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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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Monday, 21 August 17
INDIA'S COAL IMPORTS DECLINE TO 192 MT IN FY17 - PTI
Import of coal saw a decline of 6.37 per cent to 191.95 million tonnes (MT) in 2016-17 on higher production by CIL that saw the country move to a r ...
Monday, 21 August 17
FIRM DEMAND FOR CAPES CONTINUE TO SUPPORT DRY BULK SHIPPING
COALspot.com: The freight market was continued to rose this past week compared to the previous weeks, as BDI, Cape and Panamax indexes show a posit ...
Friday, 18 August 17
U.S. WEEKLY COAL OUTPUT UP 2.1% WEEK OVER WEEK, SAYS EIA
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totalled an estimated 16.5 million short ton ...
Thursday, 17 August 17
DESPITE A HOLIDAY-DISRUPTED WEEK IT HAS BEEN A NEW ACTIVE WEEK FOR THE PANAMAXES - FEARNLEYS
Supramax
A very quiet start to the week with holidays in several countries. USG still bringing good results supported by a tight tonnage availabl ...
Monday, 14 August 17
CENTURIES ON, AND DRY BULK STILL RULES THE WAVES... - SARAH HOLDEN | CLARKSONS
By the late 1800s, the shipping industry had been transformed by the introduction of steam power and iron ships. Coal and grain were two of the mos ...
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Showing 1966 to 1970 news of total 6871 |
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- Jorong Barutama Greston.PT - Indonesia
- Planning Commission, India
- Kohat Cement Company Ltd. - Pakistan
- Iligan Light & Power Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Cigading International Bulk Terminal - Indonesia
- Standard Chartered Bank - UAE
- Malabar Cements Ltd - India
- Chamber of Mines of South Africa
- Indo Tambangraya Megah - Indonesia
- Altura Mining Limited, Indonesia
- Wilmar Investment Holdings
- Semirara Mining and Power Corporation, Philippines
- Salva Resources Pvt Ltd - India
- PowerSource Philippines DevCo
- SMC Global Power, Philippines
- Sojitz Corporation - Japan
- Sinarmas Energy and Mining - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Energy Link Ltd, New Zealand
- Kartika Selabumi Mining - Indonesia
- Bayan Resources Tbk. - Indonesia
- Coastal Gujarat Power Limited - India
- Riau Bara Harum - Indonesia
- Vedanta Resources Plc - India
- Aboitiz Power Corporation - Philippines
- SMG Consultants - Indonesia
- Kumho Petrochemical, South Korea
- Timah Investasi Mineral - Indoneisa
- Pipit Mutiara Jaya. PT, Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- International Coal Ventures Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Toyota Tsusho Corporation, Japan
- London Commodity Brokers - England
- Eastern Coal Council - USA
- LBH Netherlands Bv - Netherlands
- Barasentosa Lestari - Indonesia
- ICICI Bank Limited - India
- Indogreen Group - Indonesia
- IHS Mccloskey Coal Group - USA
- Anglo American - United Kingdom
- ASAPP Information Group - India
- AsiaOL BioFuels Corp., Philippines
- White Energy Company Limited
- Sindya Power Generating Company Private Ltd
- Singapore Mercantile Exchange
- Antam Resourcindo - Indonesia
- CIMB Investment Bank - Malaysia
- Australian Coal Association
- Heidelberg Cement - Germany
- Energy Development Corp, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Makarim & Taira - Indonesia
- Globalindo Alam Lestari - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Gujarat Sidhee Cement - India
- Uttam Galva Steels Limited - India
- Ministry of Transport, Egypt
- Trasteel International SA, Italy
- Straits Asia Resources Limited - Singapore
- Parliament of New Zealand
- South Luzon Thermal Energy Corporation
- Banpu Public Company Limited - Thailand
- Vizag Seaport Private Limited - India
- Formosa Plastics Group - Taiwan
- Chettinad Cement Corporation Ltd - India
- Interocean Group of Companies - India
- Therma Luzon, Inc, Philippines
- Sakthi Sugars Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Gujarat Electricity Regulatory Commission - India
- Jindal Steel & Power Ltd - India
- Bharathi Cement Corporation - India
- Minerals Council of Australia
- The University of Queensland
- Commonwealth Bank - Australia
- Metalloyd Limited - United Kingdom
- Kepco SPC Power Corporation, Philippines
- The State Trading Corporation of India Ltd
- Georgia Ports Authority, United States
- New Zealand Coal & Carbon
- Thai Mozambique Logistica
- Larsen & Toubro Limited - India
- Maheswari Brothers Coal Limited - India
- Attock Cement Pakistan Limited
- Asmin Koalindo Tuhup - Indonesia
- Bukit Baiduri Energy - Indonesia
- Meralco Power Generation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indian Oil Corporation Limited
- Economic Council, Georgia
- OPG Power Generation Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Global Green Power PLC Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Samtan Co., Ltd - South Korea
- Madhucon Powers Ltd - India
- Orica Australia Pty. Ltd.
