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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, 18 January 15
INDONESIA TO INDIA SUPRAMAX FREIGHT RATES ARE EXPECTED TO REMAIN WEAK NEXT WEEK
COALspot.com: The BDI was up 4.51 pct week on week on Friday 16, January 2015. The BDI closed at 741 points on this Friday after gaining arou ...
Friday, 16 January 15
U.S. WEEKLY COAL PRODUCTION UP 7.3% W-O-W
COALspot.com – United States the world's one of the largest coal producers, produced approximately 18.9 million short tons (mmst) of coal ...
Thursday, 15 January 15
PANAMAX : MARKET CONTINUE ON LOW PACE - FEARNLEYS
Handy
On a general basis we can say that rates are softening in both hemispheres. Although for some specific trades we can see premiums being ach ...
Thursday, 15 January 15
LOW CASH COSTS, GOOD LIQUIDITY HELP ASIAN OIL COMPANIES IN PRICE ROUT - FITCH
Fitch Ratings says that rated oil and gas production companies in Asia can comfortably operate under low oil prices for some time given their gener ...
Wednesday, 14 January 15
DRY BULK MARKET NOTED ANOTHER WEEKLY DECLINE - INTERMODAL
COALspot.com: The Dry bulk market noted another weekly decline on Friday, with the performance of the Capesize market still weighing down on the re ...
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- Indika Energy - Indonesia
- Salva Resources Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- India Bulls Power Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Romanian Commodities Exchange
- TeaM Sual Corporation - Philippines
- Ministry of Mines - Canada
- Commonwealth Bank - Australia
- Tamil Nadu electricity Board
- Orica Australia Pty. Ltd.
- OPG Power Generation Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Intertek Mineral Services - Indonesia
- Kobexindo Tractors - Indoneisa
- Dalmia Cement Bharat India
- Gujarat Mineral Development Corp Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Simpson Spence & Young - Indonesia
- Indian Energy Exchange, India
- Asmin Koalindo Tuhup - Indonesia
- Planning Commission, India
- Kepco SPC Power Corporation, Philippines
- Chamber of Mines of South Africa
- Attock Cement Pakistan Limited
- Savvy Resources Ltd - HongKong
- Bulk Trading Sa - Switzerland
- Iligan Light & Power Inc, Philippines
- Manunggal Multi Energi - Indonesia
- Maheswari Brothers Coal Limited - India
- CNBM International Corporation - China
- Deloitte Consulting - India
- San Jose City I Power Corp, Philippines
- Electricity Generating Authority of Thailand
- Wilmar Investment Holdings
- Bhoruka Overseas - Indonesia
- Goldman Sachs - Singapore
- Baramulti Group, Indonesia
- Sakthi Sugars Limited - India
- Edison Trading Spa - Italy
- Kaltim Prima Coal - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Meralco Power Generation, Philippines
- Riau Bara Harum - Indonesia
- Semirara Mining Corp, Philippines
- Formosa Plastics Group - Taiwan
- Ambuja Cements Ltd - India
- Indogreen Group - Indonesia
- McConnell Dowell - Australia
- Essar Steel Hazira Ltd - India
- Larsen & Toubro Limited - India
- Coalindo Energy - Indonesia
- Tata Chemicals Ltd - India
- PowerSource Philippines DevCo
- SMC Global Power, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Straits Asia Resources Limited - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Cement Manufacturers Association - India
- Kapuas Tunggal Persada - Indonesia
- Global Business Power Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Sindya Power Generating Company Private Ltd
- Africa Commodities Group - South Africa
- Australian Commodity Traders Exchange
- Bangladesh Power Developement Board
- Aboitiz Power Corporation - Philippines
- Global Green Power PLC Corporation, Philippines
- Ministry of Finance - Indonesia
- Aditya Birla Group - India
- Price Waterhouse Coopers - Russia
- Trasteel International SA, Italy
- Jindal Steel & Power Ltd - India
- Heidelberg Cement - Germany
- Medco Energi Mining Internasional
- Barasentosa Lestari - Indonesia
- Binh Thuan Hamico - Vietnam
- Port Waratah Coal Services - Australia
- Toyota Tsusho Corporation, Japan
- Coal and Oil Company - UAE
- Sojitz Corporation - Japan
- Vizag Seaport Private Limited - India
- Miang Besar Coal Terminal - Indonesia
- Makarim & Taira - Indonesia
- Oldendorff Carriers - Singapore
- Renaissance Capital - South Africa
- Antam Resourcindo - Indonesia
- Mercator Lines Limited - India
- Standard Chartered Bank - UAE
- MS Steel International - UAE
- Thiess Contractors Indonesia
- ASAPP Information Group - India
