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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, 02 June 17
U.S THE PAST WEEK'S COAL PRODUCTION ESTIMATE UP 4.4% - EIA
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totaled an estimated 15 million short tonnes ...
Wednesday, 31 May 17
MARKET INSIGHT - KONSTANTINOS KAKAVITSAS
In the next episode of the oil market; The market reacts to OPEC’s production cut extension, the US shale oil producers are ruining the carte ...
Tuesday, 30 May 17
MARKET ANALYSIS - GEORGE LAZARIDIS
Despite the fair performance that has been noted in the Chinese economy over the past 5 months, we have started to see an increase in the skepticis ...
Friday, 26 May 17
MOST COAL PLANTS IN THE UNITED STATES WERE BUILT BEFORE 1990 - EIA
Coal-fired electricity generators accounted for 25% of operating electricity generating capacity in the United States and generated about 30% of U. ...
Friday, 26 May 17
U.S WEEKLY COAL OUTPUT ESTIMATE UP 6.3% W/W
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totalled an estimated 14.3 million short ton ...
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Showing 2036 to 2040 news of total 6871 |
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- Karbindo Abesyapradhi - Indoneisa
- Ind-Barath Power Infra Limited - India
- Bhoruka Overseas - Indonesia
- Aboitiz Power Corporation - Philippines
- Coal and Oil Company - UAE
- Banpu Public Company Limited - Thailand
- Standard Chartered Bank - UAE
- Makarim & Taira - Indonesia
- Merrill Lynch Commodities Europe
- Straits Asia Resources Limited - Singapore
- Dalmia Cement Bharat India
- Rio Tinto Coal - Australia
- Planning Commission, India
- Cement Manufacturers Association - India
- Electricity Authority, New Zealand
- ICICI Bank Limited - India
- Grasim Industreis Ltd - India
- Mercator Lines Limited - India
- Mintek Dendrill Indonesia
- Parliament of New Zealand
- Sindya Power Generating Company Private Ltd
- Anglo American - United Kingdom
- Edison Trading Spa - Italy
- Gujarat Sidhee Cement - India
- Ministry of Finance - Indonesia
- Madhucon Powers Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Sinarmas Energy and Mining - Indonesia
- Trasteel International SA, Italy
- Pendopo Energi Batubara - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Aditya Birla Group - India
- Binh Thuan Hamico - Vietnam
- GVK Power & Infra Limited - India
- Bangladesh Power Developement Board
- Carbofer General Trading SA - India
- Asmin Koalindo Tuhup - Indonesia
- Romanian Commodities Exchange
- Formosa Plastics Group - Taiwan
- Indian Energy Exchange, India
- Oldendorff Carriers - Singapore
- Posco Energy - South Korea
- Vizag Seaport Private Limited - India
- Wood Mackenzie - Singapore
- Baramulti Group, Indonesia
- South Luzon Thermal Energy Corporation
- New Zealand Coal & Carbon
- Uttam Galva Steels Limited - India
- GAC Shipping (India) Pvt Ltd
- Kepco SPC Power Corporation, Philippines
- Ambuja Cements Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Latin American Coal - Colombia
- Kobexindo Tractors - Indoneisa
- Larsen & Toubro Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Singapore Mercantile Exchange
- Gujarat Mineral Development Corp Ltd - India
- Sree Jayajothi Cements Limited - India
- Miang Besar Coal Terminal - Indonesia
- OPG Power Generation Pvt Ltd - India
- London Commodity Brokers - England
- VISA Power Limited - India
- Global Coal Blending Company Limited - Australia
- Minerals Council of Australia
- Therma Luzon, Inc, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Bukit Baiduri Energy - Indonesia
- Electricity Generating Authority of Thailand
- Metalloyd Limited - United Kingdom
- Sakthi Sugars Limited - India
- TeaM Sual Corporation - Philippines
- Goldman Sachs - Singapore
- Savvy Resources Ltd - HongKong
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Georgia Ports Authority, United States
- Ceylon Electricity Board - Sri Lanka
- ASAPP Information Group - India
- PTC India Limited - India
- The State Trading Corporation of India Ltd
- Iligan Light & Power Inc, Philippines
- Essar Steel Hazira Ltd - India
- The University of Queensland
- India Bulls Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Barasentosa Lestari - Indonesia
- Billiton Holdings Pty Ltd - Australia
- White Energy Company Limited
- Lanco Infratech Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Agrawal Coal Company - India
- Attock Cement Pakistan Limited
- Sojitz Corporation - Japan
