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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, 14 August 17
THE FREIGHT MARKET CONTINUES ON AN UPWARD PATH
COALspot.com: The freight market was continued to rose this past week compared to the previous week, as BDI, Cape and Panamax indexes show a positi ...
Monday, 14 August 17
IN A PARIS AGREEMENT WORLD, COAL WILL MEET GROWING ASIAN ENERGY NEEDS - BENJAMIN SPORTON
When providing 41% of the world’s electricity, 85% of global cement, 74% of the world’s steel and 60% of the world’s aluminum, co ...
Friday, 11 August 17
KOMIPO INVITES COAL BIDS FOR BORYEONG POWER PLANT
COALspot.com: South Korea state-owned utility Korea Midland Power (KOMIPO) issued an another new tender for total 1,280,000 Metric Tons of Bitumino ...
Friday, 11 August 17
U.S WEEKLY COAL OUTPUT ALMOST FLAT WEEK OVER WEEK, EIA SAYS
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totaled an estimated 16.1 million short tonn ...
Thursday, 10 August 17
GLOBAL COAL PRODUCTION FELL SIGNIFICANTLY IN 2016 - IEA
COALspot.com: Global coal production fell significantly in 2016, while global trade in natural gas was up. These are two of the key messages in Wor ...
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Showing 1971 to 1975 news of total 6871 |
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- Billiton Holdings Pty Ltd - Australia
- Standard Chartered Bank - UAE
- Alfred C Toepfer International GmbH - Germany
- Sree Jayajothi Cements Limited - India
- Electricity Authority, New Zealand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Siam City Cement - Thailand
- ASAPP Information Group - India
- Sakthi Sugars Limited - India
- Singapore Mercantile Exchange
- Bukit Baiduri Energy - Indonesia
- Mercator Lines Limited - India
- New Zealand Coal & Carbon
- Gujarat Electricity Regulatory Commission - India
- GMR Energy Limited - India
- Lanco Infratech Ltd - India
- Ministry of Finance - Indonesia
- LBH Netherlands Bv - Netherlands
- VISA Power Limited - India
- Manunggal Multi Energi - Indonesia
- Sarangani Energy Corporation, Philippines
- Australian Commodity Traders Exchange
- AsiaOL BioFuels Corp., Philippines
- Goldman Sachs - Singapore
- Gujarat Sidhee Cement - India
- Baramulti Group, Indonesia
- Wood Mackenzie - Singapore
- Jaiprakash Power Ventures ltd
- Bhushan Steel Limited - India
- Kepco SPC Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Grasim Industreis Ltd - India
- Dalmia Cement Bharat India
- Makarim & Taira - Indonesia
- Pendopo Energi Batubara - Indonesia
- Salva Resources Pvt Ltd - India
- Meralco Power Generation, Philippines
- Borneo Indobara - Indonesia
- Straits Asia Resources Limited - Singapore
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indogreen Group - Indonesia
- Ambuja Cements Ltd - India
- Edison Trading Spa - Italy
- Ceylon Electricity Board - Sri Lanka
- McConnell Dowell - Australia
- Bhatia International Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Heidelberg Cement - Germany
- Coastal Gujarat Power Limited - India
- Antam Resourcindo - Indonesia
- Malabar Cements Ltd - India
- PNOC Exploration Corporation - Philippines
- Rashtriya Ispat Nigam Limited - India
- Bangladesh Power Developement Board
- Attock Cement Pakistan Limited
- MS Steel International - UAE
- Binh Thuan Hamico - Vietnam
- Globalindo Alam Lestari - Indonesia
- Thiess Contractors Indonesia
- Miang Besar Coal Terminal - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Bayan Resources Tbk. - Indonesia
- Tamil Nadu electricity Board
- Ministry of Transport, Egypt
- Uttam Galva Steels Limited - India
- Metalloyd Limited - United Kingdom
- Kaltim Prima Coal - Indonesia
- Orica Australia Pty. Ltd.
