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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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Friday, 04 August 17
U.S. WEEKLY COAL OUTPUT UP 4.4% W/W - EIA
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totaled an estimated 16.1 million short tonn ...
Friday, 04 August 17
IMPORTED COAL CONTINUES TO BE A COMPETITIVE, SAFE AND RELIABLE ENERGY SOURCE FOR GERMANY - VDKI
COALspot.com: Worldwide hard coal production in 2016 declined by 3.8% to 6.7 billion tonnes.
According to the Germany Coal Importers Associati ...
Thursday, 03 August 17
SUPRAMAX: INDO TO CHINA COAL ROUNDS ARE GETTING FIXED AROUND MID $8000 - FEARNLEYS
In the Pacific rates have remained weak and under pressure this week with most routes softening.
Indo/China coal rounds are getting fixed arou ...
Thursday, 03 August 17
BUMI RESOURCES COAL SALES RELATIVELY FLAT AT 41.5 MILLION TONS IN 1H' 17; REPORTS US$162.3 MILLION PROFIT IN FIRST SEMESTER
COALspot.com: The BUMI Resources, Indonesia’s one of the largest coal producer, has reported a net income of $162.3 million in 1H’ 17 c ...
Wednesday, 02 August 17
SHIPPING MARKET INSIGHT - GIANNIS ANDRITSOPOULOS
During the duration of the first half of the year, the dry bulk market saw intense buying interest that boosted SnP prices significantly. We saw a ...
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Showing 1986 to 1990 news of total 6871 |
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- Tata Chemicals Ltd - India
- Thai Mozambique Logistica
- Global Green Power PLC Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Coastal Gujarat Power Limited - India
- Commonwealth Bank - Australia
- Petron Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- London Commodity Brokers - England
- Latin American Coal - Colombia
- Goldman Sachs - Singapore
- Standard Chartered Bank - UAE
- Samtan Co., Ltd - South Korea
- GMR Energy Limited - India
- International Coal Ventures Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- Meenaskhi Energy Private Limited - India
- SMC Global Power, Philippines
- Trasteel International SA, Italy
- Carbofer General Trading SA - India
- Tamil Nadu electricity Board
- Sree Jayajothi Cements Limited - India
- New Zealand Coal & Carbon
- Simpson Spence & Young - Indonesia
- Ministry of Transport, Egypt
- Medco Energi Mining Internasional
- Borneo Indobara - Indonesia
- Edison Trading Spa - Italy
- Pendopo Energi Batubara - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Australian Coal Association
- Aditya Birla Group - India
- Parliament of New Zealand
- TeaM Sual Corporation - Philippines
- Neyveli Lignite Corporation Ltd, - India
- Africa Commodities Group - South Africa
- Kalimantan Lumbung Energi - Indonesia
- Electricity Generating Authority of Thailand
- Jindal Steel & Power Ltd - India
- Indonesian Coal Mining Association
- Asmin Koalindo Tuhup - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Billiton Holdings Pty Ltd - Australia
- PetroVietnam Power Coal Import and Supply Company
- Meralco Power Generation, Philippines
- Larsen & Toubro Limited - India
- Bulk Trading Sa - Switzerland
- Sakthi Sugars Limited - India
- LBH Netherlands Bv - Netherlands
- Attock Cement Pakistan Limited
- Essar Steel Hazira Ltd - India
- Semirara Mining Corp, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- SMG Consultants - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Ministry of Mines - Canada
- Salva Resources Pvt Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Bhatia International Limited - India
- Kideco Jaya Agung - Indonesia
- White Energy Company Limited
- Sinarmas Energy and Mining - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Chamber of Mines of South Africa
- Anglo American - United Kingdom
- Electricity Authority, New Zealand
- Altura Mining Limited, Indonesia
- Chettinad Cement Corporation Ltd - India
- South Luzon Thermal Energy Corporation
- Planning Commission, India
- Bhoruka Overseas - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Thiess Contractors Indonesia
- Rio Tinto Coal - Australia
- Gujarat Sidhee Cement - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PowerSource Philippines DevCo
- Posco Energy - South Korea
- GAC Shipping (India) Pvt Ltd
- The State Trading Corporation of India Ltd
- Bharathi Cement Corporation - India
- Sarangani Energy Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Georgia Ports Authority, United States
- Kaltim Prima Coal - Indonesia
- Sindya Power Generating Company Private Ltd
