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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, 21 June 17
MARKET INSIGHT - SHIPPING
Looking back at March and April shipping reports when the dry bulk indexes were starting to move up, a number of shipping analysts were stating tha ...
Tuesday, 20 June 17
WORLD ECONOMY SHOWS A MORE OPTIMISTIC TREND
During the past weeks, we have seen many organizations and think tanks show a more optimistic face with regards to the world economy. The World Ban ...
Monday, 19 June 17
PANAMAX RATES HELP BALTIC INDEX TO A POSITIVE MOVE
COALspot.com: The Freight market rose very marginally this past week compared to the previous week, as BDI and Panamax indexes show a positive tren ...
Friday, 16 June 17
WEEKLY U.S. COAL PRODUCTION RISES; UP 24.1% Y/Y
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totaled an estimated 15.5 million short tonn ...
Thursday, 15 June 17
SUPRAMAX NICKEL ORE FROM PHILIPPINES TO S. CHINA PAYING AROUND MID $10000 - FEARNLEYS
Supramax
Market looked more promising from both sides of the basins. Within Atlantic USG returned with tick better rates seen as tonnage kept tig ...
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Showing 2021 to 2025 news of total 6871 |
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- OPG Power Generation Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Madhucon Powers Ltd - India
- Sakthi Sugars Limited - India
- Rashtriya Ispat Nigam Limited - India
- Tata Chemicals Ltd - India
- Metalloyd Limited - United Kingdom
- Indian Oil Corporation Limited
- Latin American Coal - Colombia
- Mintek Dendrill Indonesia
- Rio Tinto Coal - Australia
- San Jose City I Power Corp, Philippines
- Electricity Authority, New Zealand
- Commonwealth Bank - Australia
- Romanian Commodities Exchange
- Parry Sugars Refinery, India
- Kideco Jaya Agung - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Grasim Industreis Ltd - India
- Timah Investasi Mineral - Indoneisa
- VISA Power Limited - India
- Ambuja Cements Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Baramulti Group, Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Central Electricity Authority - India
- Coal and Oil Company - UAE
- GAC Shipping (India) Pvt Ltd
- Global Green Power PLC Corporation, Philippines
- Deloitte Consulting - India
- Karbindo Abesyapradhi - Indoneisa
- Australian Coal Association
- Leighton Contractors Pty Ltd - Australia
- Neyveli Lignite Corporation Ltd, - India
- Sojitz Corporation - Japan
- Anglo American - United Kingdom
- Bukit Baiduri Energy - Indonesia
- Coastal Gujarat Power Limited - India
- Kohat Cement Company Ltd. - Pakistan
- GVK Power & Infra Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Goldman Sachs - Singapore
- GMR Energy Limited - India
- Bhatia International Limited - India
- Orica Mining Services - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- IHS Mccloskey Coal Group - USA
- Aditya Birla Group - India
- Wilmar Investment Holdings
- Minerals Council of Australia
- Xindia Steels Limited - India
- SMG Consultants - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Ministry of Transport, Egypt
- MS Steel International - UAE
- India Bulls Power Limited - India
- Independent Power Producers Association of India
- SN Aboitiz Power Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Energy Link Ltd, New Zealand
- Uttam Galva Steels Limited - India
- Altura Mining Limited, Indonesia
- Star Paper Mills Limited - India
- Directorate Of Revenue Intelligence - India
- Bukit Makmur.PT - Indonesia
- Meralco Power Generation, Philippines
- Samtan Co., Ltd - South Korea
- Gujarat Electricity Regulatory Commission - India
- Ceylon Electricity Board - Sri Lanka
- Orica Australia Pty. Ltd.