- Deloitte Consulting - India
- Timah Investasi Mineral - Indoneisa
- Bulk Trading Sa - Switzerland
- Australian Coal Association
- Sinarmas Energy and Mining - Indonesia
- Electricity Generating Authority of Thailand
- Sical Logistics Limited - India
- Formosa Plastics Group - Taiwan
- Neyveli Lignite Corporation Ltd, - India
- Independent Power Producers Association of India
- Xindia Steels Limited - India
- The State Trading Corporation of India Ltd
- Mintek Dendrill Indonesia
- Altura Mining Limited, Indonesia
- Eastern Coal Council - USA
- Thai Mozambique Logistica
- Kumho Petrochemical, South Korea
- The University of Queensland
- Leighton Contractors Pty Ltd - Australia
- Global Green Power PLC Corporation, Philippines
- Siam City Cement PLC, Thailand
- SN Aboitiz Power Inc, Philippines
- Renaissance Capital - South Africa
- Price Waterhouse Coopers - Russia
- Toyota Tsusho Corporation, Japan
- Carbofer General Trading SA - India
- Mjunction Services Limited - India
- Port Waratah Coal Services - Australia
- Semirara Mining Corp, Philippines
- India Bulls Power Limited - India
- Krishnapatnam Port Company Ltd. - India
- IHS Mccloskey Coal Group - USA
- Samtan Co., Ltd - South Korea
- Jindal Steel & Power Ltd - India
- Eastern Energy - Thailand
- Meenaskhi Energy Private Limited - India
- CIMB Investment Bank - Malaysia
- Aboitiz Power Corporation - Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Directorate Of Revenue Intelligence - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Orica Mining Services - Indonesia
- Petron Corporation, Philippines
- Power Finance Corporation Ltd., India
- GVK Power & Infra Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Simpson Spence & Young - Indonesia
- Global Coal Blending Company Limited - Australia
- Central Electricity Authority - India
- GAC Shipping (India) Pvt Ltd
- Kalimantan Lumbung Energi - Indonesia
- Commonwealth Bank - Australia
- SMC Global Power, Philippines
- Agrawal Coal Company - India
- Indo Tambangraya Megah - Indonesia
- Minerals Council of Australia
- The Treasury - Australian Government
- Coal and Oil Company - UAE
- ICICI Bank Limited - India
- Parliament of New Zealand
- Directorate General of MIneral and Coal - Indonesia
- Aditya Birla Group - India
- PowerSource Philippines DevCo
- PetroVietnam Power Coal Import and Supply Company
- Iligan Light & Power Inc, Philippines
- Energy Link Ltd, New Zealand
- European Bulk Services B.V. - Netherlands
- Bukit Asam (Persero) Tbk - Indonesia
- Energy Development Corp, Philippines
- Indonesian Coal Mining Association
- Kideco Jaya Agung - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- CNBM International Corporation - China
- Star Paper Mills Limited - India
- Larsen & Toubro Limited - India
- Therma Luzon, Inc, Philippines
- Indian Energy Exchange, India
- Karaikal Port Pvt Ltd - India
- Trasteel International SA, Italy
- Parry Sugars Refinery, India
- Bukit Makmur.PT - Indonesia
- Kartika Selabumi Mining - Indonesia
- Oldendorff Carriers - Singapore
- International Coal Ventures Pvt Ltd - India
- SMG Consultants - Indonesia
- White Energy Company Limited
- GN Power Mariveles Coal Plant, Philippines
- Rio Tinto Coal - Australia
- Holcim Trading Pte Ltd - Singapore
- Maharashtra Electricity Regulatory Commission - India
- London Commodity Brokers - England
- Sindya Power Generating Company Private Ltd
- Central Java Power - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Chettinad Cement Corporation Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Latin American Coal - Colombia
- Medco Energi Mining Internasional
- Vedanta Resources Plc - India
- Vizag Seaport Private Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Savvy Resources Ltd - HongKong
- Bhoruka Overseas - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Riau Bara Harum - Indonesia
- Anglo American - United Kingdom
- Bharathi Cement Corporation - India
- PTC India Limited - India
- Sojitz Corporation - Japan
- Barasentosa Lestari - Indonesia
- TeaM Sual Corporation - Philippines
- Georgia Ports Authority, United States
- Romanian Commodities Exchange
- Semirara Mining and Power Corporation, Philippines
- Merrill Lynch Commodities Europe
- Videocon Industries ltd - India
- Chamber of Mines of South Africa
- South Luzon Thermal Energy Corporation
- OPG Power Generation Pvt Ltd - India
- Africa Commodities Group - South Africa
- Maheswari Brothers Coal Limited - India
- Global Business Power Corporation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Marubeni Corporation - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Cement Manufacturers Association - India
- Kapuas Tunggal Persada - Indonesia
- Coalindo Energy - Indonesia
- Interocean Group of Companies - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indian Oil Corporation Limited
- Kohat Cement Company Ltd. - Pakistan
- IEA Clean Coal Centre - UK
- Ministry of Mines - Canada
- Planning Commission, India
- Tata Chemicals Ltd - India
- Madhucon Powers Ltd - India
- Banpu Public Company Limited - Thailand
- Essar Steel Hazira Ltd - India
- Indika Energy - Indonesia
- Intertek Mineral Services - Indonesia
- Posco Energy - South Korea
- San Jose City I Power Corp, Philippines
- Economic Council, Georgia
- Wilmar Investment Holdings
- Mercuria Energy - Indonesia
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