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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, 11 January 15
BDI DECLINED 8% ON WEEK; BCI LOST 31%
COALspot.com: The BDI continued its decline in the first week of this year or lost 8 pct week over week. The BDI was closed at 709 points whi ...
Friday, 09 January 15
U.S. EASTERN SPOT STEAM COAL PRICES FELL IN 2014; ROSE IN WEST - EIA
U.S. Eastern spot steam coal prices declined in 2014 compared to 2013 levels because of a decline in steam coal exports.
According to U.S. Ene ...
Friday, 09 January 15
WEEKLY U.S. COAL PRODUCTION UP AN ESTIMATED 2.2% Y-O-Y
COALspot.com – United States the world's one of the largest coal producers, produced approximately 17.6 million short tons (mmst) of coal ...
Thursday, 08 January 15
INDONESIA PRESSES ON WITH HIGHER COAL ROYALTY FEE TO BOOST STATE REVENUE - JG
The Indonesian government is pressing on with its plan to raise the royalty charged to coal miners in order to increase state revenue, but the move ...
Wednesday, 07 January 15
FUEL EFFICIENT SHIPS MAKE LESS SENSE IN LOWER BUNKER PRICE MARKET, BUT FUEL COSTS ARE BOUND TO RISE AGAIN
The shipping industry entered 2015 on mixed emotions, as a relatively buoyant tanker market is met by a rather lackluster dry bulk market. Still, a ...
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- South Luzon Thermal Energy Corporation
- Indian Oil Corporation Limited
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Therma Luzon, Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- Wood Mackenzie - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Siam City Cement - Thailand
- Attock Cement Pakistan Limited
- Energy Link Ltd, New Zealand
- Bangladesh Power Developement Board
- SMG Consultants - Indonesia
- Directorate Of Revenue Intelligence - India
- Global Coal Blending Company Limited - Australia
- Sindya Power Generating Company Private Ltd
- London Commodity Brokers - England
- Offshore Bulk Terminal Pte Ltd, Singapore
- Trasteel International SA, Italy
- Semirara Mining Corp, Philippines
- Globalindo Alam Lestari - Indonesia
- Bukit Makmur.PT - Indonesia
- Baramulti Group, Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Aboitiz Power Corporation - Philippines
- Sical Logistics Limited - India
- Coalindo Energy - Indonesia
- Dalmia Cement Bharat India
- Interocean Group of Companies - India
- Mercator Lines Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Holcim Trading Pte Ltd - Singapore
- VISA Power Limited - India
- Gujarat Sidhee Cement - India
- Formosa Plastics Group - Taiwan
- ICICI Bank Limited - India
- Latin American Coal - Colombia
- Kartika Selabumi Mining - Indonesia
- Cigading International Bulk Terminal - Indonesia
- CIMB Investment Bank - Malaysia
- Orica Mining Services - Indonesia
- India Bulls Power Limited - India
- GVK Power & Infra Limited - India
- Intertek Mineral Services - Indonesia
- Parliament of New Zealand
- Ministry of Finance - Indonesia
- PowerSource Philippines DevCo
- Posco Energy - South Korea
- Deloitte Consulting - India
- Antam Resourcindo - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Sree Jayajothi Cements Limited - India
- Thai Mozambique Logistica
- Indogreen Group - Indonesia
- Samtan Co., Ltd - South Korea
- Maheswari Brothers Coal Limited - India
- Ind-Barath Power Infra Limited - India
- Lanco Infratech Ltd - India
- Meenaskhi Energy Private Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Australian Coal Association
- Bhoruka Overseas - Indonesia
- Manunggal Multi Energi - Indonesia
- Kumho Petrochemical, South Korea
- GMR Energy Limited - India
- Ceylon Electricity Board - Sri Lanka
- Videocon Industries ltd - India
- Edison Trading Spa - Italy
- Mercuria Energy - Indonesia
- Merrill Lynch Commodities Europe
- Metalloyd Limited - United Kingdom
- Karbindo Abesyapradhi - Indoneisa
- GN Power Mariveles Coal Plant, Philippines
- Port Waratah Coal Services - Australia
- Xindia Steels Limited - India
- Indian Energy Exchange, India
- Pendopo Energi Batubara - Indonesia
- Indika Energy - Indonesia
- Toyota Tsusho Corporation, Japan
- Global Green Power PLC Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Sakthi Sugars Limited - India
- Grasim Industreis Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Medco Energi Mining Internasional
- LBH Netherlands Bv - Netherlands
- Salva Resources Pvt Ltd - India
- Minerals Council of Australia
- Barasentosa Lestari - Indonesia
- Eastern Energy - Thailand
- Australian Commodity Traders Exchange
- Siam City Cement PLC, Thailand
- Simpson Spence & Young - Indonesia
- White Energy Company Limited
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bank of Tokyo Mitsubishi UFJ Ltd
- Gujarat Mineral Development Corp Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Mjunction Services Limited - India
- Makarim & Taira - Indonesia
- Bhushan Steel Limited - India
- Agrawal Coal Company - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PetroVietnam Power Coal Import and Supply Company
- Savvy Resources Ltd - HongKong
- Petron Corporation, Philippines
- Economic Council, Georgia
- Straits Asia Resources Limited - Singapore
- Kaltim Prima Coal - Indonesia
- The University of Queensland
- Kepco SPC Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Karaikal Port Pvt Ltd - India
- Carbofer General Trading SA - India
- McConnell Dowell - Australia
- Oldendorff Carriers - Singapore
- CNBM International Corporation - China
- Ministry of Mines - Canada
- Planning Commission, India
- Ambuja Cements Ltd - India
- Chettinad Cement Corporation Ltd - India
- Timah Investasi Mineral - Indoneisa
- Price Waterhouse Coopers - Russia
- Independent Power Producers Association of India
- Orica Australia Pty. Ltd.
