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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, 07 July 17
EIA ESTIMATES SHOW U.S WEEKLY COAL PRODUCTION UP 1.7 PERCENT
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totaled an estimated 15.9 million short tonn ...
Thursday, 06 July 17
SUPRAMAX: INDO TO INDIA TRIPS WITH DELIVERY THAILAND RANGE IS GIVING OWNERS AROUND MID $8000 - FEARNLEYS
Supramax
Another slow start to the week with somewhat softening rates and few fixtures.
According to Fearnleys Weekly Dry bulk report, the N ...
Thursday, 06 July 17
UNEXPECTED MOVE FROM CHINA BOOSTS COAL PRICES - OIL PRICE
Coal prices have been cooling the last few months — after a spectacular run last year. But news late last week suggests the market is about t ...
Wednesday, 05 July 17
COAL PRICES ROSE IN CHINA, JAPAN AND EUROPE IN 2016 - BP
COALspot.com: Coal prices rose in China, Japan and Europe in 2016 after four years of price declines.
According to bp, the rise in coal prices ...
Wednesday, 05 July 17
TANKER MARKET INSIGHT - KATERINA RESTIS
A war of words blasted last month as the UAE, S. Arabia, Egypt and Bahrain revealed that they are experiencing severe diplomatic issues with the st ...
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Showing 2011 to 2015 news of total 6871 |
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- Madhucon Powers Ltd - India
- Videocon Industries ltd - India
- Chettinad Cement Corporation Ltd - India
- Power Finance Corporation Ltd., India
- Commonwealth Bank - Australia
- Directorate Of Revenue Intelligence - India
- Attock Cement Pakistan Limited
- London Commodity Brokers - England
- White Energy Company Limited
- Intertek Mineral Services - Indonesia
- Thai Mozambique Logistica
- Kapuas Tunggal Persada - Indonesia
- Port Waratah Coal Services - Australia
- Vedanta Resources Plc - India
- AsiaOL BioFuels Corp., Philippines
- Simpson Spence & Young - Indonesia
- CNBM International Corporation - China
- Directorate General of MIneral and Coal - Indonesia
- TeaM Sual Corporation - Philippines
- Krishnapatnam Port Company Ltd. - India
- The State Trading Corporation of India Ltd
- PetroVietnam Power Coal Import and Supply Company
- Maharashtra Electricity Regulatory Commission - India
- Bharathi Cement Corporation - India
- Tata Chemicals Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Indogreen Group - Indonesia
- Wood Mackenzie - Singapore
- Indika Energy - Indonesia
- Economic Council, Georgia
- Semirara Mining Corp, Philippines
- The Treasury - Australian Government
- Siam City Cement PLC, Thailand
- Deloitte Consulting - India
- Therma Luzon, Inc, Philippines
- Posco Energy - South Korea
- Global Business Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Mintek Dendrill Indonesia
- Kartika Selabumi Mining - Indonesia
- The University of Queensland
- Altura Mining Limited, Indonesia
- Anglo American - United Kingdom
- Parliament of New Zealand
- Metalloyd Limited - United Kingdom
- Thiess Contractors Indonesia
- Sical Logistics Limited - India
- Romanian Commodities Exchange
- Bukit Asam (Persero) Tbk - Indonesia
- PTC India Limited - India
- Africa Commodities Group - South Africa
- Australian Commodity Traders Exchange
- Lanco Infratech Ltd - India
- CIMB Investment Bank - Malaysia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Globalindo Alam Lestari - Indonesia
- Ambuja Cements Ltd - India
- SN Aboitiz Power Inc, Philippines
- Minerals Council of Australia
- Bhushan Steel Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Vizag Seaport Private Limited - India
- PNOC Exploration Corporation - Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- MS Steel International - UAE
- Pipit Mutiara Jaya. PT, Indonesia
- Siam City Cement - Thailand
- Kohat Cement Company Ltd. - Pakistan
- Star Paper Mills Limited - India
- Standard Chartered Bank - UAE
- Kepco SPC Power Corporation, Philippines
- Electricity Generating Authority of Thailand
- Maheswari Brothers Coal Limited - India
- Jindal Steel & Power Ltd - India
- Coalindo Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- Banpu Public Company Limited - Thailand
- Carbofer General Trading SA - India
- Coal and Oil Company - UAE
- Renaissance Capital - South Africa
- Kalimantan Lumbung Energi - Indonesia
- Wilmar Investment Holdings
- Australian Coal Association
- IHS Mccloskey Coal Group - USA
- ASAPP Information Group - India
