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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, 07 June 17
INDO HBA INDEX SEE LARGEST DROP SINCE FEBRUARY 2017
COALspot.com: Indonesian coal benchmark price decline 9.96% in June, government data showed.
The benchmark price of Indonesian thermal coal de ...
Wednesday, 07 June 17
MARKET INSIGHT - PANOS MAKRINOS
2017 undoubtedly began with very optimistic signs for the future of the Oil & Gas industry on the back of the Vienna Agreement. OPEC and non-OP ...
Tuesday, 06 June 17
THE FREIGHT MARKET WAS CONTINUE TO TUMBLE THIS PAST WEEK
COALspot.com: The Freight market continued to tumble this past week, as BDI and cape index showed a negative trend week over week.
The Baltic ...
Friday, 02 June 17
THE WORLD COAL ASSOCIATION HAS RESPONDED TO THE WITHDRAWAL OF THE UNITED STATES FROM THE PARIS AGREEMENT
“This decision is the result of a failure to build a genuine coalition on climate action that recognises the role of all technologies, includ ...
Friday, 02 June 17
MOL SIGNS COAL TRANSPORT DEAL WITH THERMAL POWERTECH CORPORATION INDIA LIMITED
MOL Signs Coal Transport Deal with Thermal Powertech Corporation India Limited - Contributing to a Stable Power Supply in India -
Jun ...
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Showing 2031 to 2035 news of total 6871 |
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- SMC Global Power, Philippines
- LBH Netherlands Bv - Netherlands
- Iligan Light & Power Inc, Philippines
- Central Java Power - Indonesia
- Toyota Tsusho Corporation, Japan
- Anglo American - United Kingdom
- Bangladesh Power Developement Board
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kideco Jaya Agung - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Malabar Cements Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Videocon Industries ltd - India
- Parry Sugars Refinery, India
- Agrawal Coal Company - India
- Petron Corporation, Philippines
- Romanian Commodities Exchange
- TeaM Sual Corporation - Philippines
- Makarim & Taira - Indonesia
- Ind-Barath Power Infra Limited - India
- Metalloyd Limited - United Kingdom
- Maharashtra Electricity Regulatory Commission - India
- Gujarat Mineral Development Corp Ltd - India
- IHS Mccloskey Coal Group - USA
- Electricity Generating Authority of Thailand
- Krishnapatnam Port Company Ltd. - India
- SMG Consultants - Indonesia
- Therma Luzon, Inc, Philippines
- Indo Tambangraya Megah - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Gujarat Sidhee Cement - India
- Xindia Steels Limited - India
- Wood Mackenzie - Singapore
- Maheswari Brothers Coal Limited - India
- Bhatia International Limited - India
- India Bulls Power Limited - India
- Singapore Mercantile Exchange
- PNOC Exploration Corporation - Philippines
- Wilmar Investment Holdings
- Sojitz Corporation - Japan
- New Zealand Coal & Carbon
- Deloitte Consulting - India
- Energy Development Corp, Philippines
- Vedanta Resources Plc - India
- Vijayanagar Sugar Pvt Ltd - India
- Mjunction Services Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Altura Mining Limited, Indonesia
- White Energy Company Limited
- Petrochimia International Co. Ltd.- Taiwan
- Karaikal Port Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Power Finance Corporation Ltd., India
- Ministry of Transport, Egypt
- Indogreen Group - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Savvy Resources Ltd - HongKong
- Coal and Oil Company - UAE
- Siam City Cement - Thailand
- Rashtriya Ispat Nigam Limited - India
- Directorate General of MIneral and Coal - Indonesia
- The State Trading Corporation of India Ltd
- Edison Trading Spa - Italy
- Bharathi Cement Corporation - India
- Thiess Contractors Indonesia
- Pendopo Energi Batubara - Indonesia
- Marubeni Corporation - India
- Bukit Makmur.PT - Indonesia
- Mintek Dendrill Indonesia
- Attock Cement Pakistan Limited
- Semirara Mining and Power Corporation, Philippines
- Heidelberg Cement - Germany
- Ceylon Electricity Board - Sri Lanka
- Formosa Plastics Group - Taiwan
- Georgia Ports Authority, United States
- Riau Bara Harum - Indonesia
- London Commodity Brokers - England
- Kepco SPC Power Corporation, Philippines
- Tata Chemicals Ltd - India
- Antam Resourcindo - Indonesia
- Australian Commodity Traders Exchange
- Merrill Lynch Commodities Europe
- Coalindo Energy - Indonesia
- Intertek Mineral Services - Indonesia
- Eastern Coal Council - USA
- Sree Jayajothi Cements Limited - India
- Tamil Nadu electricity Board
- Jindal Steel & Power Ltd - India
