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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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Tuesday, 10 February 15
IRON ORE MARKET TO REMAIN OVERSUPPLIED IN 2015: PRICE FORECAST $70/T - WOOD MACKENZIE
COALspot.com: With January witnessing the price of iron ore falling to its lowest levels since May 2009, Roger Emslie, Principal Metals & ...
Tuesday, 10 February 15
SUB-BIT FOB INDONESIA COAL SWAP ADVANCES 3.79% WEEK ON WEEK
COALspot.com: Indonesian coal swaps for delivery Q2' 2015 rose week over week and month on month.
The Q2 swap up US$ 0.85 (+1.81%) month o ...
Tuesday, 10 February 15
FOB NEWCASTLE COAL SWAPS SURGE WEEK OVER WEEK, RAISING HOPES?
COALspot.com: API 5 FOB Newcastle Coal swap for Q2’ 2015 delivery rose US$ 0.95 per MT (+1.91%) week over week and declined US$ 0.06 (-0.12%) ...
Monday, 09 February 15
AUSTRALIAN COAL PRODUCERS BEST POSITIONED IN OVERSUPPLIED MARKET; US MINES MOST AT RISK - WOOD MACKENZIE
In a 2015 global coal outlook report, Wood Mackenzie says that Australia and Indonesian coal suppliers will see some upside in the difficult months ...
Monday, 09 February 15
FOB RICHARDS BAY COAL SWAP GAINS 3.65% TO ONE-MONTH HIGH
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q2' 2015 surge month over month and day on day.
The Q2 swap has soared US$ 2.1 ...
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Showing 3206 to 3210 news of total 6871 |
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- Baramulti Group, Indonesia
- IHS Mccloskey Coal Group - USA
- Bhoruka Overseas - Indonesia
- Oldendorff Carriers - Singapore
- Indika Energy - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Siam City Cement PLC, Thailand
- Electricity Authority, New Zealand
- Antam Resourcindo - Indonesia
- Bangladesh Power Developement Board
- Chettinad Cement Corporation Ltd - India
- Indonesian Coal Mining Association
- Thiess Contractors Indonesia
- Simpson Spence & Young - Indonesia
- Energy Link Ltd, New Zealand
- ICICI Bank Limited - India
- GAC Shipping (India) Pvt Ltd
- Africa Commodities Group - South Africa
- Maheswari Brothers Coal Limited - India
- Ind-Barath Power Infra Limited - India
- Agrawal Coal Company - India
- Sree Jayajothi Cements Limited - India
- Formosa Plastics Group - Taiwan
- ASAPP Information Group - India
- Carbofer General Trading SA - India
- International Coal Ventures Pvt Ltd - India
- Anglo American - United Kingdom
- San Jose City I Power Corp, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Commonwealth Bank - Australia
- Central Electricity Authority - India
- Interocean Group of Companies - India
- Lanco Infratech Ltd - India
- Thai Mozambique Logistica
- Semirara Mining and Power Corporation, Philippines
- Parry Sugars Refinery, India
- Georgia Ports Authority, United States
- Videocon Industries ltd - India
- Cement Manufacturers Association - India
- Ministry of Finance - Indonesia
- MS Steel International - UAE
- Ministry of Transport, Egypt
- LBH Netherlands Bv - Netherlands
- Mercator Lines Limited - India
- Bukit Baiduri Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- Orica Australia Pty. Ltd.
