriorate significantly or risk potentially dramatic claims from ultimate cargo receivers.
Contractual risk apportionment
Owners and charterers should ensure that before fixing, the parties work out the full range of risk scenarios that come with the use of the vessel as a floating storage facility and make sure these are addressed appropriately in the final fixed charterparty.
That includes apportionment of risks, extra costs, hull and tank cleaning as well as insurance coverage issues, which will need to be addressed. Otherwise these are likely to be fertile ground for disputes.
Failing to contract carefully can be financially devastating
Insurance implications
Using a vessel as a long term oil storage facility may impact insurance coverages, as this may not be the trade for which she is normally insured, and indeed this operation is not like a hot or cold lay-up situation. It would be prudent consult with underwriters about the potential impact before fixing the vessel for this purpose.
For vessel specific enquiries, members are asked to contact their usual Skuld business unit.
Source: SKULD | Hellenic Shipping
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Thursday, 24 August 17
SUPRAMAX: LOW $10K FOR INDO COAL TRIPS TO INDIA; AROUND $10K FOR INDO TO CHINA TRIPS - FEARNLEYS
Supramax
This week Supras from the Black Sea on fhaul have seen numerous orders and improving rates.
53-57k dwt vessels have been fixed at e ...
Wednesday, 23 August 17
THE STRONG IRON ORE TRADE ROUTES SUPPORT CAPESIZE SEGMENT - INTERMODAL
The upward trend in the Capesize segment is definitely being supported by the strong momentum in the key iron ore trade routes. The price of high-q ...
Tuesday, 22 August 17
WHAT IS A RELEASE CALL?
KNOWLEDGE TO ELEVATE
Joining a mutual P&I Club means each Member shares in the fortunes of that Club and its membership. The continuity of ...
Tuesday, 22 August 17
THOSE DOG DAYS OF SUMMER STEEL PRODUCTION IN CHINA - COMMODORE
COALspot.com: One popular but inaccurate narrative that makes the rounds every June and July (and occurred again this year) is that China’s s ...
Monday, 21 August 17
BANPU REVEALS FIRST HALF 2017 WITH STRONG RESULTS; SUPPORTED BY HIGHER COAL PRICES
Banpu Reveals First Half 2017 with Strong Results from Higher Coal Prices Gearing Up to the Era of New Energy with Banpu Greener & Smarter Stra ...
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Showing 1961 to 1965 news of total 6871 |
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- Offshore Bulk Terminal Pte Ltd, Singapore
- ASAPP Information Group - India
- Sindya Power Generating Company Private Ltd
- Kobexindo Tractors - Indoneisa
- Kapuas Tunggal Persada - Indonesia
- Coalindo Energy - Indonesia
- ICICI Bank Limited - India
- Miang Besar Coal Terminal - Indonesia
- IEA Clean Coal Centre - UK
- Eastern Coal Council - USA
- Altura Mining Limited, Indonesia
- Directorate Of Revenue Intelligence - India
- Jorong Barutama Greston.PT - Indonesia
- Central Electricity Authority - India
- Gujarat Electricity Regulatory Commission - India
- Minerals Council of Australia
- Krishnapatnam Port Company Ltd. - India
- Metalloyd Limited - United Kingdom
- CIMB Investment Bank - Malaysia
- Rio Tinto Coal - Australia
- Karbindo Abesyapradhi - Indoneisa
- Aditya Birla Group - India
- Baramulti Group, Indonesia
- Madhucon Powers Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Bharathi Cement Corporation - India
- Indogreen Group - Indonesia
- Planning Commission, India
- Medco Energi Mining Internasional
- Riau Bara Harum - Indonesia
- Orica Australia Pty. Ltd.
