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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, 20 January 15
INDONESIAN COAL OUTPUT SEEN RISING, DESPITE FALL IN ITS PRICE
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 declined month on month and week over week, but Indonesian Coal Output Seen Rising. T ...
Tuesday, 20 January 15
NEWCASTLE COAL SWAP FOR Q1' 2015 DELIVERY DECLINED 2.83% M-O-M
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2015 delivery declined US$ 1.45 per MT (-2.83%) month over month and US$ 0.50 (-0.99%) we ...
Monday, 19 January 15
HBA FALL TO FRESH LOWS; COAL OVERSUPPLY WILL CONTINUE TO PUSH PRICE DOWN
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia revised down Indonesian coal bench mark price this month to US$ 63.84. T ...
Monday, 19 January 15
CFR SOUTH CHINA COAL SWAPS REMAIN WEAK
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery declined US$ 3.37 (-5.63%) per MT month over month and US$ 0.74 (-1.29%) ...
Monday, 19 January 15
FOB RICHARDS BAY COAL SWAP FOR Q4 DELIVERY CLOSED 4% LOWER THAN Q1 DELIVERY PRICE
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q1' 2015 declined month over month and week over week.
The Q1 swap has f ...
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Showing 3246 to 3250 news of total 6871 |
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- Coal and Oil Company - UAE
- Thiess Contractors Indonesia
- India Bulls Power Limited - India
- Posco Energy - South Korea
- Jindal Steel & Power Ltd - India
- PTC India Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Sakthi Sugars Limited - India
- Savvy Resources Ltd - HongKong
- GVK Power & Infra Limited - India
- Straits Asia Resources Limited - Singapore
- Kobexindo Tractors - Indoneisa
- Ind-Barath Power Infra Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Orica Mining Services - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Mercator Lines Limited - India
- Kaltim Prima Coal - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Gujarat Mineral Development Corp Ltd - India
- San Jose City I Power Corp, Philippines
- Ministry of Finance - Indonesia
- Kideco Jaya Agung - Indonesia
- IHS Mccloskey Coal Group - USA
- Port Waratah Coal Services - Australia
- Wilmar Investment Holdings
- Borneo Indobara - Indonesia
- Mjunction Services Limited - India
- Bayan Resources Tbk. - Indonesia
- TeaM Sual Corporation - Philippines
- Altura Mining Limited, Indonesia
- Star Paper Mills Limited - India
- Goldman Sachs - Singapore
- Madhucon Powers Ltd - India
- Indo Tambangraya Megah - Indonesia
- Parliament of New Zealand
- Cement Manufacturers Association - India
- Xindia Steels Limited - India
- MS Steel International - UAE
- Kumho Petrochemical, South Korea
- Mercuria Energy - Indonesia
- Metalloyd Limited - United Kingdom
- Aboitiz Power Corporation - Philippines
- Indian Energy Exchange, India
- Kalimantan Lumbung Energi - Indonesia
- Iligan Light & Power Inc, Philippines
- PowerSource Philippines DevCo
- Global Coal Blending Company Limited - Australia
- Directorate Of Revenue Intelligence - India
- Vedanta Resources Plc - India
- Georgia Ports Authority, United States
- Global Business Power Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Tamil Nadu electricity Board
- Malabar Cements Ltd - India
- SMG Consultants - Indonesia
- Petron Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Deloitte Consulting - India
- Independent Power Producers Association of India
- PetroVietnam Power Coal Import and Supply Company
- Formosa Plastics Group - Taiwan
- Krishnapatnam Port Company Ltd. - India
- Planning Commission, India
- Edison Trading Spa - Italy
- Chettinad Cement Corporation Ltd - India
- Attock Cement Pakistan Limited
- Gujarat Sidhee Cement - India
- Intertek Mineral Services - Indonesia
- Timah Investasi Mineral - Indoneisa
- Bharathi Cement Corporation - India
- Therma Luzon, Inc, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Economic Council, Georgia
- Interocean Group of Companies - India
- South Luzon Thermal Energy Corporation
- Coastal Gujarat Power Limited - India
- Samtan Co., Ltd - South Korea
- Indika Energy - Indonesia
- Riau Bara Harum - Indonesia
- Indonesian Coal Mining Association
- Billiton Holdings Pty Ltd - Australia
- SMC Global Power, Philippines
- Ceylon Electricity Board - Sri Lanka
- Karaikal Port Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- The University of Queensland
- Salva Resources Pvt Ltd - India
