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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, 27 January 15
Q1 FOB INDONESIA COAL SWAP CLOSED AT $ 47.87 FOR WEEK ENDING JAN. 23
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 gain week over week and declined month on month.
The Q1 swap has decline US$ 0.9 ...
Tuesday, 27 January 15
Q2 FOB NEWCASTLE COAL SWAP UP 4.5% W-O-W
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2015 delivery declined US$ 0.28 per MT (-0.54%) month over month and increased US$ 1.23 ( ...
Monday, 26 January 15
OVERSUPPLY, AMPLE STOCKPILES, AND LACKLUSTER UNDERLYING STEEL DEMAND KEPT COKING COAL PRICES LOW IN 2014
COALspot.com: Coking coal prices (FOB & CFR) fell 15% and 18% respectively during the year, amidst persistent oversupply, ample inventory and s ...
Monday, 26 January 15
FOB RICHARDS BAY Q2 COAL SWAP CLOSED LOWER THAN Q1 CLOSING
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q1' 2015 declined month over month and day on day.
The Q1 swap has fell ...
Monday, 26 January 15
API 8 CFR SOUTH CHINA COAL SWAP CONTINUE TO SLIDE M-O-M; ROSE W-O-W
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery declined US$ 0.79 (-1.33%) per MT month over month and gained US$ 2.10&nb ...
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Showing 3231 to 3235 news of total 6871 |
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- Orica Australia Pty. Ltd.
- Star Paper Mills Limited - India
- Central Electricity Authority - India
- Jorong Barutama Greston.PT - Indonesia
- Posco Energy - South Korea
- Riau Bara Harum - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Wilmar Investment Holdings
- Sakthi Sugars Limited - India
- The Treasury - Australian Government
- Holcim Trading Pte Ltd - Singapore
- Mercator Lines Limited - India
- Georgia Ports Authority, United States
- Coalindo Energy - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Globalindo Alam Lestari - Indonesia
- Global Green Power PLC Corporation, Philippines
- Makarim & Taira - Indonesia
- Petron Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Merrill Lynch Commodities Europe
- The University of Queensland
- Australian Coal Association
- Renaissance Capital - South Africa
- Agrawal Coal Company - India
- Siam City Cement PLC, Thailand
- CNBM International Corporation - China
- Gujarat Electricity Regulatory Commission - India
- Independent Power Producers Association of India
- Kapuas Tunggal Persada - Indonesia
- Manunggal Multi Energi - Indonesia
- Toyota Tsusho Corporation, Japan
- Central Java Power - Indonesia
- Meralco Power Generation, Philippines
- Standard Chartered Bank - UAE
- Bhatia International Limited - India
- Bhushan Steel Limited - India
- Miang Besar Coal Terminal - Indonesia
- Singapore Mercantile Exchange
- Indonesian Coal Mining Association
- Economic Council, Georgia
- Larsen & Toubro Limited - India
- Sindya Power Generating Company Private Ltd
- Semirara Mining and Power Corporation, Philippines
- Wood Mackenzie - Singapore
- Maharashtra Electricity Regulatory Commission - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Leighton Contractors Pty Ltd - Australia
- New Zealand Coal & Carbon
- The State Trading Corporation of India Ltd
- Gujarat Mineral Development Corp Ltd - India
- London Commodity Brokers - England
- Energy Development Corp, Philippines
- Trasteel International SA, Italy
- Cement Manufacturers Association - India
- Madhucon Powers Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- PowerSource Philippines DevCo
- Videocon Industries ltd - India
- Mintek Dendrill Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Coal and Oil Company - UAE
- Parry Sugars Refinery, India
- ICICI Bank Limited - India
- Indian Oil Corporation Limited
- Parliament of New Zealand
- Cigading International Bulk Terminal - Indonesia
- Oldendorff Carriers - Singapore
- Bukit Makmur.PT - Indonesia
- Sree Jayajothi Cements Limited - India
- IHS Mccloskey Coal Group - USA
- SN Aboitiz Power Inc, Philippines
- Simpson Spence & Young - Indonesia
- Sarangani Energy Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- Therma Luzon, Inc, Philippines
- Altura Mining Limited, Indonesia
- Gujarat Sidhee Cement - India
- Kumho Petrochemical, South Korea
- Chamber of Mines of South Africa
- Planning Commission, India
- Indogreen Group - Indonesia
- Eastern Coal Council - USA
- Anglo American - United Kingdom
- Petrochimia International Co. Ltd.- Taiwan
- Neyveli Lignite Corporation Ltd, - India
