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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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Wednesday, 05 July 17
TROUBLE SEEMS TO BE LOOMING ONCE MORE IN THE STEEL INDUSTRY - GEORGE LAZARIDIS
Trouble seems to be looming once more in the steel industry as US President Trump puts forth his plans for specialist protectionist measures for th ...
Friday, 30 June 17
U.S. WEEKLY COAL OUTPUT SLIGHTLY DOWN
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totaled an estimated 15.6 million short tonn ...
Wednesday, 28 June 17
SHIPPING MARKET INSIGHT - TIMOS PAPADIMITRIOU
From the beginning of the year until now SnP activity has changed significantly. To put things into perspective, after a fast and furious q1 on the ...
Monday, 26 June 17
PANAMAX/KAMARMAXES HAD A STRONG WEEK WITH RATES RISING IN MOST AREAS OF THE MARKET - BALTICEXCHANGE
Capesize
A dark cloud appeared to have descended over the market for the big ships with rates continuing to slide in all areas. There was a repor ...
Friday, 23 June 17
U.S. WEEKLY COAL PRODUCTION TOTALED APPROXIMATELY 15.8 MMST; UP 1.8% W/W
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totaled an estimated 15.8 million short tonn ...
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Showing 2016 to 2020 news of total 6871 |
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- Kobexindo Tractors - Indoneisa
- Energy Link Ltd, New Zealand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- Renaissance Capital - South Africa
- Krishnapatnam Port Company Ltd. - India
- Chettinad Cement Corporation Ltd - India
- Banpu Public Company Limited - Thailand
- Pendopo Energi Batubara - Indonesia
- Thai Mozambique Logistica
- White Energy Company Limited
- Siam City Cement - Thailand
- Kartika Selabumi Mining - Indonesia
- Bhoruka Overseas - Indonesia
- Deloitte Consulting - India
- Economic Council, Georgia
- CNBM International Corporation - China
- Port Waratah Coal Services - Australia
- McConnell Dowell - Australia
- Marubeni Corporation - India
- Aboitiz Power Corporation - Philippines
- GVK Power & Infra Limited - India
- Salva Resources Pvt Ltd - India
- Eastern Coal Council - USA
- Bank of Tokyo Mitsubishi UFJ Ltd
- Asmin Koalindo Tuhup - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Agrawal Coal Company - India
- Pipit Mutiara Jaya. PT, Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kumho Petrochemical, South Korea
- Global Green Power PLC Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Siam City Cement PLC, Thailand
- Electricity Generating Authority of Thailand
- Leighton Contractors Pty Ltd - Australia
- Grasim Industreis Ltd - India
- Formosa Plastics Group - Taiwan
- Bahari Cakrawala Sebuku - Indonesia
- Kapuas Tunggal Persada - Indonesia
- CIMB Investment Bank - Malaysia
- Cement Manufacturers Association - India
- Savvy Resources Ltd - HongKong
- Larsen & Toubro Limited - India
- Bayan Resources Tbk. - Indonesia
- Commonwealth Bank - Australia
- Billiton Holdings Pty Ltd - Australia
- South Luzon Thermal Energy Corporation
- Antam Resourcindo - Indonesia
- Bhatia International Limited - India
- Vedanta Resources Plc - India
- Bukit Baiduri Energy - Indonesia
- Therma Luzon, Inc, Philippines
- Bangladesh Power Developement Board
- MS Steel International - UAE
- Central Electricity Authority - India
- Bukit Makmur.PT - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Coastal Gujarat Power Limited - India
- Meenaskhi Energy Private Limited - India
- Karaikal Port Pvt Ltd - India
- Australian Commodity Traders Exchange
- Baramulti Group, Indonesia
- Xindia Steels Limited - India
- Parry Sugars Refinery, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Directorate General of MIneral and Coal - Indonesia
- Gujarat Sidhee Cement - India
- The University of Queensland
- PNOC Exploration Corporation - Philippines
- Sical Logistics Limited - India
- Chamber of Mines of South Africa
- IHS Mccloskey Coal Group - USA
- Semirara Mining and Power Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Tamil Nadu electricity Board
- Iligan Light & Power Inc, Philippines
- Borneo Indobara - Indonesia
- Riau Bara Harum - Indonesia
- Anglo American - United Kingdom
- Simpson Spence & Young - Indonesia
- Interocean Group of Companies - India
- Wood Mackenzie - Singapore
- Tata Chemicals Ltd - India
- Indian Oil Corporation Limited
- Africa Commodities Group - South Africa
- Toyota Tsusho Corporation, Japan
- Uttam Galva Steels Limited - India
- Electricity Authority, New Zealand
