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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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Thursday, 18 May 17
SOUTHEAST ASIA CAN ACCELERATE ACHIEVEMENT OF PARIS AGREEMENT GOALS - WCA
Low emissions coal in Asia reduces more CO2 emissions than renewable investment in Western Europe.
Investing in low emissions coal plants in S ...
Wednesday, 17 May 17
THE CHINESE IMPORTS ARE A BAROMETER FOR VESSEL UTILIZATION - INTERMODAL
According to economic data, China imports increased year-on-year 38% in February, 20% in March – which is approximately US$160-170b - w ...
Monday, 15 May 17
THE PORT OF NEWCASTLE HAS SHIPPED 0.99 PERCENT LESS COAL IN APRIL 2017
COALspot.com: The Port of Newcastle, Australia’s major trading ports, and the world’s largest coal export ports has shipped $AU 1,636.2 ...
Monday, 15 May 17
THE CAPESIZE INDEX ROSE SIGNIFICANTLY THIS PAST WEEK COMPARED TO PREVIOUS WEEK
COALspot.com: The Freight market slightly up this past week, as BDI and Cape shows a positive trend week over week.
The Baltic Exchange, track ...
Friday, 12 May 17
U.S. COAL PRODUCTION DOWN AGAIN WEEK OVER WEEK - EIA
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totaled an estimated 13.3 million short tons ...
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Showing 2046 to 2050 news of total 6871 |
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- IEA Clean Coal Centre - UK
- Bank of Tokyo Mitsubishi UFJ Ltd
- Global Coal Blending Company Limited - Australia
- Billiton Holdings Pty Ltd - Australia
- Anglo American - United Kingdom
- Sarangani Energy Corporation, Philippines
- Posco Energy - South Korea
- Tamil Nadu electricity Board
- Carbofer General Trading SA - India
- Thai Mozambique Logistica
- Jorong Barutama Greston.PT - Indonesia
- Electricity Authority, New Zealand
- Dalmia Cement Bharat India
- Rio Tinto Coal - Australia
- Miang Besar Coal Terminal - Indonesia
- Bukit Baiduri Energy - Indonesia
- Siam City Cement - Thailand
- Formosa Plastics Group - Taiwan
- Port Waratah Coal Services - Australia
- Global Business Power Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Chettinad Cement Corporation Ltd - India
- Antam Resourcindo - Indonesia
- Globalindo Alam Lestari - Indonesia
- Directorate Of Revenue Intelligence - India
- Goldman Sachs - Singapore
- Uttam Galva Steels Limited - India
- IHS Mccloskey Coal Group - USA
- Aditya Birla Group - India
- Oldendorff Carriers - Singapore
- The University of Queensland
- Star Paper Mills Limited - India
- Orica Mining Services - Indonesia
- Semirara Mining Corp, Philippines
- Savvy Resources Ltd - HongKong
- Central Java Power - Indonesia
- Parliament of New Zealand
- Ministry of Finance - Indonesia
- Altura Mining Limited, Indonesia
- Mintek Dendrill Indonesia
- LBH Netherlands Bv - Netherlands
- Straits Asia Resources Limited - Singapore
- Electricity Generating Authority of Thailand
- ICICI Bank Limited - India
- Georgia Ports Authority, United States
- Bhoruka Overseas - Indonesia
- South Luzon Thermal Energy Corporation
- Thiess Contractors Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Toyota Tsusho Corporation, Japan
- Binh Thuan Hamico - Vietnam
- PowerSource Philippines DevCo
- CNBM International Corporation - China
- Indian Energy Exchange, India
- Timah Investasi Mineral - Indoneisa
- Bahari Cakrawala Sebuku - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Medco Energi Mining Internasional
- Commonwealth Bank - Australia
- Essar Steel Hazira Ltd - India
- TeaM Sual Corporation - Philippines
- Coal and Oil Company - UAE
- Kartika Selabumi Mining - Indonesia
- SN Aboitiz Power Inc, Philippines
- Parry Sugars Refinery, India
- SMG Consultants - Indonesia
- White Energy Company Limited
- Attock Cement Pakistan Limited
- Madhucon Powers Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Heidelberg Cement - Germany
- Indo Tambangraya Megah - Indonesia
- Sakthi Sugars Limited - India
- Indogreen Group - Indonesia
- Malabar Cements Ltd - India
- Mercuria Energy - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Chamber of Mines of South Africa
- ASAPP Information Group - India
- Economic Council, Georgia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Singapore Mercantile Exchange
- Pendopo Energi Batubara - Indonesia
- Bharathi Cement Corporation - India
- San Jose City I Power Corp, Philippines
- CIMB Investment Bank - Malaysia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Coalindo Energy - Indonesia
- Minerals Council of Australia
