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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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Sunday, 25 January 15
PANAMAX FREIGHT RATES STILL FALLING
COALspot.com: The BDI was slightly down this week to 720 points. The BDI lost 2.83 pct week on week.
The cape index continued its upward trend ...
Friday, 23 January 15
U.S. WEEKLY COAL PRODUCTION FOR WEEK ENDING JAN. 17 UP 2.5%
COALspot.com – United States the world's one of the largest coal producers, produced approximately 19.4 million short tons (mmst) of coal ...
Thursday, 22 January 15
PANAMAX: A SOFTER TONE AND OVERALL A SLUGGISH MARKET - FEARNLEYS
Handy
The handy and supra market has experienced yet another week with slow activity and softening rates in both hemispheres, broker Fearnleys AS ...
Thursday, 22 January 15
BUMI RESOURCES POSTS NET INCOME OF $13.3 MILLION 9M-2014
COALspot.com: Bumi Resources, Indonesia’s largest coal miner, reported today that, the company has recorded a net income of $13.3 million for ...
Wednesday, 21 January 15
PANAMAX MARKET MOVED SIDEWAYS OVERALL LAST WEEK - INTERMODAL
COALspot.com: The positive sentiment in which the week prior ended carried on through-out last week as well, the end of which marked the first posi ...
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- Bhoruka Overseas - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ministry of Finance - Indonesia
- Energy Development Corp, Philippines
- Agrawal Coal Company - India
- Uttam Galva Steels Limited - India
- Indonesian Coal Mining Association
- Merrill Lynch Commodities Europe
- Aboitiz Power Corporation - Philippines
- Bukit Baiduri Energy - Indonesia
- PowerSource Philippines DevCo
- Simpson Spence & Young - Indonesia
- Electricity Generating Authority of Thailand
- LBH Netherlands Bv - Netherlands
- Commonwealth Bank - Australia
- Coalindo Energy - Indonesia
- SN Aboitiz Power Inc, Philippines
- Renaissance Capital - South Africa
- Larsen & Toubro Limited - India
- Power Finance Corporation Ltd., India
- Straits Asia Resources Limited - Singapore
- Chamber of Mines of South Africa
- International Coal Ventures Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Ministry of Mines - Canada
- AsiaOL BioFuels Corp., Philippines
- Lanco Infratech Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Semirara Mining Corp, Philippines
- Edison Trading Spa - Italy
- Kohat Cement Company Ltd. - Pakistan
- Holcim Trading Pte Ltd - Singapore
- Deloitte Consulting - India
- Riau Bara Harum - Indonesia
- Borneo Indobara - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Malabar Cements Ltd - India
- Grasim Industreis Ltd - India
- SMG Consultants - Indonesia
- Mintek Dendrill Indonesia
- The Treasury - Australian Government
- Global Business Power Corporation, Philippines
- GVK Power & Infra Limited - India
- ASAPP Information Group - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kalimantan Lumbung Energi - Indonesia
- Indogreen Group - Indonesia
- Kobexindo Tractors - Indoneisa
- Vijayanagar Sugar Pvt Ltd - India
- Central Electricity Authority - India
- Australian Coal Association
- Aditya Birla Group - India
- Cigading International Bulk Terminal - Indonesia
- Indian Oil Corporation Limited
- Kumho Petrochemical, South Korea
- Videocon Industries ltd - India
- Makarim & Taira - Indonesia
- Vizag Seaport Private Limited - India
- Ind-Barath Power Infra Limited - India
- Gujarat Sidhee Cement - India
- Electricity Authority, New Zealand
- Antam Resourcindo - Indonesia
- Orica Australia Pty. Ltd.