- Electricity Generating Authority of Thailand
- Mercator Lines Limited - India
- Jaiprakash Power Ventures ltd
- London Commodity Brokers - England
- Posco Energy - South Korea
- The State Trading Corporation of India Ltd
- Cigading International Bulk Terminal - Indonesia
- Marubeni Corporation - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ministry of Mines - Canada
- ICICI Bank Limited - India
- Sinarmas Energy and Mining - Indonesia
- Bulk Trading Sa - Switzerland
- Barasentosa Lestari - Indonesia
- Iligan Light & Power Inc, Philippines
- Petron Corporation, Philippines
- Port Waratah Coal Services - Australia
- Africa Commodities Group - South Africa
- LBH Netherlands Bv - Netherlands
- Directorate General of MIneral and Coal - Indonesia
- Wood Mackenzie - Singapore
- Antam Resourcindo - Indonesia
- Georgia Ports Authority, United States
- Energy Development Corp, Philippines
- Agrawal Coal Company - India
- Central Java Power - Indonesia
- CNBM International Corporation - China
- Bhoruka Overseas - Indonesia
- Planning Commission, India
- Aboitiz Power Corporation - Philippines
- Indogreen Group - Indonesia
- Meenaskhi Energy Private Limited - India
- Jindal Steel & Power Ltd - India
- SMC Global Power, Philippines
- Bharathi Cement Corporation - India
- Intertek Mineral Services - Indonesia
- Toyota Tsusho Corporation, Japan
- Formosa Plastics Group - Taiwan
- Vizag Seaport Private Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- McConnell Dowell - Australia
- Vedanta Resources Plc - India
- Sarangani Energy Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- Oldendorff Carriers - Singapore
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- Global Business Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Makarim & Taira - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Mercuria Energy - Indonesia
- Power Finance Corporation Ltd., India
- Indian Energy Exchange, India
- Eastern Coal Council - USA
- Kumho Petrochemical, South Korea
- Essar Steel Hazira Ltd - India
- ASAPP Information Group - India
- Manunggal Multi Energi - Indonesia
- Straits Asia Resources Limited - Singapore
- Carbofer General Trading SA - India
- Sindya Power Generating Company Private Ltd
- Thai Mozambique Logistica
- Semirara Mining and Power Corporation, Philippines
- Edison Trading Spa - Italy
- TeaM Sual Corporation - Philippines
- Kepco SPC Power Corporation, Philippines
- Siam City Cement PLC, Thailand
- Bayan Resources Tbk. - Indonesia
- Larsen & Toubro Limited - India
- Siam City Cement - Thailand
- Globalindo Alam Lestari - Indonesia
- Economic Council, Georgia
- PNOC Exploration Corporation - Philippines
- Simpson Spence & Young - Indonesia
- Malabar Cements Ltd - India
- Eastern Energy - Thailand
- Kalimantan Lumbung Energi - Indonesia
- Bangladesh Power Developement Board
- Renaissance Capital - South Africa
- PTC India Limited - India
- Australian Commodity Traders Exchange
- Interocean Group of Companies - India
- Medco Energi Mining Internasional
- New Zealand Coal & Carbon
- Jorong Barutama Greston.PT - Indonesia
- The University of Queensland
- Gujarat Sidhee Cement - India
- Maheswari Brothers Coal Limited - India
- Pendopo Energi Batubara - Indonesia
- Sical Logistics Limited - India
- Global Coal Blending Company Limited - Australia
- Miang Besar Coal Terminal - Indonesia
- Billiton Holdings Pty Ltd - Australia
- European Bulk Services B.V. - Netherlands
- Attock Cement Pakistan Limited
- Savvy Resources Ltd - HongKong
- Gujarat Mineral Development Corp Ltd - India
- Banpu Public Company Limited - Thailand
- Ministry of Finance - Indonesia
- PowerSource Philippines DevCo
- Borneo Indobara - Indonesia
- Bhushan Steel Limited - India
- Dalmia Cement Bharat India
- Thiess Contractors Indonesia
- Tamil Nadu electricity Board
- Indika Energy - Indonesia
- Semirara Mining Corp, Philippines
- Riau Bara Harum - Indonesia
- South Luzon Thermal Energy Corporation
- Coalindo Energy - Indonesia
- Mjunction Services Limited - India
- Alfred C Toepfer International GmbH - Germany
- International Coal Ventures Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Therma Luzon, Inc, Philippines
- Parliament of New Zealand
- TNB Fuel Sdn Bhd - Malaysia
- PetroVietnam Power Coal Import and Supply Company
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sree Jayajothi Cements Limited - India
- Indonesian Coal Mining Association
- Indo Tambangraya Megah - Indonesia
- Heidelberg Cement - Germany
- CIMB Investment Bank - Malaysia
- Merrill Lynch Commodities Europe
- Kapuas Tunggal Persada - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Chamber of Mines of South Africa
- Salva Resources Pvt Ltd - India
- Standard Chartered Bank - UAE
- Videocon Industries ltd - India
- IEA Clean Coal Centre - UK
- Singapore Mercantile Exchange
- Kobexindo Tractors - Indoneisa
- The Treasury - Australian Government
- Chettinad Cement Corporation Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Lanco Infratech Ltd - India
- White Energy Company Limited
- Cement Manufacturers Association - India
- Trasteel International SA, Italy
- Price Waterhouse Coopers - Russia
- Petrochimia International Co. Ltd.- Taiwan
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