- Antam Resourcindo - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Kaltim Prima Coal - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Edison Trading Spa - Italy
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Vizag Seaport Private Limited - India
- Karaikal Port Pvt Ltd - India
- Carbofer General Trading SA - India
- Mercuria Energy - Indonesia
- Dalmia Cement Bharat India
- ASAPP Information Group - India
- European Bulk Services B.V. - Netherlands
- Xindia Steels Limited - India
- Jindal Steel & Power Ltd - India
- GVK Power & Infra Limited - India
- Jaiprakash Power Ventures ltd
- Krishnapatnam Port Company Ltd. - India
- Kepco SPC Power Corporation, Philippines
- Barasentosa Lestari - Indonesia
- Essar Steel Hazira Ltd - India
- Thiess Contractors Indonesia
- Mjunction Services Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Energy Link Ltd, New Zealand
- McConnell Dowell - Australia
- Salva Resources Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Ministry of Finance - Indonesia
- SMC Global Power, Philippines
- Directorate General of MIneral and Coal - Indonesia
- TeaM Sual Corporation - Philippines
- Marubeni Corporation - India
- MS Steel International - UAE
- Malabar Cements Ltd - India
- Romanian Commodities Exchange
- Price Waterhouse Coopers - Russia
- Indo Tambangraya Megah - Indonesia
- PNOC Exploration Corporation - Philippines
- Borneo Indobara - Indonesia
- San Jose City I Power Corp, Philippines
- Meenaskhi Energy Private Limited - India
- Sical Logistics Limited - India
- Sojitz Corporation - Japan
- Intertek Mineral Services - Indonesia
- Medco Energi Mining Internasional
- Goldman Sachs - Singapore
- Straits Asia Resources Limited - Singapore
- White Energy Company Limited
- Grasim Industreis Ltd - India
- Ambuja Cements Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Binh Thuan Hamico - Vietnam
- Attock Cement Pakistan Limited
- Kartika Selabumi Mining - Indonesia
- Commonwealth Bank - Australia
- Iligan Light & Power Inc, Philippines
- VISA Power Limited - India
- Port Waratah Coal Services - Australia
- Lanco Infratech Ltd - India
- India Bulls Power Limited - India
- Semirara Mining Corp, Philippines
- GMR Energy Limited - India
- Africa Commodities Group - South Africa
- Tamil Nadu electricity Board
- Indian Energy Exchange, India
- International Coal Ventures Pvt Ltd - India
- Bharathi Cement Corporation - India
- Pipit Mutiara Jaya. PT, Indonesia
- Interocean Group of Companies - India
- Ceylon Electricity Board - Sri Lanka
- Indika Energy - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Rio Tinto Coal - Australia
- Bhoruka Overseas - Indonesia
- Uttam Galva Steels Limited - India
- Aditya Birla Group - India
- Coastal Gujarat Power Limited - India
- Kideco Jaya Agung - Indonesia
- Deloitte Consulting - India
- Electricity Authority, New Zealand
- Tata Chemicals Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Karbindo Abesyapradhi - Indoneisa
- Kobexindo Tractors - Indoneisa
- Latin American Coal - Colombia
- Samtan Co., Ltd - South Korea
- Global Coal Blending Company Limited - Australia
- PetroVietnam Power Coal Import and Supply Company
- TNB Fuel Sdn Bhd - Malaysia
- GAC Shipping (India) Pvt Ltd
- Alfred C Toepfer International GmbH - Germany
- Baramulti Group, Indonesia
- Australian Commodity Traders Exchange
- Thai Mozambique Logistica
- PTC India Limited - India
- Power Finance Corporation Ltd., India
- Siam City Cement - Thailand
- Chettinad Cement Corporation Ltd - India
- Aboitiz Power Corporation - Philippines
- Banpu Public Company Limited - Thailand
- GN Power Mariveles Coal Plant, Philippines
- Timah Investasi Mineral - Indoneisa
- Bulk Trading Sa - Switzerland
- Minerals Council of Australia
- Vedanta Resources Plc - India
- Global Business Power Corporation, Philippines
- Ministry of Transport, Egypt
- Ministry of Mines - Canada
- SMG Consultants - Indonesia
- Eastern Energy - Thailand
- Bangladesh Power Developement Board
- Bayan Resources Tbk. - Indonesia
- Savvy Resources Ltd - HongKong
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ind-Barath Power Infra Limited - India
- Pendopo Energi Batubara - Indonesia
- Maheswari Brothers Coal Limited - India
- CIMB Investment Bank - Malaysia
- Electricity Generating Authority of Thailand
- Orica Mining Services - Indonesia
- LBH Netherlands Bv - Netherlands
- Kalimantan Lumbung Energi - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Heidelberg Cement - Germany
- OPG Power Generation Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- IEA Clean Coal Centre - UK
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