- Petrochimia International Co. Ltd.- Taiwan
- International Coal Ventures Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Cigading International Bulk Terminal - Indonesia
- Interocean Group of Companies - India
- Vijayanagar Sugar Pvt Ltd - India
- Uttam Galva Steels Limited - India
- Directorate Of Revenue Intelligence - India
- ICICI Bank Limited - India
- Bharathi Cement Corporation - India
- VISA Power Limited - India
- Economic Council, Georgia
- Indonesian Coal Mining Association
- Globalindo Alam Lestari - Indonesia
- Ministry of Transport, Egypt
- Ceylon Electricity Board - Sri Lanka
- South Luzon Thermal Energy Corporation
- GN Power Mariveles Coal Plant, Philippines
- LBH Netherlands Bv - Netherlands
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Wood Mackenzie - Singapore
- Posco Energy - South Korea
- Thai Mozambique Logistica
- The State Trading Corporation of India Ltd
- SN Aboitiz Power Inc, Philippines
- The Treasury - Australian Government
- IEA Clean Coal Centre - UK
- Power Finance Corporation Ltd., India
- Therma Luzon, Inc, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Georgia Ports Authority, United States
- Grasim Industreis Ltd - India
- SMG Consultants - Indonesia
- Central Java Power - Indonesia
- European Bulk Services B.V. - Netherlands
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Malabar Cements Ltd - India
- Parliament of New Zealand
- Indian Oil Corporation Limited
- Gujarat Electricity Regulatory Commission - India
- AsiaOL BioFuels Corp., Philippines
- Singapore Mercantile Exchange
- Australian Coal Association
- Samtan Co., Ltd - South Korea
- Global Coal Blending Company Limited - Australia
- GAC Shipping (India) Pvt Ltd
- Vedanta Resources Plc - India
- Lanco Infratech Ltd - India
- Borneo Indobara - Indonesia
- The University of Queensland
- Timah Investasi Mineral - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Petron Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Xindia Steels Limited - India
- Bukit Baiduri Energy - Indonesia
- GMR Energy Limited - India
- Videocon Industries ltd - India
- Agrawal Coal Company - India
- Eastern Coal Council - USA
- Merrill Lynch Commodities Europe
- Rashtriya Ispat Nigam Limited - India
- Karbindo Abesyapradhi - Indoneisa
- PTC India Limited - India
- Banpu Public Company Limited - Thailand
- Sinarmas Energy and Mining - Indonesia
- Kideco Jaya Agung - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Neyveli Lignite Corporation Ltd, - India
- Minerals Council of Australia
- Orica Mining Services - Indonesia
- Madhucon Powers Ltd - India
- Mjunction Services Limited - India
- Central Electricity Authority - India
- Bhatia International Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Altura Mining Limited, Indonesia
- Parry Sugars Refinery, India
- Independent Power Producers Association of India
- Electricity Authority, New Zealand
- CIMB Investment Bank - Malaysia
- Sarangani Energy Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- White Energy Company Limited
- Billiton Holdings Pty Ltd - Australia
- Kumho Petrochemical, South Korea
- TNB Fuel Sdn Bhd - Malaysia
- Chettinad Cement Corporation Ltd - India
- Gujarat Sidhee Cement - India
- Siam City Cement PLC, Thailand
- Bukit Makmur.PT - Indonesia
- Anglo American - United Kingdom
- Bhushan Steel Limited - India
- Eastern Energy - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Carbofer General Trading SA - India
- Energy Link Ltd, New Zealand
- PNOC Exploration Corporation - Philippines
- Meenaskhi Energy Private Limited - India
- Bayan Resources Tbk. - Indonesia
- Marubeni Corporation - India
- Directorate General of MIneral and Coal - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Energy Development Corp, Philippines
- Krishnapatnam Port Company Ltd. - India
- Rio Tinto Coal - Australia
- Star Paper Mills Limited - India
- GVK Power & Infra Limited - India
- Jaiprakash Power Ventures ltd
- Holcim Trading Pte Ltd - Singapore
- Karaikal Port Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Latin American Coal - Colombia
- Siam City Cement - Thailand
- IHS Mccloskey Coal Group - USA
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mintek Dendrill Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- London Commodity Brokers - England
- Ind-Barath Power Infra Limited - India
- New Zealand Coal & Carbon
- Sical Logistics Limited - India
- Mercuria Energy - Indonesia
- Sree Jayajothi Cements Limited - India
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