- Sinarmas Energy and Mining - Indonesia
- Sojitz Corporation - Japan
- Merrill Lynch Commodities Europe
- Indonesian Coal Mining Association
- Energy Development Corp, Philippines
- Thiess Contractors Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Toyota Tsusho Corporation, Japan
- Bhushan Steel Limited - India
- Videocon Industries ltd - India
- McConnell Dowell - Australia
- Wilmar Investment Holdings
- GAC Shipping (India) Pvt Ltd
- Power Finance Corporation Ltd., India
- Global Coal Blending Company Limited - Australia
- Alfred C Toepfer International GmbH - Germany
- Kaltim Prima Coal - Indonesia
- Renaissance Capital - South Africa
- Goldman Sachs - Singapore
- Intertek Mineral Services - Indonesia
- PowerSource Philippines DevCo
- Standard Chartered Bank - UAE
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Pendopo Energi Batubara - Indonesia
- Dalmia Cement Bharat India
- Kartika Selabumi Mining - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Bank of Tokyo Mitsubishi UFJ Ltd
- Uttam Galva Steels Limited - India
- The Treasury - Australian Government
- Central Java Power - Indonesia
- Port Waratah Coal Services - Australia
- Mercuria Energy - Indonesia
- Petron Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- Oldendorff Carriers - Singapore
- Meenaskhi Energy Private Limited - India
- Aboitiz Power Corporation - Philippines
- Holcim Trading Pte Ltd - Singapore
- White Energy Company Limited
- Samtan Co., Ltd - South Korea
- Chamber of Mines of South Africa
- Chettinad Cement Corporation Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Sical Logistics Limited - India
- MS Steel International - UAE
- Bhatia International Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Energy Link Ltd, New Zealand
- Kalimantan Lumbung Energi - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Vedanta Resources Plc - India
- The University of Queensland
- Essar Steel Hazira Ltd - India
- Grasim Industreis Ltd - India
- Orica Mining Services - Indonesia
- Africa Commodities Group - South Africa
- Indo Tambangraya Megah - Indonesia
- Mintek Dendrill Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Cigading International Bulk Terminal - Indonesia
- Siam City Cement - Thailand
- Barasentosa Lestari - Indonesia
- Karaikal Port Pvt Ltd - India
- Posco Energy - South Korea
- Tamil Nadu electricity Board
- Globalindo Alam Lestari - Indonesia
- Bhoruka Overseas - Indonesia
- Timah Investasi Mineral - Indoneisa
- Kumho Petrochemical, South Korea
- Bayan Resources Tbk. - Indonesia
- London Commodity Brokers - England
- Tata Chemicals Ltd - India
- Electricity Authority, New Zealand
- Bukit Baiduri Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- The State Trading Corporation of India Ltd
- Ceylon Electricity Board - Sri Lanka
- Gujarat Sidhee Cement - India
- Heidelberg Cement - Germany
- Attock Cement Pakistan Limited
- Ambuja Cements Ltd - India
- Trasteel International SA, Italy
- Indian Energy Exchange, India
- Ind-Barath Power Infra Limited - India
- Global Business Power Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Latin American Coal - Colombia
- Vizag Seaport Private Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- SMG Consultants - Indonesia
- Meralco Power Generation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Semirara Mining Corp, Philippines
- Parliament of New Zealand
- PNOC Exploration Corporation - Philippines
- Jindal Steel & Power Ltd - India
- GMR Energy Limited - India
- LBH Netherlands Bv - Netherlands
- Borneo Indobara - Indonesia
- Xindia Steels Limited - India
- Deloitte Consulting - India
- Eastern Energy - Thailand
- Kideco Jaya Agung - Indonesia
- Sakthi Sugars Limited - India
- OPG Power Generation Pvt Ltd - India
- PTC India Limited - India
- Bukit Makmur.PT - Indonesia
- Formosa Plastics Group - Taiwan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SMC Global Power, Philippines
- Antam Resourcindo - Indonesia
- Manunggal Multi Energi - Indonesia
- Lanco Infratech Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Mjunction Services Limited - India
- Makarim & Taira - Indonesia
- Thai Mozambique Logistica
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bahari Cakrawala Sebuku - Indonesia
- Ministry of Transport, Egypt
- Price Waterhouse Coopers - Russia
- Ministry of Finance - Indonesia
- Australian Coal Association
- Iligan Light & Power Inc, Philippines
- Parry Sugars Refinery, India
- Larsen & Toubro Limited - India
- Romanian Commodities Exchange
- Wood Mackenzie - Singapore
- Interocean Group of Companies - India
- Commonwealth Bank - Australia
- San Jose City I Power Corp, Philippines
- India Bulls Power Limited - India
- Coastal Gujarat Power Limited - India
- Star Paper Mills Limited - India
- Semirara Mining and Power Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Mercator Lines Limited - India
- Agrawal Coal Company - India
- Therma Luzon, Inc, Philippines
- Sree Jayajothi Cements Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- TeaM Sual Corporation - Philippines
- Georgia Ports Authority, United States
- South Luzon Thermal Energy Corporation
- Malabar Cements Ltd - India
- Ministry of Mines - Canada
- Indika Energy - Indonesia
- Economic Council, Georgia
- VISA Power Limited - India
- Edison Trading Spa - Italy
- Siam City Cement PLC, Thailand
- Australian Commodity Traders Exchange
- Jaiprakash Power Ventures ltd
- Maheswari Brothers Coal Limited - India
- Leighton Contractors Pty Ltd - Australia
- New Zealand Coal & Carbon
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Independent Power Producers Association of India
- Bulk Trading Sa - Switzerland
- Electricity Generating Authority of Thailand
- Carbofer General Trading SA - India
- Banpu Public Company Limited - Thailand
- Indian Oil Corporation Limited
- European Bulk Services B.V. - Netherlands
- Bangladesh Power Developement Board
- Marubeni Corporation - India
- Coal and Oil Company - UAE
- Singapore Mercantile Exchange
- Directorate General of MIneral and Coal - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Billiton Holdings Pty Ltd - Australia
- CNBM International Corporation - China
- Rashtriya Ispat Nigam Limited - India
- Global Green Power PLC Corporation, Philippines
- Salva Resources Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- Cement Manufacturers Association - India
- GVK Power & Infra Limited - India
- Kepco SPC Power Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- Straits Asia Resources Limited - Singapore
- Savvy Resources Ltd - HongKong
- Anglo American - United Kingdom
- AsiaOL BioFuels Corp., Philippines
- Maharashtra Electricity Regulatory Commission - India
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