- Bangladesh Power Developement Board
- Samtan Co., Ltd - South Korea
- Indika Energy - Indonesia
- VISA Power Limited - India
- GAC Shipping (India) Pvt Ltd
- Krishnapatnam Port Company Ltd. - India
- Planning Commission, India
- Ind-Barath Power Infra Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Grasim Industreis Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Australian Commodity Traders Exchange
- Lanco Infratech Ltd - India
- Salva Resources Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Eastern Coal Council - USA
- Kaltim Prima Coal - Indonesia
- Wood Mackenzie - Singapore
- Iligan Light & Power Inc, Philippines
- Independent Power Producers Association of India
- Kohat Cement Company Ltd. - Pakistan
- European Bulk Services B.V. - Netherlands
- Bulk Trading Sa - Switzerland
- Gujarat Sidhee Cement - India
- Indonesian Coal Mining Association
- Bhatia International Limited - India
- Sojitz Corporation - Japan
- Renaissance Capital - South Africa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Larsen & Toubro Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Standard Chartered Bank - UAE
- Tata Chemicals Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Baramulti Group, Indonesia
- Central Electricity Authority - India
- AsiaOL BioFuels Corp., Philippines
- Agrawal Coal Company - India
- Kepco SPC Power Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Cigading International Bulk Terminal - Indonesia
- Bayan Resources Tbk. - Indonesia
- London Commodity Brokers - England
- Jaiprakash Power Ventures ltd
- Alfred C Toepfer International GmbH - Germany
- Meralco Power Generation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Sindya Power Generating Company Private Ltd
- Holcim Trading Pte Ltd - Singapore
- Neyveli Lignite Corporation Ltd, - India
- Metalloyd Limited - United Kingdom
- International Coal Ventures Pvt Ltd - India
- Bhushan Steel Limited - India
- Price Waterhouse Coopers - Russia
- Siam City Cement PLC, Thailand
- Africa Commodities Group - South Africa
- Maheswari Brothers Coal Limited - India
- The State Trading Corporation of India Ltd
- Petron Corporation, Philippines
- Mercator Lines Limited - India
- Ministry of Transport, Egypt
- Makarim & Taira - Indonesia
- Barasentosa Lestari - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Eastern Energy - Thailand
- SMC Global Power, Philippines
- Simpson Spence & Young - Indonesia
- OPG Power Generation Pvt Ltd - India
- PTC India Limited - India
- Kobexindo Tractors - Indoneisa
- Latin American Coal - Colombia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Marubeni Corporation - India
- Borneo Indobara - Indonesia
- India Bulls Power Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Australian Coal Association
- Kideco Jaya Agung - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Mjunction Services Limited - India
- Cement Manufacturers Association - India
- GVK Power & Infra Limited - India
- Bukit Makmur.PT - Indonesia
- Manunggal Multi Energi - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Orica Australia Pty. Ltd.
- Gujarat Electricity Regulatory Commission - India
- MS Steel International - UAE
- Kumho Petrochemical, South Korea
- Aboitiz Power Corporation - Philippines
- Ministry of Mines - Canada
- GMR Energy Limited - India
- New Zealand Coal & Carbon
- Energy Link Ltd, New Zealand
- Merrill Lynch Commodities Europe
- Global Green Power PLC Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Xindia Steels Limited - India
- Interocean Group of Companies - India
- Banpu Public Company Limited - Thailand
- Energy Development Corp, Philippines
- The Treasury - Australian Government
- Vedanta Resources Plc - India
- Romanian Commodities Exchange
- Ambuja Cements Ltd - India
- McConnell Dowell - Australia
- Meenaskhi Energy Private Limited - India
- Jindal Steel & Power Ltd - India
- Trasteel International SA, Italy
- Deloitte Consulting - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Riau Bara Harum - Indonesia
- Indian Oil Corporation Limited
- Edison Trading Spa - Italy
- Wilmar Investment Holdings
- Coastal Gujarat Power Limited - India
- PNOC Exploration Corporation - Philippines
- Karaikal Port Pvt Ltd - India
- Sical Logistics Limited - India
- Sree Jayajothi Cements Limited - India
- Intertek Mineral Services - Indonesia
- Power Finance Corporation Ltd., India
- Vizag Seaport Private Limited - India
- Therma Luzon, Inc, Philippines
- Ceylon Electricity Board - Sri Lanka
- Videocon Industries ltd - India
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