- Bhatia International Limited - India
- Kartika Selabumi Mining - Indonesia
- Eastern Coal Council - USA
- Chettinad Cement Corporation Ltd - India
- Global Green Power PLC Corporation, Philippines
- Samtan Co., Ltd - South Korea
- Neyveli Lignite Corporation Ltd, - India
- Vedanta Resources Plc - India
- Coalindo Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Semirara Mining Corp, Philippines
- Economic Council, Georgia
- Port Waratah Coal Services - Australia
- MS Steel International - UAE
- Ministry of Mines - Canada
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- CIMB Investment Bank - Malaysia
- Manunggal Multi Energi - Indonesia
- Altura Mining Limited, Indonesia
- Energy Link Ltd, New Zealand
- Medco Energi Mining Internasional
- Heidelberg Cement - Germany
- Commonwealth Bank - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Energy Development Corp, Philippines
- Price Waterhouse Coopers - Russia
- Antam Resourcindo - Indonesia
- The Treasury - Australian Government
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Meralco Power Generation, Philippines
- SMC Global Power, Philippines
- Bulk Trading Sa - Switzerland
- Australian Coal Association
- GN Power Mariveles Coal Plant, Philippines
- Chamber of Mines of South Africa
- Tamil Nadu electricity Board
- Kaltim Prima Coal - Indonesia
- Mercuria Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- PNOC Exploration Corporation - Philippines
- Renaissance Capital - South Africa
- Kumho Petrochemical, South Korea
- Sarangani Energy Corporation, Philippines
- Wilmar Investment Holdings
- Ministry of Transport, Egypt
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Central Java Power - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Jindal Steel & Power Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Siam City Cement - Thailand
- Australian Commodity Traders Exchange
- Indo Tambangraya Megah - Indonesia
- Marubeni Corporation - India
- PowerSource Philippines DevCo
- SMG Consultants - Indonesia
- Kideco Jaya Agung - Indonesia
- Deloitte Consulting - India
- Holcim Trading Pte Ltd - Singapore
- Simpson Spence & Young - Indonesia
- Bhushan Steel Limited - India
- Indika Energy - Indonesia
- Bharathi Cement Corporation - India
- Videocon Industries ltd - India
- Parry Sugars Refinery, India
- Central Electricity Authority - India
- Siam City Cement PLC, Thailand
- Maheswari Brothers Coal Limited - India
- Kapuas Tunggal Persada - Indonesia
- Orica Australia Pty. Ltd.
- Petron Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Indogreen Group - Indonesia
- Rashtriya Ispat Nigam Limited - India
- European Bulk Services B.V. - Netherlands
- Mjunction Services Limited - India
- Orica Mining Services - Indonesia
- Cigading International Bulk Terminal - Indonesia
- GMR Energy Limited - India
- Thai Mozambique Logistica
- Indian Oil Corporation Limited
- Leighton Contractors Pty Ltd - Australia
- Globalindo Alam Lestari - Indonesia
- Xindia Steels Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Riau Bara Harum - Indonesia
- Independent Power Producers Association of India
- Salva Resources Pvt Ltd - India
- Star Paper Mills Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Alfred C Toepfer International GmbH - Germany
- Bukit Makmur.PT - Indonesia
- Toyota Tsusho Corporation, Japan
- Karaikal Port Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- International Coal Ventures Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Borneo Indobara - Indonesia
- Interocean Group of Companies - India
- IHS Mccloskey Coal Group - USA
- Eastern Energy - Thailand
- LBH Netherlands Bv - Netherlands
- Malabar Cements Ltd - India
- Thiess Contractors Indonesia
- San Jose City I Power Corp, Philippines
- Indonesian Coal Mining Association
- Jorong Barutama Greston.PT - Indonesia
- Coastal Gujarat Power Limited - India
- Tata Chemicals Ltd - India
- Power Finance Corporation Ltd., India
- Global Business Power Corporation, Philippines
- McConnell Dowell - Australia
- Meenaskhi Energy Private Limited - India
- Sical Logistics Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Directorate Of Revenue Intelligence - India
- Africa Commodities Group - South Africa
- SN Aboitiz Power Inc, Philippines
- Jaiprakash Power Ventures ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- IEA Clean Coal Centre - UK
- CNBM International Corporation - China
- Bayan Resources Tbk. - Indonesia
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