- Vizag Seaport Private Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Tata Chemicals Ltd - India
- Electricity Generating Authority of Thailand
- Agrawal Coal Company - India
- Thai Mozambique Logistica
- Ministry of Transport, Egypt
- Romanian Commodities Exchange
- Sree Jayajothi Cements Limited - India
- Dalmia Cement Bharat India
- Price Waterhouse Coopers - Russia
- Eastern Energy - Thailand
- VISA Power Limited - India
- Siam City Cement - Thailand
- Baramulti Group, Indonesia
- Chamber of Mines of South Africa
- White Energy Company Limited
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Semirara Mining and Power Corporation, Philippines
- Africa Commodities Group - South Africa
- Energy Link Ltd, New Zealand
- Jaiprakash Power Ventures ltd
- Bukit Baiduri Energy - Indonesia
- Ministry of Mines - Canada
- SN Aboitiz Power Inc, Philippines
- Standard Chartered Bank - UAE
- CIMB Investment Bank - Malaysia
- Bangladesh Power Developement Board
- Bukit Makmur.PT - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Larsen & Toubro Limited - India
- Coalindo Energy - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Kohat Cement Company Ltd. - Pakistan
- Central Java Power - Indonesia
- Bhushan Steel Limited - India
- Minerals Council of Australia
- Anglo American - United Kingdom
- Maheswari Brothers Coal Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Oldendorff Carriers - Singapore
- Videocon Industries ltd - India
- Ambuja Cements Ltd - India
- New Zealand Coal & Carbon
- Bukit Asam (Persero) Tbk - Indonesia
- Sical Logistics Limited - India
- LBH Netherlands Bv - Netherlands
- Central Electricity Authority - India
- Australian Coal Association
- Eastern Coal Council - USA
- Binh Thuan Hamico - Vietnam
- PNOC Exploration Corporation - Philippines
- Bulk Trading Sa - Switzerland
- Bhoruka Overseas - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Manunggal Multi Energi - Indonesia
- Grasim Industreis Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Medco Energi Mining Internasional
- Kapuas Tunggal Persada - Indonesia
- Aditya Birla Group - India
- Renaissance Capital - South Africa
- Electricity Authority, New Zealand
- Marubeni Corporation - India
- Semirara Mining Corp, Philippines
- Lanco Infratech Ltd - India
- Energy Development Corp, Philippines
- Rio Tinto Coal - Australia
- Mintek Dendrill Indonesia
- Jorong Barutama Greston.PT - Indonesia
- ASAPP Information Group - India
- ICICI Bank Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Meralco Power Generation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Trasteel International SA, Italy
- Banpu Public Company Limited - Thailand
- Meenaskhi Energy Private Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Commonwealth Bank - Australia
- Makarim & Taira - Indonesia
- Carbofer General Trading SA - India
- McConnell Dowell - Australia
- Sarangani Energy Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Orica Australia Pty. Ltd.
- Simpson Spence & Young - Indonesia
- Antam Resourcindo - Indonesia
- Essar Steel Hazira Ltd - India
- European Bulk Services B.V. - Netherlands
- The State Trading Corporation of India Ltd
- Power Finance Corporation Ltd., India
- Sojitz Corporation - Japan
- Asmin Koalindo Tuhup - Indonesia
- The Treasury - Australian Government
- Sindya Power Generating Company Private Ltd
- Uttam Galva Steels Limited - India
- AsiaOL BioFuels Corp., Philippines
- Merrill Lynch Commodities Europe
- Parry Sugars Refinery, India
- Pendopo Energi Batubara - Indonesia
- Kartika Selabumi Mining - Indonesia
- IEA Clean Coal Centre - UK
- Heidelberg Cement - Germany
- Latin American Coal - Colombia
- Barasentosa Lestari - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Indogreen Group - Indonesia
- Singapore Mercantile Exchange
- Petrochimia International Co. Ltd.- Taiwan
- Australian Commodity Traders Exchange
- GAC Shipping (India) Pvt Ltd
- Wood Mackenzie - Singapore
- Sinarmas Energy and Mining - Indonesia
- CNBM International Corporation - China
- Bhatia International Limited - India
- OPG Power Generation Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Siam City Cement PLC, Thailand
- GMR Energy Limited - India
- Toyota Tsusho Corporation, Japan
- London Commodity Brokers - England
- Global Green Power PLC Corporation, Philippines
- Indian Oil Corporation Limited
- Bank of Tokyo Mitsubishi UFJ Ltd
- Holcim Trading Pte Ltd - Singapore
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