- Mercator Lines Limited - India
- Maheswari Brothers Coal Limited - India
- European Bulk Services B.V. - Netherlands
- Thiess Contractors Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Lanco Infratech Ltd - India
- Standard Chartered Bank - UAE
- Sojitz Corporation - Japan
- Romanian Commodities Exchange
- Mercuria Energy - Indonesia
- Orica Mining Services - Indonesia
- Heidelberg Cement - Germany
- ASAPP Information Group - India
- GAC Shipping (India) Pvt Ltd
- Makarim & Taira - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Ministry of Mines - Canada
- Energy Development Corp, Philippines
- Miang Besar Coal Terminal - Indonesia
- Sindya Power Generating Company Private Ltd
- Bulk Trading Sa - Switzerland
- Ambuja Cements Ltd - India
- Global Coal Blending Company Limited - Australia
- Sarangani Energy Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Minerals Council of Australia
- The State Trading Corporation of India Ltd
- Posco Energy - South Korea
- Directorate Of Revenue Intelligence - India
- PetroVietnam Power Coal Import and Supply Company
- PTC India Limited - India
- London Commodity Brokers - England
- Indogreen Group - Indonesia
- Kaltim Prima Coal - Indonesia
- Jindal Steel & Power Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Edison Trading Spa - Italy
- Price Waterhouse Coopers - Russia
- Indonesian Coal Mining Association
- San Jose City I Power Corp, Philippines
- Timah Investasi Mineral - Indoneisa
- IEA Clean Coal Centre - UK
- Maharashtra Electricity Regulatory Commission - India
- Indian Energy Exchange, India
- Indika Energy - Indonesia
- Independent Power Producers Association of India
- Essar Steel Hazira Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Goldman Sachs - Singapore
- Australian Coal Association
- Altura Mining Limited, Indonesia
- Coal and Oil Company - UAE
- Carbofer General Trading SA - India
- Meralco Power Generation, Philippines
- Bhushan Steel Limited - India
- Georgia Ports Authority, United States
- Samtan Co., Ltd - South Korea
- Cigading International Bulk Terminal - Indonesia
- Barasentosa Lestari - Indonesia
- Gujarat Electricity Regulatory Commission - India
- New Zealand Coal & Carbon
- Bharathi Cement Corporation - India
- Binh Thuan Hamico - Vietnam
- ICICI Bank Limited - India
- TeaM Sual Corporation - Philippines
- Global Business Power Corporation, Philippines
- Rio Tinto Coal - Australia
- Central Java Power - Indonesia
- India Bulls Power Limited - India
- Attock Cement Pakistan Limited
- Ind-Barath Power Infra Limited - India
- Petron Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- PowerSource Philippines DevCo
- Intertek Mineral Services - Indonesia
- Oldendorff Carriers - Singapore
- Holcim Trading Pte Ltd - Singapore
- LBH Netherlands Bv - Netherlands
- Power Finance Corporation Ltd., India
- Madhucon Powers Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Manunggal Multi Energi - Indonesia
- Mintek Dendrill Indonesia
- Dalmia Cement Bharat India
- Indo Tambangraya Megah - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Trasteel International SA, Italy
- Sree Jayajothi Cements Limited - India
- Mjunction Services Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Coalindo Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Star Paper Mills Limited - India
- Orica Australia Pty. Ltd.
- Medco Energi Mining Internasional
- International Coal Ventures Pvt Ltd - India
- GMR Energy Limited - India
- Metalloyd Limited - United Kingdom
- Semirara Mining Corp, Philippines
- Latin American Coal - Colombia
- Kideco Jaya Agung - Indonesia
- Parliament of New Zealand
- Globalindo Alam Lestari - Indonesia
- Ministry of Finance - Indonesia
- SN Aboitiz Power Inc, Philippines
- Ministry of Transport, Egypt
- SMG Consultants - Indonesia
- The Treasury - Australian Government
- Jaiprakash Power Ventures ltd
- Sinarmas Energy and Mining - Indonesia
- Videocon Industries ltd - India
- Alfred C Toepfer International GmbH - Germany
- Aditya Birla Group - India
- Wilmar Investment Holdings
- Petrochimia International Co. Ltd.- Taiwan
- VISA Power Limited - India
- Merrill Lynch Commodities Europe
- Gujarat Mineral Development Corp Ltd - India
- Straits Asia Resources Limited - Singapore
- Singapore Mercantile Exchange
- Vijayanagar Sugar Pvt Ltd - India
- Malabar Cements Ltd - India
- Vizag Seaport Private Limited - India
- Eastern Energy - Thailand
- SMC Global Power, Philippines
- Planning Commission, India
- Sakthi Sugars Limited - India
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