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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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Tuesday, 08 August 17
COAL SALES DESTINATION IS DOMINATED BY DEVELOPING COUNTRIES IN ASIA - ADARO
COALspot.com: Adaro Energy has produced 13.27 million tonnes of coal during the second quarter of 2017, from the mines PT Adaro Indonesia, PT Semes ...
Tuesday, 08 August 17
KOMIPO INVITES BIDS FOR 5200 AND 5700 NAR COAL FOR Q4 2017
COALspot.com: South Korea state-owned utility Korea Midland Power (KOMIPO) issued an another new tender for 420,000 Metric Tons of Bituminous coal ...
Monday, 07 August 17
INDIA'S THERMAL COAL IMPORTS HAVE FALLEN BY 16% YEAR-ON-YEAR IN THE FIRST FIVE MONTHS OF THIS YEAR
COALspot.com: The second quarter of 2017 was characterized by volatility in the coal market driven by policy measures and weather disruptions say A ...
Monday, 07 August 17
BUMA SIGNED $385 MILLION WORTH OF NEW CONTRACT WITH PT PADA IDI
COALspot.com: PT Delta Dunia Makmur Tbk., has announced that its subsidiary, PT Bukit Makmur Mandiri Utama ("BUMA"), has entered into min ...
Monday, 07 August 17
THE SHIPPING INDEXES BOUNCE BACK THIS PAST WEEK
COALspot.com: The Freight market rose this past week compared to the previous week, as BDI, Cape and Panamax indexes show a positive trend week ove ...
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Showing 1981 to 1985 news of total 6871 |
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- Bhoruka Overseas - Indonesia
- Power Finance Corporation Ltd., India
- Ambuja Cements Ltd - India
- Maheswari Brothers Coal Limited - India
- Kapuas Tunggal Persada - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Port Waratah Coal Services - Australia
- Kumho Petrochemical, South Korea
- OPG Power Generation Pvt Ltd - India
- Petron Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Parliament of New Zealand
- Eastern Coal Council - USA
- Tata Chemicals Ltd - India
- Bangladesh Power Developement Board
- Bhushan Steel Limited - India
- TeaM Sual Corporation - Philippines
- SMC Global Power, Philippines
- Straits Asia Resources Limited - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- IHS Mccloskey Coal Group - USA
- Borneo Indobara - Indonesia
- Edison Trading Spa - Italy
- Xindia Steels Limited - India
- Mjunction Services Limited - India
- GVK Power & Infra Limited - India
- Leighton Contractors Pty Ltd - Australia
- Australian Commodity Traders Exchange
- Madhucon Powers Ltd - India
- Mintek Dendrill Indonesia
- Therma Luzon, Inc, Philippines
- Merrill Lynch Commodities Europe
- Kartika Selabumi Mining - Indonesia
- European Bulk Services B.V. - Netherlands
- The Treasury - Australian Government
- Global Coal Blending Company Limited - Australia
- South Luzon Thermal Energy Corporation
- Sindya Power Generating Company Private Ltd
- GMR Energy Limited - India
- Parry Sugars Refinery, India
- Riau Bara Harum - Indonesia
- Grasim Industreis Ltd - India
- Coastal Gujarat Power Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Planning Commission, India
- Essar Steel Hazira Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Medco Energi Mining Internasional
- Kobexindo Tractors - Indoneisa
- Maharashtra Electricity Regulatory Commission - India
- Ind-Barath Power Infra Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Rashtriya Ispat Nigam Limited - India
- Siam City Cement PLC, Thailand
- Sojitz Corporation - Japan
- Ministry of Mines - Canada
- Uttam Galva Steels Limited - India
- Indian Oil Corporation Limited
- Singapore Mercantile Exchange
- Coal and Oil Company - UAE
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Samtan Co., Ltd - South Korea
- Sinarmas Energy and Mining - Indonesia
- The State Trading Corporation of India Ltd
- Banpu Public Company Limited - Thailand
- Asmin Koalindo Tuhup - Indonesia
- Ministry of Transport, Egypt
- New Zealand Coal & Carbon
- Goldman Sachs - Singapore
- Vedanta Resources Plc - India
- Bahari Cakrawala Sebuku - Indonesia
- Orica Mining Services - Indonesia
- Toyota Tsusho Corporation, Japan
- Thiess Contractors Indonesia
- Africa Commodities Group - South Africa
- Romanian Commodities Exchange
- Price Waterhouse Coopers - Russia
- Orica Australia Pty. Ltd.