- Wilmar Investment Holdings
- India Bulls Power Limited - India
- Orica Mining Services - Indonesia
- Star Paper Mills Limited - India
- Malabar Cements Ltd - India
- Minerals Council of Australia
- Agrawal Coal Company - India
- Global Coal Blending Company Limited - Australia
- Ministry of Finance - Indonesia
- Riau Bara Harum - Indonesia
- European Bulk Services B.V. - Netherlands
- Mintek Dendrill Indonesia
- Kumho Petrochemical, South Korea
- Xindia Steels Limited - India
- Indian Energy Exchange, India
- Aboitiz Power Corporation - Philippines
- Banpu Public Company Limited - Thailand
- Madhucon Powers Ltd - India
- Parry Sugars Refinery, India
- Coalindo Energy - Indonesia
- Mercuria Energy - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Ind-Barath Power Infra Limited - India
- Price Waterhouse Coopers - Russia
- Alfred C Toepfer International GmbH - Germany
- OPG Power Generation Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Leighton Contractors Pty Ltd - Australia
- Grasim Industreis Ltd - India
- Intertek Mineral Services - Indonesia
- The University of Queensland
- Vizag Seaport Private Limited - India
- Central Electricity Authority - India
- Uttam Galva Steels Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- The Treasury - Australian Government
- Karaikal Port Pvt Ltd - India
- Heidelberg Cement - Germany
- Dalmia Cement Bharat India
- Bangladesh Power Developement Board
- IEA Clean Coal Centre - UK
- Indian Oil Corporation Limited
- Australian Commodity Traders Exchange
- ASAPP Information Group - India
- Directorate General of MIneral and Coal - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Orica Australia Pty. Ltd.
- SN Aboitiz Power Inc, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kepco SPC Power Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Indogreen Group - Indonesia
- CIMB Investment Bank - Malaysia
- GN Power Mariveles Coal Plant, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Energy Link Ltd, New Zealand
- Kartika Selabumi Mining - Indonesia
- Formosa Plastics Group - Taiwan
- Timah Investasi Mineral - Indoneisa
- Merrill Lynch Commodities Europe
- Binh Thuan Hamico - Vietnam
- Barasentosa Lestari - Indonesia
- Ambuja Cements Ltd - India
- San Jose City I Power Corp, Philippines
- Singapore Mercantile Exchange
- Globalindo Alam Lestari - Indonesia
- Oldendorff Carriers - Singapore
- Ceylon Electricity Board - Sri Lanka
- Jorong Barutama Greston.PT - Indonesia
- Power Finance Corporation Ltd., India
- Siam City Cement PLC, Thailand
- Independent Power Producers Association of India
- Semirara Mining and Power Corporation, Philippines
- Toyota Tsusho Corporation, Japan
- Sical Logistics Limited - India
- Deloitte Consulting - India
- Miang Besar Coal Terminal - Indonesia
- Antam Resourcindo - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Eastern Coal Council - USA
- Energy Development Corp, Philippines
- Iligan Light & Power Inc, Philippines
- GVK Power & Infra Limited - India
- Bhushan Steel Limited - India
- Manunggal Multi Energi - Indonesia
- Bukit Makmur.PT - Indonesia
- Makarim & Taira - Indonesia
- Mjunction Services Limited - India
- Central Java Power - Indonesia
- McConnell Dowell - Australia
- VISA Power Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Indika Energy - Indonesia
- Metalloyd Limited - United Kingdom
- Savvy Resources Ltd - HongKong
- Marubeni Corporation - India
- Rashtriya Ispat Nigam Limited - India
- ICICI Bank Limited - India
- Port Waratah Coal Services - Australia
- Eastern Energy - Thailand
- Straits Asia Resources Limited - Singapore
- Siam City Cement - Thailand
- Baramulti Group, Indonesia
- CNBM International Corporation - China
- Vedanta Resources Plc - India
- Economic Council, Georgia
- Videocon Industries ltd - India
- MS Steel International - UAE
- Wood Mackenzie - Singapore
- Maheswari Brothers Coal Limited - India
- PTC India Limited - India
- Lanco Infratech Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Sojitz Corporation - Japan
- Romanian Commodities Exchange
- Cement Manufacturers Association - India
- Therma Luzon, Inc, Philippines
- Coal and Oil Company - UAE
- Mercator Lines Limited - India
- Global Business Power Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Indo Tambangraya Megah - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bayan Resources Tbk. - Indonesia
- Renaissance Capital - South Africa
- Interocean Group of Companies - India
- PNOC Exploration Corporation - Philippines
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