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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, 12 May 17
SLOW AND UNEVENTFUL WEEK FOR THE PANAMAX MARKET
Supramax
In the Atlantic, only USG were showing some improvement, where pet-coke cargoes to India was fixed in the range of 19-23k daily and to C ...
Wednesday, 10 May 17
MARKET INSIGHT - INTERMODAL
Up until a few weeks ago, demo deals were being concluded at just a fraction below $400/ldt. Last time we saw demo prices around that level was in ...
Tuesday, 09 May 17
DRY BULK TRADE IS STILL HEAVILY RELIANT ON CHINA - GEORGE LAZARIDIS
We have seen an overall cool down in the dry bulk and tanker markets over the final two weeks of April, sparking worries amongst ship-owners that t ...
Monday, 08 May 17
INDONESIAN COAL PRICE REFERENCE RISES FOR SECOND STRAIGHT MONTH IN MAY
COALspot.com: Indonesian government declared coal benchmark price rose in May, government data showed.
The benchmark price of Indonesian therm ...
Monday, 08 May 17
OCEAN BULK CARGO RATES FALL FURTHER THIS PAST WEEK
COALspot.com: The Freight market continues to slump this past week, with all segments show a negative downward trend week over week.
The Balti ...
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- Videocon Industries ltd - India
- Global Green Power PLC Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- San Jose City I Power Corp, Philippines
- Port Waratah Coal Services - Australia
- Savvy Resources Ltd - HongKong
- Singapore Mercantile Exchange
- Karaikal Port Pvt Ltd - India
- Georgia Ports Authority, United States
- Bhushan Steel Limited - India
- Attock Cement Pakistan Limited
- New Zealand Coal & Carbon
- Maheswari Brothers Coal Limited - India
- Ministry of Transport, Egypt
- Kepco SPC Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Indonesian Coal Mining Association
- Ind-Barath Power Infra Limited - India
- Ambuja Cements Ltd - India
- GAC Shipping (India) Pvt Ltd
- Straits Asia Resources Limited - Singapore
- Asmin Koalindo Tuhup - Indonesia
- Energy Link Ltd, New Zealand
- Kobexindo Tractors - Indoneisa
- Minerals Council of Australia
- Formosa Plastics Group - Taiwan
- Kalimantan Lumbung Energi - Indonesia
- Deloitte Consulting - India
- Bukit Makmur.PT - Indonesia
- Tamil Nadu electricity Board
- Krishnapatnam Port Company Ltd. - India
- Bharathi Cement Corporation - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Simpson Spence & Young - Indonesia
- CIMB Investment Bank - Malaysia
- Independent Power Producers Association of India
- Sree Jayajothi Cements Limited - India
- Price Waterhouse Coopers - Russia
- Africa Commodities Group - South Africa
- Aditya Birla Group - India
- Anglo American - United Kingdom
- Toyota Tsusho Corporation, Japan
- Eastern Energy - Thailand
- PowerSource Philippines DevCo
- IHS Mccloskey Coal Group - USA
- Merrill Lynch Commodities Europe
- Jaiprakash Power Ventures ltd
- Wood Mackenzie - Singapore
- Planning Commission, India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SMG Consultants - Indonesia
- Indian Oil Corporation Limited
- The State Trading Corporation of India Ltd
- Thiess Contractors Indonesia
- Gujarat Electricity Regulatory Commission - India
- Medco Energi Mining Internasional
- South Luzon Thermal Energy Corporation
- Bank of Tokyo Mitsubishi UFJ Ltd
- Semirara Mining and Power Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Riau Bara Harum - Indonesia
- Pendopo Energi Batubara - Indonesia
- TeaM Sual Corporation - Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GMR Energy Limited - India
- Energy Development Corp, Philippines
- Global Business Power Corporation, Philippines
- McConnell Dowell - Australia
- Cement Manufacturers Association - India
- Agrawal Coal Company - India
- PetroVietnam Power Coal Import and Supply Company
- Holcim Trading Pte Ltd - Singapore
- Jindal Steel & Power Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Semirara Mining Corp, Philippines
- Mintek Dendrill Indonesia
- Vedanta Resources Plc - India
- Cigading International Bulk Terminal - Indonesia
- Directorate Of Revenue Intelligence - India
- Maharashtra Electricity Regulatory Commission - India
- Therma Luzon, Inc, Philippines
- Power Finance Corporation Ltd., India
- Metalloyd Limited - United Kingdom
- Ministry of Finance - Indonesia
- Baramulti Group, Indonesia
- Economic Council, Georgia
- Bukit Asam (Persero) Tbk - Indonesia
- Mercator Lines Limited - India
- Siam City Cement PLC, Thailand