- LBH Netherlands Bv - Netherlands
- GMR Energy Limited - India
- Eastern Coal Council - USA
- Manunggal Multi Energi - Indonesia
- Petron Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Trasteel International SA, Italy
- Oldendorff Carriers - Singapore
- OPG Power Generation Pvt Ltd - India
- Larsen & Toubro Limited - India
- India Bulls Power Limited - India
- Tamil Nadu electricity Board
- San Jose City I Power Corp, Philippines
- International Coal Ventures Pvt Ltd - India
- Ministry of Finance - Indonesia
- Mercuria Energy - Indonesia
- Ministry of Transport, Egypt
- Price Waterhouse Coopers - Russia
- Malabar Cements Ltd - India
- Ind-Barath Power Infra Limited - India
- Bhoruka Overseas - Indonesia
- GAC Shipping (India) Pvt Ltd
- Parry Sugars Refinery, India
- Rashtriya Ispat Nigam Limited - India
- Global Green Power PLC Corporation, Philippines
- Mercator Lines Limited - India
- Planning Commission, India
- Straits Asia Resources Limited - Singapore
- Indian Oil Corporation Limited
- Agrawal Coal Company - India
- Chamber of Mines of South Africa
- Binh Thuan Hamico - Vietnam
- Baramulti Group, Indonesia
- Kumho Petrochemical, South Korea
- Merrill Lynch Commodities Europe
- South Luzon Thermal Energy Corporation
- Miang Besar Coal Terminal - Indonesia
- Independent Power Producers Association of India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Samtan Co., Ltd - South Korea
- Singapore Mercantile Exchange
- Barasentosa Lestari - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Semirara Mining and Power Corporation, Philippines
- Central Electricity Authority - India
- Cement Manufacturers Association - India
- Grasim Industreis Ltd - India
- IEA Clean Coal Centre - UK
- Rio Tinto Coal - Australia
- Timah Investasi Mineral - Indoneisa
- Bangladesh Power Developement Board
- Marubeni Corporation - India
- Pendopo Energi Batubara - Indonesia
- Orica Mining Services - Indonesia
- Makarim & Taira - Indonesia
- Formosa Plastics Group - Taiwan
- Xindia Steels Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Iligan Light & Power Inc, Philippines
- Indo Tambangraya Megah - Indonesia
- Latin American Coal - Colombia
- Ministry of Mines - Canada
- Energy Development Corp, Philippines
- Gujarat Sidhee Cement - India
- ICICI Bank Limited - India
- Georgia Ports Authority, United States
- Petrochimia International Co. Ltd.- Taiwan
- Sojitz Corporation - Japan
- Ceylon Electricity Board - Sri Lanka
- Salva Resources Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Aboitiz Power Corporation - Philippines
- Borneo Indobara - Indonesia
- Kobexindo Tractors - Indoneisa
- Essar Steel Hazira Ltd - India
- Bhatia International Limited - India
- Uttam Galva Steels Limited - India
- Karaikal Port Pvt Ltd - India
- Medco Energi Mining Internasional
- Orica Australia Pty. Ltd.
- Global Coal Blending Company Limited - Australia
- Central Java Power - Indonesia
- SMG Consultants - Indonesia
- Interocean Group of Companies - India
- Bulk Trading Sa - Switzerland
- Indonesian Coal Mining Association
- Meralco Power Generation, Philippines
- Electricity Authority, New Zealand
- Sinarmas Energy and Mining - Indonesia
- Mjunction Services Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Eastern Energy - Thailand
- Aditya Birla Group - India
- Kaltim Prima Coal - Indonesia
- European Bulk Services B.V. - Netherlands
- GVK Power & Infra Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Energy Link Ltd, New Zealand
- Sakthi Sugars Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Goldman Sachs - Singapore
- PowerSource Philippines DevCo
- VISA Power Limited - India
- Sarangani Energy Corporation, Philippines
- Heidelberg Cement - Germany
- Bukit Baiduri Energy - Indonesia
- Meenaskhi Energy Private Limited - India
- Toyota Tsusho Corporation, Japan
- McConnell Dowell - Australia
- Dalmia Cement Bharat India
- SMC Global Power, Philippines
- Antam Resourcindo - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Riau Bara Harum - Indonesia
- Coastal Gujarat Power Limited - India
- Holcim Trading Pte Ltd - Singapore
- Jaiprakash Power Ventures ltd
- Sindya Power Generating Company Private Ltd
- Edison Trading Spa - Italy
- Savvy Resources Ltd - HongKong
- New Zealand Coal & Carbon
- Indian Energy Exchange, India
- Asmin Koalindo Tuhup - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Kideco Jaya Agung - Indonesia
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