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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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Monday, 02 February 15
INDONESIA'S ADARO ENERGY PRODUCED 56.21 MILLION TONNES OF COAL IN 2014; UP 8% Y-O-Y
COALspot.com: PT. Adaro Energy, Indonesia’s largest coal producer, has increased coal production by 8% to 56.21 million tonnes (Mt) from both ...
Monday, 02 February 15
API 8 CFR SOUTH CHINA COAL SWAP PICKS UP W-O-W
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery declined US$ 0.81 (-1.36%) per MT month over month and gained US$ 0.18&nb ...
Monday, 02 February 15
SOUTH KOREA'S KOMIPO INVITES BIDS FOR 280K MT OF SUB-BITUMINOUS COAL
COALspot.com: South Korean state-owned utility Korea Midland Power (KOMIPO) issued an new tender to buy total 280,000 MT of Sub-bituminous coal coa ...
Sunday, 01 February 15
INDONESIA-TO-INDIA COAL FREIGHT RATES REMAIN WEAK NEXT WEEK
COALspot.com: The BDI continued its fall reached lowest levels since 1986 this week.
The BDI declined 15.55 pct to 608 points on Friday 30, Ja ...
Friday, 30 January 15
U.S. YEAR-TO-DATE COAL PRODUCTION REACHED 65.7 MMST
COALspot.com – United States the world's one of the largest coal producers, produced approximately 19.9 million short tons (mmst) of coal ...
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- Baramulti Group, Indonesia
- Timah Investasi Mineral - Indoneisa
- Bulk Trading Sa - Switzerland
- Rio Tinto Coal - Australia
- Larsen & Toubro Limited - India
- Siam City Cement PLC, Thailand
- MS Steel International - UAE
- Anglo American - United Kingdom
- PetroVietnam Power Coal Import and Supply Company
- Directorate General of MIneral and Coal - Indonesia
- Kumho Petrochemical, South Korea
- Global Coal Blending Company Limited - Australia
- Vizag Seaport Private Limited - India
- Wilmar Investment Holdings
- Aditya Birla Group - India
- Savvy Resources Ltd - HongKong
- Kideco Jaya Agung - Indonesia
- AsiaOL BioFuels Corp., Philippines
- International Coal Ventures Pvt Ltd - India
- Xindia Steels Limited - India
- Antam Resourcindo - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Petron Corporation, Philippines
- Siam City Cement - Thailand
- Attock Cement Pakistan Limited
- Oldendorff Carriers - Singapore
- Chettinad Cement Corporation Ltd - India
- CIMB Investment Bank - Malaysia
- Indo Tambangraya Megah - Indonesia
- Medco Energi Mining Internasional
- GAC Shipping (India) Pvt Ltd
- Leighton Contractors Pty Ltd - Australia
- Straits Asia Resources Limited - Singapore
- Energy Development Corp, Philippines
- Global Green Power PLC Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Grasim Industreis Ltd - India
- Interocean Group of Companies - India
- Latin American Coal - Colombia
- Africa Commodities Group - South Africa
- Dalmia Cement Bharat India
- The State Trading Corporation of India Ltd
- Kobexindo Tractors - Indoneisa
- CNBM International Corporation - China
- Australian Commodity Traders Exchange
- Minerals Council of Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Essar Steel Hazira Ltd - India
- Edison Trading Spa - Italy
- Asia Pacific Energy Resources Ventures Inc, Philippines
- GMR Energy Limited - India
- Iligan Light & Power Inc, Philippines
- Trasteel International SA, Italy
- Riau Bara Harum - Indonesia
- LBH Netherlands Bv - Netherlands
- Indian Energy Exchange, India
- Sical Logistics Limited - India
- McConnell Dowell - Australia
- Malabar Cements Ltd - India
- Meralco Power Generation, Philippines
- Sakthi Sugars Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Madhucon Powers Ltd - India
- Power Finance Corporation Ltd., India
- Thai Mozambique Logistica
- Kapuas Tunggal Persada - Indonesia
- ICICI Bank Limited - India
- European Bulk Services B.V. - Netherlands
- Mercuria Energy - Indonesia
- Globalindo Alam Lestari - Indonesia
- Barasentosa Lestari - Indonesia
- Gujarat Sidhee Cement - India
- Bhushan Steel Limited - India
- Altura Mining Limited, Indonesia
- Indian Oil Corporation Limited
- Rashtriya Ispat Nigam Limited - India
- Tamil Nadu electricity Board
- GVK Power & Infra Limited - India
- Ministry of Transport, Egypt
- PowerSource Philippines DevCo
- Kalimantan Lumbung Energi - Indonesia
- Mercator Lines Limited - India
- Goldman Sachs - Singapore
- Formosa Plastics Group - Taiwan
- Bhoruka Overseas - Indonesia
- Maheswari Brothers Coal Limited - India
- Sree Jayajothi Cements Limited - India
- Vedanta Resources Plc - India
- Gujarat Electricity Regulatory Commission - India
- Singapore Mercantile Exchange