- PowerSource Philippines DevCo
- Globalindo Alam Lestari - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Thai Mozambique Logistica
- Vizag Seaport Private Limited - India
- Cement Manufacturers Association - India
- Salva Resources Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Karbindo Abesyapradhi - Indoneisa
- Samtan Co., Ltd - South Korea
- Carbofer General Trading SA - India
- Kohat Cement Company Ltd. - Pakistan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Electricity Authority, New Zealand
- Standard Chartered Bank - UAE
- South Luzon Thermal Energy Corporation
- Offshore Bulk Terminal Pte Ltd, Singapore
- Economic Council, Georgia
- Africa Commodities Group - South Africa
- Parliament of New Zealand
- The University of Queensland
- Sical Logistics Limited - India
- Grasim Industreis Ltd - India
- Mercator Lines Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Bayan Resources Tbk. - Indonesia
- Banpu Public Company Limited - Thailand
- Simpson Spence & Young - Indonesia
- Global Business Power Corporation, Philippines
- Orica Mining Services - Indonesia
- Oldendorff Carriers - Singapore
- Latin American Coal - Colombia
- Global Coal Blending Company Limited - Australia
- GMR Energy Limited - India
- Energy Link Ltd, New Zealand
- Kapuas Tunggal Persada - Indonesia
- The Treasury - Australian Government
- TNB Fuel Sdn Bhd - Malaysia
- Sakthi Sugars Limited - India
- International Coal Ventures Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Posco Energy - South Korea
- Orica Australia Pty. Ltd.
- ICICI Bank Limited - India
- Kumho Petrochemical, South Korea
- Kalimantan Lumbung Energi - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Semirara Mining Corp, Philippines
- Ministry of Mines - Canada
- Directorate Of Revenue Intelligence - India
- Jaiprakash Power Ventures ltd
- Kartika Selabumi Mining - Indonesia
- Baramulti Group, Indonesia
- Uttam Galva Steels Limited - India
- Bulk Trading Sa - Switzerland
- Sarangani Energy Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Independent Power Producers Association of India
- Price Waterhouse Coopers - Russia
- Renaissance Capital - South Africa
- Larsen & Toubro Limited - India
- Indian Oil Corporation Limited
- Aboitiz Power Corporation - Philippines
- Timah Investasi Mineral - Indoneisa
- Sindya Power Generating Company Private Ltd
- VISA Power Limited - India
- McConnell Dowell - Australia
- Meenaskhi Energy Private Limited - India
- Borneo Indobara - Indonesia
- Sinarmas Energy and Mining - Indonesia
- ASAPP Information Group - India
- Alfred C Toepfer International GmbH - Germany
- Madhucon Powers Ltd - India
- GVK Power & Infra Limited - India
- Rio Tinto Coal - Australia
- MS Steel International - UAE
- Chettinad Cement Corporation Ltd - India
- Ministry of Finance - Indonesia
- Siam City Cement PLC, Thailand
- Asmin Koalindo Tuhup - Indonesia
- Goldman Sachs - Singapore
- Indika Energy - Indonesia
- Aditya Birla Group - India
- Bhushan Steel Limited - India
- Manunggal Multi Energi - Indonesia
- Dalmia Cement Bharat India
- Commonwealth Bank - Australia
- Barasentosa Lestari - Indonesia
- IEA Clean Coal Centre - UK
- Global Green Power PLC Corporation, Philippines
- Port Waratah Coal Services - Australia
- OPG Power Generation Pvt Ltd - India
- Lanco Infratech Ltd - India
- Bhoruka Overseas - Indonesia
- Medco Energi Mining Internasional
- San Jose City I Power Corp, Philippines
- Leighton Contractors Pty Ltd - Australia
- Star Paper Mills Limited - India
- Australian Coal Association
- CIMB Investment Bank - Malaysia
- Kobexindo Tractors - Indoneisa
- Minerals Council of Australia
- Kaltim Prima Coal - Indonesia
- Binh Thuan Hamico - Vietnam
- Interocean Group of Companies - India
- Meralco Power Generation, Philippines
- Eastern Energy - Thailand
- Gujarat Electricity Regulatory Commission - India
- Trasteel International SA, Italy
- Planning Commission, India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bahari Cakrawala Sebuku - Indonesia
- Ambuja Cements Ltd - India
- PTC India Limited - India
- Coastal Gujarat Power Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Indonesian Coal Mining Association
- Straits Asia Resources Limited - Singapore
- Central Electricity Authority - India
- Bukit Baiduri Energy - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- CNBM International Corporation - China
- Chamber of Mines of South Africa
- Indian Energy Exchange, India
- Mercuria Energy - Indonesia
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