- Anglo American - United Kingdom
- Bulk Trading Sa - Switzerland
- New Zealand Coal & Carbon
- Intertek Mineral Services - Indonesia
- Altura Mining Limited, Indonesia
- Eastern Energy - Thailand
- Kartika Selabumi Mining - Indonesia
- TeaM Sual Corporation - Philippines
- Interocean Group of Companies - India
- Indian Energy Exchange, India
- Kepco SPC Power Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Attock Cement Pakistan Limited
- Ambuja Cements Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Rashtriya Ispat Nigam Limited - India
- Karaikal Port Pvt Ltd - India
- Latin American Coal - Colombia
- Central Java Power - Indonesia
- The State Trading Corporation of India Ltd
- Ministry of Transport, Egypt
- VISA Power Limited - India
- Maheswari Brothers Coal Limited - India
- Orica Mining Services - Indonesia
- Banpu Public Company Limited - Thailand
- Global Coal Blending Company Limited - Australia
- Price Waterhouse Coopers - Russia
- Coastal Gujarat Power Limited - India
- Globalindo Alam Lestari - Indonesia
- Posco Energy - South Korea
- Siam City Cement PLC, Thailand
- Oldendorff Carriers - Singapore
- Madhucon Powers Ltd - India
- Bhatia International Limited - India
- CIMB Investment Bank - Malaysia
- Medco Energi Mining Internasional
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Billiton Holdings Pty Ltd - Australia
- Global Green Power PLC Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- McConnell Dowell - Australia
- Therma Luzon, Inc, Philippines
- Directorate Of Revenue Intelligence - India
- IHS Mccloskey Coal Group - USA
- White Energy Company Limited
- Africa Commodities Group - South Africa
- Bangladesh Power Developement Board
- TNB Fuel Sdn Bhd - Malaysia
- Energy Link Ltd, New Zealand
- Krishnapatnam Port Company Ltd. - India
- Star Paper Mills Limited - India
- Australian Commodity Traders Exchange
- Meenaskhi Energy Private Limited - India
- Carbofer General Trading SA - India
- Georgia Ports Authority, United States
- Bhushan Steel Limited - India
- Independent Power Producers Association of India
- Formosa Plastics Group - Taiwan
- Indo Tambangraya Megah - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Coal and Oil Company - UAE
- Standard Chartered Bank - UAE
- Parry Sugars Refinery, India
- South Luzon Thermal Energy Corporation
- Barasentosa Lestari - Indonesia
- Petron Corporation, Philippines
- Thai Mozambique Logistica
- Pendopo Energi Batubara - Indonesia
- Sindya Power Generating Company Private Ltd
- Mercator Lines Limited - India
- Sarangani Energy Corporation, Philippines
- Vedanta Resources Plc - India
- Minerals Council of Australia
- Rio Tinto Coal - Australia
- Sical Logistics Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Toyota Tsusho Corporation, Japan
- IEA Clean Coal Centre - UK
- Meralco Power Generation, Philippines
- Iligan Light & Power Inc, Philippines
- Jaiprakash Power Ventures ltd
- Romanian Commodities Exchange
- Baramulti Group, Indonesia
- Manunggal Multi Energi - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Wilmar Investment Holdings
- CNBM International Corporation - China
- Cement Manufacturers Association - India
- Jorong Barutama Greston.PT - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Timah Investasi Mineral - Indoneisa
- Economic Council, Georgia
- Trasteel International SA, Italy
- Sree Jayajothi Cements Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- GAC Shipping (India) Pvt Ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Samtan Co., Ltd - South Korea
- Miang Besar Coal Terminal - Indonesia
- Port Waratah Coal Services - Australia
- Parliament of New Zealand
- Marubeni Corporation - India
- Asmin Koalindo Tuhup - Indonesia
- Tata Chemicals Ltd - India
- Essar Steel Hazira Ltd - India
- Siam City Cement - Thailand
- Bank of Tokyo Mitsubishi UFJ Ltd
- London Commodity Brokers - England
- PNOC Exploration Corporation - Philippines
- Bharathi Cement Corporation - India
- Heidelberg Cement - Germany
- Mercuria Energy - Indonesia
- MS Steel International - UAE
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Savvy Resources Ltd - HongKong
- Planning Commission, India
- India Bulls Power Limited - India
- Kapuas Tunggal Persada - Indonesia
- Tamil Nadu electricity Board
- Singapore Mercantile Exchange
- San Jose City I Power Corp, Philippines
- Sojitz Corporation - Japan
- Bahari Cakrawala Sebuku - Indonesia
- Kideco Jaya Agung - Indonesia
- Indika Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Eastern Coal Council - USA
- Bayan Resources Tbk. - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Mjunction Services Limited - India
- Kaltim Prima Coal - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Salva Resources Pvt Ltd - India
- Dalmia Cement Bharat India
- The University of Queensland
- PTC India Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Wood Mackenzie - Singapore
- OPG Power Generation Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Chettinad Cement Corporation Ltd - India
- European Bulk Services B.V. - Netherlands
- Binh Thuan Hamico - Vietnam
- ICICI Bank Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Xindia Steels Limited - India
- Leighton Contractors Pty Ltd - Australia
- GMR Energy Limited - India
- Thiess Contractors Indonesia
- Bukit Makmur.PT - Indonesia
- Goldman Sachs - Singapore
- Sakthi Sugars Limited - India
- SMC Global Power, Philippines
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