- Meenaskhi Energy Private Limited - India
- Manunggal Multi Energi - Indonesia
- Deloitte Consulting - India
- Karbindo Abesyapradhi - Indoneisa
- Sojitz Corporation - Japan
- Directorate Of Revenue Intelligence - India
- Bukit Asam (Persero) Tbk - Indonesia
- Indogreen Group - Indonesia
- New Zealand Coal & Carbon
- Billiton Holdings Pty Ltd - Australia
- Borneo Indobara - Indonesia
- SN Aboitiz Power Inc, Philippines
- Orica Mining Services - Indonesia
- Metalloyd Limited - United Kingdom
- Asmin Koalindo Tuhup - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Miang Besar Coal Terminal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Central Java Power - Indonesia
- Central Electricity Authority - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Merrill Lynch Commodities Europe
- Makarim & Taira - Indonesia
- Wood Mackenzie - Singapore
- IEA Clean Coal Centre - UK
- PNOC Exploration Corporation - Philippines
- Kartika Selabumi Mining - Indonesia
- Carbofer General Trading SA - India
- Toyota Tsusho Corporation, Japan
- Ceylon Electricity Board - Sri Lanka
- Cigading International Bulk Terminal - Indonesia
- Samtan Co., Ltd - South Korea
- Thiess Contractors Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Binh Thuan Hamico - Vietnam
- Therma Luzon, Inc, Philippines
- Indonesian Coal Mining Association
- Commonwealth Bank - Australia
- Aboitiz Power Corporation - Philippines
- Chamber of Mines of South Africa
- GN Power Mariveles Coal Plant, Philippines
- Standard Chartered Bank - UAE
- Jaiprakash Power Ventures ltd
- Independent Power Producers Association of India
- Star Paper Mills Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Bayan Resources Tbk. - Indonesia
- Mjunction Services Limited - India
- IHS Mccloskey Coal Group - USA
- India Bulls Power Limited - India
- Lanco Infratech Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Coal and Oil Company - UAE
- Videocon Industries ltd - India
- Cement Manufacturers Association - India
- Orica Australia Pty. Ltd.
- Bahari Cakrawala Sebuku - Indonesia
- Banpu Public Company Limited - Thailand
- Vijayanagar Sugar Pvt Ltd - India
- Agrawal Coal Company - India
- Semirara Mining Corp, Philippines
- Heidelberg Cement - Germany
- Kepco SPC Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- San Jose City I Power Corp, Philippines
- Sindya Power Generating Company Private Ltd
- Parliament of New Zealand
- Renaissance Capital - South Africa
- Indika Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- The Treasury - Australian Government
- Coalindo Energy - Indonesia
- Electricity Generating Authority of Thailand
- Alfred C Toepfer International GmbH - Germany
- The University of Queensland
- Pendopo Energi Batubara - Indonesia
- Posco Energy - South Korea
- Sinarmas Energy and Mining - Indonesia
- Uttam Galva Steels Limited - India
- Ambuja Cements Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Sarangani Energy Corporation, Philippines
- Tata Chemicals Ltd - India
- Electricity Authority, New Zealand
- TeaM Sual Corporation - Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- OPG Power Generation Pvt Ltd - India
- Planning Commission, India
- PTC India Limited - India
- Mintek Dendrill Indonesia
- Bhatia International Limited - India
- SMG Consultants - Indonesia
- Romanian Commodities Exchange
- Eastern Energy - Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bukit Baiduri Energy - Indonesia
- Ministry of Finance - Indonesia
- Bukit Makmur.PT - Indonesia
- Karaikal Port Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kaltim Prima Coal - Indonesia
- Port Waratah Coal Services - Australia
- SMC Global Power, Philippines
- Ind-Barath Power Infra Limited - India
- Holcim Trading Pte Ltd - Singapore
- Georgia Ports Authority, United States
- Price Waterhouse Coopers - Russia
- White Energy Company Limited
- Global Business Power Corporation, Philippines
- ASAPP Information Group - India
- Simpson Spence & Young - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Bharathi Cement Corporation - India
- Marubeni Corporation - India
- Energy Link Ltd, New Zealand
- Intertek Mineral Services - Indonesia
- Jindal Steel & Power Ltd - India
- Economic Council, Georgia
- Parry Sugars Refinery, India
- Australian Coal Association
- London Commodity Brokers - England
- Bangladesh Power Developement Board
- VISA Power Limited - India
- Ministry of Mines - Canada
- Eastern Coal Council - USA
- Salva Resources Pvt Ltd - India
- Coastal Gujarat Power Limited - India
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