- Bhushan Steel Limited - India
- MS Steel International - UAE
- Holcim Trading Pte Ltd - Singapore
- Sical Logistics Limited - India
- Alfred C Toepfer International GmbH - Germany
- Mintek Dendrill Indonesia
- Tamil Nadu electricity Board
- Ind-Barath Power Infra Limited - India
- Simpson Spence & Young - Indonesia
- Mercator Lines Limited - India
- Billiton Holdings Pty Ltd - Australia
- VISA Power Limited - India
- Kapuas Tunggal Persada - Indonesia
- Posco Energy - South Korea
- Renaissance Capital - South Africa
- Global Coal Blending Company Limited - Australia
- Krishnapatnam Port Company Ltd. - India
- SN Aboitiz Power Inc, Philippines
- Oldendorff Carriers - Singapore
- Merrill Lynch Commodities Europe
- Edison Trading Spa - Italy
- Africa Commodities Group - South Africa
- PNOC Exploration Corporation - Philippines
- CNBM International Corporation - China
- Lanco Infratech Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Bulk Trading Sa - Switzerland
- Central Electricity Authority - India
- IEA Clean Coal Centre - UK
- Coalindo Energy - Indonesia
- Dalmia Cement Bharat India
- Semirara Mining Corp, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- McConnell Dowell - Australia
- Sarangani Energy Corporation, Philippines
- Siam City Cement - Thailand
- Orica Mining Services - Indonesia
- Karaikal Port Pvt Ltd - India
- Jaiprakash Power Ventures ltd
- Power Finance Corporation Ltd., India
- Romanian Commodities Exchange
- Gujarat Mineral Development Corp Ltd - India
- Kobexindo Tractors - Indoneisa
- Indika Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- Kaltim Prima Coal - Indonesia
- Grasim Industreis Ltd - India
- Electricity Generating Authority of Thailand
- Global Business Power Corporation, Philippines
- Central Java Power - Indonesia
- Agrawal Coal Company - India
- Aditya Birla Group - India
- GAC Shipping (India) Pvt Ltd
- Wood Mackenzie - Singapore
- Indian Energy Exchange, India
- San Jose City I Power Corp, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Deloitte Consulting - India
- PetroVietnam Power Coal Import and Supply Company
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bangladesh Power Developement Board
- Marubeni Corporation - India
- Leighton Contractors Pty Ltd - Australia
- Coal and Oil Company - UAE
- Tata Chemicals Ltd - India
- European Bulk Services B.V. - Netherlands
- The Treasury - Australian Government
- Baramulti Group, Indonesia
- Videocon Industries ltd - India
- Petron Corporation, Philippines
- Australian Commodity Traders Exchange
- PTC India Limited - India
- Electricity Authority, New Zealand
- Bukit Asam (Persero) Tbk - Indonesia
- Carbofer General Trading SA - India
- Ambuja Cements Ltd - India
- Eastern Energy - Thailand
- Kideco Jaya Agung - Indonesia
- Intertek Mineral Services - Indonesia
- Mercuria Energy - Indonesia
- Siam City Cement PLC, Thailand
- Sree Jayajothi Cements Limited - India
- Xindia Steels Limited - India
- Thiess Contractors Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Ministry of Mines - Canada
- Ministry of Finance - Indonesia
- Star Paper Mills Limited - India
- Bukit Makmur.PT - Indonesia
- Bhatia International Limited - India
- Manunggal Multi Energi - Indonesia
- GVK Power & Infra Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Goldman Sachs - Singapore
- Parry Sugars Refinery, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Independent Power Producers Association of India
- Price Waterhouse Coopers - Russia
- Medco Energi Mining Internasional
- Latin American Coal - Colombia
- Port Waratah Coal Services - Australia
- Pendopo Energi Batubara - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- India Bulls Power Limited - India
- GMR Energy Limited - India
- Essar Steel Hazira Ltd - India
- Rio Tinto Coal - Australia
- Borneo Indobara - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Rashtriya Ispat Nigam Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Indonesian Coal Mining Association
- Cement Manufacturers Association - India
- TeaM Sual Corporation - Philippines
- Mjunction Services Limited - India
- Meenaskhi Energy Private Limited - India
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