- Timah Investasi Mineral - Indoneisa
- Vizag Seaport Private Limited - India
- Gujarat Sidhee Cement - India
- Indogreen Group - Indonesia
- Sakthi Sugars Limited - India
- Coal and Oil Company - UAE
- Indian Energy Exchange, India
- Salva Resources Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- Bhatia International Limited - India
- Miang Besar Coal Terminal - Indonesia
- Madhucon Powers Ltd - India
- Intertek Mineral Services - Indonesia
- Mercuria Energy - Indonesia
- Chamber of Mines of South Africa
- Sical Logistics Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Essar Steel Hazira Ltd - India
- SMC Global Power, Philippines
- Standard Chartered Bank - UAE
- LBH Netherlands Bv - Netherlands
- TNB Fuel Sdn Bhd - Malaysia
- Renaissance Capital - South Africa
- The Treasury - Australian Government
- Binh Thuan Hamico - Vietnam
- Malabar Cements Ltd - India
- Lanco Infratech Ltd - India
- Trasteel International SA, Italy
- Interocean Group of Companies - India
- ASAPP Information Group - India
- Chettinad Cement Corporation Ltd - India
- Indika Energy - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Bukit Baiduri Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Electricity Authority, New Zealand
- International Coal Ventures Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Xindia Steels Limited - India
- Rashtriya Ispat Nigam Limited - India
- Kaltim Prima Coal - Indonesia
- Sojitz Corporation - Japan
- Larsen & Toubro Limited - India
- PNOC Exploration Corporation - Philippines
- Tata Chemicals Ltd - India
- Ministry of Mines - Canada
- Antam Resourcindo - Indonesia
- Central Java Power - Indonesia
- CNBM International Corporation - China
- Wilmar Investment Holdings
- Parry Sugars Refinery, India
- Edison Trading Spa - Italy
- Meralco Power Generation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Samtan Co., Ltd - South Korea
- GVK Power & Infra Limited - India
- Rio Tinto Coal - Australia
- Leighton Contractors Pty Ltd - Australia
- Thai Mozambique Logistica
- PTC India Limited - India
- Eastern Coal Council - USA
- Orica Mining Services - Indonesia
- Banpu Public Company Limited - Thailand
- Posco Energy - South Korea
- Star Paper Mills Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- The University of Queensland
- Heidelberg Cement - Germany
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bulk Trading Sa - Switzerland
- Manunggal Multi Energi - Indonesia
- Romanian Commodities Exchange
- OPG Power Generation Pvt Ltd - India
- Petron Corporation, Philippines
- IEA Clean Coal Centre - UK
- Kapuas Tunggal Persada - Indonesia
- White Energy Company Limited
- Siam City Cement - Thailand
- Karbindo Abesyapradhi - Indoneisa
- GN Power Mariveles Coal Plant, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Iligan Light & Power Inc, Philippines
- Directorate General of MIneral and Coal - Indonesia
- European Bulk Services B.V. - Netherlands
- Commonwealth Bank - Australia
- Parliament of New Zealand
- Coastal Gujarat Power Limited - India
- ICICI Bank Limited - India
- Sindya Power Generating Company Private Ltd
- Alfred C Toepfer International GmbH - Germany
- SN Aboitiz Power Inc, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Sinarmas Energy and Mining - Indonesia
- Grasim Industreis Ltd - India
- Latin American Coal - Colombia
- Central Electricity Authority - India
- Sarangani Energy Corporation, Philippines
- Bhoruka Overseas - Indonesia
- VISA Power Limited - India
- Kumho Petrochemical, South Korea
- Meenaskhi Energy Private Limited - India
- Kartika Selabumi Mining - Indonesia
- Bangladesh Power Developement Board
- Kohat Cement Company Ltd. - Pakistan
- Aboitiz Power Corporation - Philippines
- Goldman Sachs - Singapore
- Indo Tambangraya Megah - Indonesia
- Carbofer General Trading SA - India
- Kideco Jaya Agung - Indonesia
- Ceylon Electricity Board - Sri Lanka
- AsiaOL BioFuels Corp., Philippines
- Borneo Indobara - Indonesia
- Electricity Generating Authority of Thailand
- Makarim & Taira - Indonesia
- Uttam Galva Steels Limited - India
- Dalmia Cement Bharat India
- Mjunction Services Limited - India
- Australian Coal Association
- India Bulls Power Limited - India
- Globalindo Alam Lestari - Indonesia
- Orica Australia Pty. Ltd.
- Australian Commodity Traders Exchange
- Marubeni Corporation - India
- London Commodity Brokers - England
- Coalindo Energy - Indonesia
- MS Steel International - UAE
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