- Larsen & Toubro Limited - India
- Iligan Light & Power Inc, Philippines
- Kepco SPC Power Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Georgia Ports Authority, United States
- Indogreen Group - Indonesia
- Manunggal Multi Energi - Indonesia
- Directorate Of Revenue Intelligence - India
- TNB Fuel Sdn Bhd - Malaysia
- CIMB Investment Bank - Malaysia
- Wilmar Investment Holdings
- Gujarat Sidhee Cement - India
- Australian Coal Association
- Agrawal Coal Company - India
- Electricity Generating Authority of Thailand
- White Energy Company Limited
- Central Java Power - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Jaiprakash Power Ventures ltd
- Vizag Seaport Private Limited - India
- Global Green Power PLC Corporation, Philippines
- Eastern Energy - Thailand
- Indo Tambangraya Megah - Indonesia
- GAC Shipping (India) Pvt Ltd
- Coalindo Energy - Indonesia
- Kaltim Prima Coal - Indonesia
- Chettinad Cement Corporation Ltd - India
- Baramulti Group, Indonesia
- SMG Consultants - Indonesia
- Renaissance Capital - South Africa
- Holcim Trading Pte Ltd - Singapore
- Sree Jayajothi Cements Limited - India
- Independent Power Producers Association of India
- IEA Clean Coal Centre - UK
- AsiaOL BioFuels Corp., Philippines
- Cement Manufacturers Association - India
- Pipit Mutiara Jaya. PT, Indonesia
- Energy Development Corp, Philippines
- Meenaskhi Energy Private Limited - India
- Thai Mozambique Logistica
- Indian Energy Exchange, India
- Rio Tinto Coal - Australia
- Aboitiz Power Corporation - Philippines
- Star Paper Mills Limited - India
- Intertek Mineral Services - Indonesia
- Tamil Nadu electricity Board
- MS Steel International - UAE
- Interocean Group of Companies - India
- PNOC Exploration Corporation - Philippines
- Bukit Makmur.PT - Indonesia
- Sakthi Sugars Limited - India
- Barasentosa Lestari - Indonesia
- McConnell Dowell - Australia
- Cigading International Bulk Terminal - Indonesia
- Salva Resources Pvt Ltd - India
- Oldendorff Carriers - Singapore
- International Coal Ventures Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Malabar Cements Ltd - India
- Economic Council, Georgia
- Globalindo Alam Lestari - Indonesia
- Antam Resourcindo - Indonesia
- Bhatia International Limited - India
- Minerals Council of Australia
- Jorong Barutama Greston.PT - Indonesia
- Karaikal Port Pvt Ltd - India
- VISA Power Limited - India
- Dalmia Cement Bharat India
- The University of Queensland
- Posco Energy - South Korea
- LBH Netherlands Bv - Netherlands
- Kideco Jaya Agung - Indonesia
- Siam City Cement - Thailand
- Meralco Power Generation, Philippines
- Bukit Baiduri Energy - Indonesia
- Formosa Plastics Group - Taiwan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- CNBM International Corporation - China
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- ASAPP Information Group - India
- Sarangani Energy Corporation, Philippines
- Indika Energy - Indonesia
- Savvy Resources Ltd - HongKong
- Binh Thuan Hamico - Vietnam
- Bharathi Cement Corporation - India
- Energy Link Ltd, New Zealand
- Kohat Cement Company Ltd. - Pakistan
- Neyveli Lignite Corporation Ltd, - India
- Simpson Spence & Young - Indonesia
- Sical Logistics Limited - India
- Wood Mackenzie - Singapore
- Altura Mining Limited, Indonesia
- Chamber of Mines of South Africa
- Bulk Trading Sa - Switzerland
- Carbofer General Trading SA - India
- Semirara Mining and Power Corporation, Philippines
- Global Business Power Corporation, Philippines
- Lanco Infratech Ltd - India
- Mercuria Energy - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Deloitte Consulting - India
- Heidelberg Cement - Germany
- Pendopo Energi Batubara - Indonesia
- Central Electricity Authority - India
- Trasteel International SA, Italy
- Semirara Mining Corp, Philippines
- Jindal Steel & Power Ltd - India
- San Jose City I Power Corp, Philippines
- Aditya Birla Group - India
- Attock Cement Pakistan Limited
- London Commodity Brokers - England
- Ceylon Electricity Board - Sri Lanka
- Indonesian Coal Mining Association
- ICICI Bank Limited - India
- Metalloyd Limited - United Kingdom
- Gujarat Electricity Regulatory Commission - India
- Standard Chartered Bank - UAE
- Bayan Resources Tbk. - Indonesia
- Ministry of Finance - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Electricity Authority, New Zealand
- Krishnapatnam Port Company Ltd. - India
- Mercator Lines Limited - India
- Timah Investasi Mineral - Indoneisa
- Makarim & Taira - Indonesia
- Anglo American - United Kingdom
- PTC India Limited - India
- India Bulls Power Limited - India
- Marubeni Corporation - India
- Latin American Coal - Colombia
- SN Aboitiz Power Inc, Philippines
- Videocon Industries ltd - India
- Commonwealth Bank - Australia
- PowerSource Philippines DevCo
- Directorate General of MIneral and Coal - Indonesia
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