- Vijayanagar Sugar Pvt Ltd - India
- Trasteel International SA, Italy
- Aboitiz Power Corporation - Philippines
- Binh Thuan Hamico - Vietnam
- Indian Oil Corporation Limited
- Price Waterhouse Coopers - Russia
- Port Waratah Coal Services - Australia
- OPG Power Generation Pvt Ltd - India
- London Commodity Brokers - England
- Intertek Mineral Services - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Ambuja Cements Ltd - India
- Borneo Indobara - Indonesia
- GVK Power & Infra Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Uttam Galva Steels Limited - India
- Xindia Steels Limited - India
- Kumho Petrochemical, South Korea
- New Zealand Coal & Carbon
- Billiton Holdings Pty Ltd - Australia
- PowerSource Philippines DevCo
- European Bulk Services B.V. - Netherlands
- Savvy Resources Ltd - HongKong
- Directorate Of Revenue Intelligence - India
- White Energy Company Limited
- Malabar Cements Ltd - India
- Kaltim Prima Coal - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Straits Asia Resources Limited - Singapore
- Global Coal Blending Company Limited - Australia
- Edison Trading Spa - Italy
- CNBM International Corporation - China
- Minerals Council of Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Leighton Contractors Pty Ltd - Australia
- Semirara Mining Corp, Philippines
- Sindya Power Generating Company Private Ltd
- The Treasury - Australian Government
- Miang Besar Coal Terminal - Indonesia
- Economic Council, Georgia
- Wilmar Investment Holdings
- Maharashtra Electricity Regulatory Commission - India
- Vedanta Resources Plc - India
- Bhatia International Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Deloitte Consulting - India
- Independent Power Producers Association of India
- Tamil Nadu electricity Board
- PTC India Limited - India
- India Bulls Power Limited - India
- Meenaskhi Energy Private Limited - India
- CIMB Investment Bank - Malaysia
- Marubeni Corporation - India
- PetroVietnam Power Coal Import and Supply Company
- Latin American Coal - Colombia
- Coal and Oil Company - UAE
- Manunggal Multi Energi - Indonesia
- Globalindo Alam Lestari - Indonesia
- Mercuria Energy - Indonesia
- Therma Luzon, Inc, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Larsen & Toubro Limited - India
- Renaissance Capital - South Africa
- Chamber of Mines of South Africa
- Cigading International Bulk Terminal - Indonesia
- Coastal Gujarat Power Limited - India
- McConnell Dowell - Australia
- Sojitz Corporation - Japan
- Gujarat Electricity Regulatory Commission - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Timah Investasi Mineral - Indoneisa
- Karaikal Port Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Power Finance Corporation Ltd., India
- Indogreen Group - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Australian Commodity Traders Exchange
- Orica Mining Services - Indonesia
- Banpu Public Company Limited - Thailand
- TNB Fuel Sdn Bhd - Malaysia
- Kalimantan Lumbung Energi - Indonesia
- Indian Energy Exchange, India
- Australian Coal Association
- The University of Queensland
- GMR Energy Limited - India
- South Luzon Thermal Energy Corporation
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Krishnapatnam Port Company Ltd. - India
- Rashtriya Ispat Nigam Limited - India
- Posco Energy - South Korea
- Energy Development Corp, Philippines
- Sakthi Sugars Limited - India
- Siam City Cement - Thailand
- Singapore Mercantile Exchange
- Kepco SPC Power Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- SN Aboitiz Power Inc, Philippines
- Samtan Co., Ltd - South Korea
- PNOC Exploration Corporation - Philippines
- AsiaOL BioFuels Corp., Philippines
- VISA Power Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Dalmia Cement Bharat India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Goldman Sachs - Singapore
- Madhucon Powers Ltd - India
- Coalindo Energy - Indonesia
- Kideco Jaya Agung - Indonesia
- Bharathi Cement Corporation - India
- Indo Tambangraya Megah - Indonesia
- Global Business Power Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Parliament of New Zealand
- Asmin Koalindo Tuhup - Indonesia
- Tata Chemicals Ltd - India
- Bulk Trading Sa - Switzerland
- Bukit Asam (Persero) Tbk - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Attock Cement Pakistan Limited
- Jaiprakash Power Ventures ltd
- SMC Global Power, Philippines
- Aditya Birla Group - India
- Sarangani Energy Corporation, Philippines
- Gujarat Sidhee Cement - India
- Bhushan Steel Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Petron Corporation, Philippines
- Rio Tinto Coal - Australia
- Sical Logistics Limited - India
- Star Paper Mills Limited - India
- Vizag Seaport Private Limited - India
- Mintek Dendrill Indonesia
- Medco Energi Mining Internasional
- IEA Clean Coal Centre - UK
- Sinarmas Energy and Mining - Indonesia
- Eastern Energy - Thailand
- TeaM Sual Corporation - Philippines
- Ceylon Electricity Board - Sri Lanka
- Grasim Industreis Ltd - India
- Jindal Steel & Power Ltd - India
- Planning Commission, India
- Electricity Generating Authority of Thailand
- Riau Bara Harum - Indonesia
- Toyota Tsusho Corporation, Japan
- Mjunction Services Limited - India
- Metalloyd Limited - United Kingdom
- Salva Resources Pvt Ltd - India
- Standard Chartered Bank - UAE
- Bayan Resources Tbk. - Indonesia
- Ministry of Mines - Canada
- Kapuas Tunggal Persada - Indonesia
- Makarim & Taira - Indonesia
- The State Trading Corporation of India Ltd
- Barasentosa Lestari - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Heidelberg Cement - Germany
- Wood Mackenzie - Singapore
- Meralco Power Generation, Philippines
- SMG Consultants - Indonesia
- Altura Mining Limited, Indonesia
- Eastern Coal Council - USA
- Holcim Trading Pte Ltd - Singapore
- Central Java Power - Indonesia
- Global Green Power PLC Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Merrill Lynch Commodities Europe
- Essar Steel Hazira Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Romanian Commodities Exchange
- Pendopo Energi Batubara - Indonesia
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