- Tata Chemicals Ltd - India
- Madhucon Powers Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Eastern Coal Council - USA
- IEA Clean Coal Centre - UK
- Bulk Trading Sa - Switzerland
- Anglo American - United Kingdom
- Africa Commodities Group - South Africa
- Meralco Power Generation, Philippines
- Heidelberg Cement - Germany
- Krishnapatnam Port Company Ltd. - India
- Indonesian Coal Mining Association
- Leighton Contractors Pty Ltd - Australia
- SN Aboitiz Power Inc, Philippines
- Bhatia International Limited - India
- OPG Power Generation Pvt Ltd - India
- MS Steel International - UAE
- Coal and Oil Company - UAE
- Ministry of Transport, Egypt
- Electricity Authority, New Zealand
- Bharathi Cement Corporation - India
- Rio Tinto Coal - Australia
- Global Business Power Corporation, Philippines
- Electricity Generating Authority of Thailand
- Sarangani Energy Corporation, Philippines
- Malabar Cements Ltd - India
- IHS Mccloskey Coal Group - USA
- Bukit Asam (Persero) Tbk - Indonesia
- GAC Shipping (India) Pvt Ltd
- Parry Sugars Refinery, India
- Sinarmas Energy and Mining - Indonesia
- European Bulk Services B.V. - Netherlands
- Vizag Seaport Private Limited - India
- Tamil Nadu electricity Board
- Essar Steel Hazira Ltd - India
- PNOC Exploration Corporation - Philippines
- Commonwealth Bank - Australia
- Energy Development Corp, Philippines
- Sojitz Corporation - Japan
- Rashtriya Ispat Nigam Limited - India
- TeaM Sual Corporation - Philippines
- Kohat Cement Company Ltd. - Pakistan
- Marubeni Corporation - India
- Miang Besar Coal Terminal - Indonesia
- Power Finance Corporation Ltd., India
- Bayan Resources Tbk. - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Borneo Indobara - Indonesia
- Star Paper Mills Limited - India
- The Treasury - Australian Government
- AsiaOL BioFuels Corp., Philippines
- Binh Thuan Hamico - Vietnam
- Central Electricity Authority - India
- Altura Mining Limited, Indonesia
- Thiess Contractors Indonesia
- Jaiprakash Power Ventures ltd
- Standard Chartered Bank - UAE
- Banpu Public Company Limited - Thailand
- Cement Manufacturers Association - India
- The State Trading Corporation of India Ltd
- Directorate General of MIneral and Coal - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Wilmar Investment Holdings
- Vedanta Resources Plc - India
- Larsen & Toubro Limited - India
- Kideco Jaya Agung - Indonesia
- Romanian Commodities Exchange
- San Jose City I Power Corp, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Kobexindo Tractors - Indoneisa
- Indo Tambangraya Megah - Indonesia
- Georgia Ports Authority, United States
- Asmin Koalindo Tuhup - Indonesia
- Goldman Sachs - Singapore
- Singapore Mercantile Exchange
- Jorong Barutama Greston.PT - Indonesia
- Riau Bara Harum - Indonesia
- New Zealand Coal & Carbon
- Aditya Birla Group - India
- Chamber of Mines of South Africa
- International Coal Ventures Pvt Ltd - India
- Renaissance Capital - South Africa
- PTC India Limited - India
- Kalimantan Lumbung Energi - Indonesia
- ASAPP Information Group - India
- Central Java Power - Indonesia
- Mintek Dendrill Indonesia
- Uttam Galva Steels Limited - India
- Iligan Light & Power Inc, Philippines
- Coastal Gujarat Power Limited - India
- Semirara Mining and Power Corporation, Philippines
- SMC Global Power, Philippines
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