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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, 13 July 17
SUPRAMAX: NICKEL ORE TRIPS TO CHINA VIA PHILIPPINES WITH DELIVERY S. CHINA IS PAYING AROUND MID $9000 - FEARNLEYS
Supramax
COALspot.com: Another slow start to the week with somewhat softening rates and few fixtures.
Nickel Ore trips to China via the Phil ...
Wednesday, 12 July 17
COAL HAS CONTINUED A STELLAR RUN OVER THE PAST YEAR GAINING ~10% OVER THE PAST QUARTER AND ~41% OVER THE PAST YEAR - LINOS KOGEVINAS
Having just passed the second quarter of 2017, it is interesting to take a look at the performance of the commodity market and how certain commodit ...
Monday, 10 July 17
A ROLLERCOASTER YEAR FOR COAL PRICES; ICPR ROSE 4.62% M/M
COALspot.com: Indonesian coal benchmark price rose 4.62% in July, government data showed.
The benchmark price of Indonesian thermal c ...
Monday, 10 July 17
THE FREIGHT MARKET WAS SHOWS A NEGATIVE TREND WEEK OVER WEEK
COALspot.com: The Freight market decline this past week compared to the previous week, as BDI and Cape indexes show a negative trend week over week ...
Friday, 07 July 17
SHOULD WE BE AVOIDING GENERAL AVERAGE? - ALEX KEMP
KNOWLEDGE TO ELEVATE
Calls for general average to be abolished are nearly as old as the regime itself. A representative of Lloyd’s atten ...
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Showing 2006 to 2010 news of total 6871 |
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- Therma Luzon, Inc, Philippines
- Sical Logistics Limited - India
- AsiaOL BioFuels Corp., Philippines
- Vizag Seaport Private Limited - India
- Binh Thuan Hamico - Vietnam
- PTC India Limited - India
- Mintek Dendrill Indonesia
- IHS Mccloskey Coal Group - USA
- Interocean Group of Companies - India
- Directorate Of Revenue Intelligence - India
- Malabar Cements Ltd - India
- SMC Global Power, Philippines
- Indogreen Group - Indonesia
- Metalloyd Limited - United Kingdom
- Borneo Indobara - Indonesia
- Larsen & Toubro Limited - India
- Meralco Power Generation, Philippines
- GAC Shipping (India) Pvt Ltd
- ASAPP Information Group - India
- Ministry of Finance - Indonesia
- Kepco SPC Power Corporation, Philippines
- Edison Trading Spa - Italy
- Bulk Trading Sa - Switzerland
- CNBM International Corporation - China
- Australian Coal Association
- Sree Jayajothi Cements Limited - India
- Gujarat Electricity Regulatory Commission - India
- Formosa Plastics Group - Taiwan
- Tamil Nadu electricity Board
- Gujarat Mineral Development Corp Ltd - India
- Kaltim Prima Coal - Indonesia
- Latin American Coal - Colombia
- Karbindo Abesyapradhi - Indoneisa
- Kobexindo Tractors - Indoneisa
- PetroVietnam Power Coal Import and Supply Company
- Orica Australia Pty. Ltd.
- Mercuria Energy - Indonesia
- Petron Corporation, Philippines
- Agrawal Coal Company - India
- Miang Besar Coal Terminal - Indonesia
- Manunggal Multi Energi - Indonesia
- Chamber of Mines of South Africa
- Central Electricity Authority - India
- Kideco Jaya Agung - Indonesia
- Ambuja Cements Ltd - India
- The Treasury - Australian Government
- Africa Commodities Group - South Africa
- Central Java Power - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Jorong Barutama Greston.PT - Indonesia
- IEA Clean Coal Centre - UK
- Electricity Authority, New Zealand
- Lanco Infratech Ltd - India
- White Energy Company Limited
- Krishnapatnam Port Company Ltd. - India
- Coalindo Energy - Indonesia
- Coal and Oil Company - UAE
- Maheswari Brothers Coal Limited - India
- Xindia Steels Limited - India
- Banpu Public Company Limited - Thailand
- Bahari Cakrawala Sebuku - Indonesia
- Goldman Sachs - Singapore
- Bharathi Cement Corporation - India
- Anglo American - United Kingdom
- Ind-Barath Power Infra Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Iligan Light & Power Inc, Philippines
- Dalmia Cement Bharat India
- Meenaskhi Energy Private Limited - India
- Georgia Ports Authority, United States
- Romanian Commodities Exchange
- Thiess Contractors Indonesia
- Bangladesh Power Developement Board
- Sojitz Corporation - Japan
- Aditya Birla Group - India
- Independent Power Producers Association of India
- Petrochimia International Co. Ltd.- Taiwan
- Eastern Energy - Thailand
- GMR Energy Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Toyota Tsusho Corporation, Japan
- Global Coal Blending Company Limited - Australia
- Semirara Mining and Power Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Aboitiz Power Corporation - Philippines
- Makarim & Taira - Indonesia
- Bhatia International Limited - India
- Australian Commodity Traders Exchange
- India Bulls Power Limited - India
- Cement Manufacturers Association - India
- Sindya Power Generating Company Private Ltd
- Bukit Makmur.PT - Indonesia
- Grasim Industreis Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Karaikal Port Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Port Waratah Coal Services - Australia
- Heidelberg Cement - Germany
- Madhucon Powers Ltd - India
- New Zealand Coal & Carbon
- Electricity Generating Authority of Thailand
- Bank of Tokyo Mitsubishi UFJ Ltd
- PNOC Exploration Corporation - Philippines
- Planning Commission, India
- Billiton Holdings Pty Ltd - Australia
- Straits Asia Resources Limited - Singapore
- Thai Mozambique Logistica
- Gujarat Sidhee Cement - India
- Indika Energy - Indonesia
- Energy Development Corp, Philippines
- European Bulk Services B.V. - Netherlands
- Indonesian Coal Mining Association
- Kumho Petrochemical, South Korea
- Leighton Contractors Pty Ltd - Australia
- Salva Resources Pvt Ltd - India
- GVK Power & Infra Limited - India
- Oldendorff Carriers - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ministry of Transport, Egypt
- Pipit Mutiara Jaya. PT, Indonesia
- Vedanta Resources Plc - India
- Standard Chartered Bank - UAE
- Kartika Selabumi Mining - Indonesia
- Intertek Mineral Services - Indonesia
- San Jose City I Power Corp, Philippines
- LBH Netherlands Bv - Netherlands
- Merrill Lynch Commodities Europe
- Eastern Coal Council - USA
- Barasentosa Lestari - Indonesia
- Singapore Mercantile Exchange
- Baramulti Group, Indonesia
- The State Trading Corporation of India Ltd
- Kalimantan Lumbung Energi - Indonesia
- Jindal Steel & Power Ltd - India
- Indian Energy Exchange, India
- International Coal Ventures Pvt Ltd - India
- VISA Power Limited - India
- Medco Energi Mining Internasional
- Holcim Trading Pte Ltd - Singapore
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bukit Baiduri Energy - Indonesia
- Samtan Co., Ltd - South Korea
- Sakthi Sugars Limited - India
- Star Paper Mills Limited - India
- Tata Chemicals Ltd - India
- Videocon Industries ltd - India
- Altura Mining Limited, Indonesia
- Renaissance Capital - South Africa
- Savvy Resources Ltd - HongKong
- Coastal Gujarat Power Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Price Waterhouse Coopers - Russia
- McConnell Dowell - Australia
- Uttam Galva Steels Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Mjunction Services Limited - India
- CIMB Investment Bank - Malaysia
- Wood Mackenzie - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Parliament of New Zealand
- Commonwealth Bank - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Sinarmas Energy and Mining - Indonesia
- Wilmar Investment Holdings
- Rashtriya Ispat Nigam Limited - India
- Deloitte Consulting - India
- Indian Oil Corporation Limited
- Ceylon Electricity Board - Sri Lanka
- SMG Consultants - Indonesia
- Power Finance Corporation Ltd., India
- Carbofer General Trading SA - India
- Directorate General of MIneral and Coal - Indonesia
- Chettinad Cement Corporation Ltd - India
- OPG Power Generation Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Siam City Cement - Thailand
- Riau Bara Harum - Indonesia
- Parry Sugars Refinery, India
- Semirara Mining Corp, Philippines
- Global Business Power Corporation, Philippines
- Mercator Lines Limited - India
- ICICI Bank Limited - India
- Posco Energy - South Korea
- Minerals Council of Australia
- Siam City Cement PLC, Thailand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Energy Link Ltd, New Zealand
- TeaM Sual Corporation - Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Jaiprakash Power Ventures ltd
- Attock Cement Pakistan Limited
- Bhushan Steel Limited - India
- MS Steel International - UAE
- PowerSource Philippines DevCo
- Indo Tambangraya Megah - Indonesia
- Antam Resourcindo - Indonesia
- London Commodity Brokers - England
- Rio Tinto Coal - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- The University of Queensland
- Neyveli Lignite Corporation Ltd, - India
- Orica Mining Services - Indonesia
- Economic Council, Georgia
- Timah Investasi Mineral - Indoneisa
- Bayan Resources Tbk. - Indonesia
- Marubeni Corporation - India
- Trasteel International SA, Italy
- Kapuas Tunggal Persada - Indonesia
- Ministry of Mines - Canada
- Essar Steel Hazira Ltd - India
- Pendopo Energi Batubara - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Bhoruka Overseas - Indonesia
- South Luzon Thermal Energy Corporation
- Sarangani Energy Corporation, Philippines
- Global Green Power PLC Corporation, Philippines
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