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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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Wednesday, 07 January 15
2015 IS RIDDLED WITH CHALLENGES FOR THE SHIPPING SECTOR, MOST NOTABLY THE DRY BULK MARKET - HELLENIC SHIPPING NEWS
As the new year has now set foot for real, many are still looking to detect what’s in store for the various shipping markets, with the first ...
Tuesday, 06 January 15
SHIPPING MUST ADOPT CAN-DO ATTITUDE IN 2015 - MOORE STEPHENS
Shipping needs to adopt a can-do attitude in order to successfully meet the challenges which are likely to come its way in 2015.
Shipping part ...
Tuesday, 06 January 15
Q4' 15 FOB INDONESIA COAL SWAP CLOSED 1.81% HIGHER COMPARED TO Q1' 15 CLOSING
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 lost month on month and week over week.
The Q1 swap has lost US$ 0.74 (-1.51%) m ...
Tuesday, 06 January 15
FOB RICHARDS BAY COAL SWAPS LOST W-O-W AND M-O-M, SGX DATA SHOWS
COALspot.com: API 4 FOB Richards Bay Coal for delivery Q1' 2015 lost month on month and week over week.
The Q1 swap has lost US$ 3.52 (-5. ...
Monday, 05 January 15
CFR SOUTH CHINA COAL SWAPS GAINED WEEK OVER WEEK, SGX DATA SHOWS
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery has decreased by US$ 2.50 (-4.02%) month over month and gained US$ 0.20 ( ...
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Showing 3271 to 3275 news of total 6871 |
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- SN Aboitiz Power Inc, Philippines
- Independent Power Producers Association of India
- Globalindo Alam Lestari - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- New Zealand Coal & Carbon
- Madhucon Powers Ltd - India
- Siam City Cement - Thailand
- Jorong Barutama Greston.PT - Indonesia
- Bayan Resources Tbk. - Indonesia
- Sarangani Energy Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Commonwealth Bank - Australia
- Formosa Plastics Group - Taiwan
- Samtan Co., Ltd - South Korea
- European Bulk Services B.V. - Netherlands
- Gujarat Mineral Development Corp Ltd - India
- Bhushan Steel Limited - India
- Central Java Power - Indonesia
- Pendopo Energi Batubara - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Petrochimia International Co. Ltd.- Taiwan
- Indogreen Group - Indonesia
- Oldendorff Carriers - Singapore
- IEA Clean Coal Centre - UK
- Vijayanagar Sugar Pvt Ltd - India
- McConnell Dowell - Australia
- Vedanta Resources Plc - India
- Uttam Galva Steels Limited - India
- Indian Oil Corporation Limited
- OPG Power Generation Pvt Ltd - India
- Trasteel International SA, Italy
- Goldman Sachs - Singapore
- ICICI Bank Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Power Finance Corporation Ltd., India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- ASAPP Information Group - India
- Antam Resourcindo - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Standard Chartered Bank - UAE
- Xindia Steels Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Petron Corporation, Philippines
- Videocon Industries ltd - India
- Kepco SPC Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- Medco Energi Mining Internasional
- Orica Mining Services - Indonesia
- Lanco Infratech Ltd - India
- Metalloyd Limited - United Kingdom
- PNOC Exploration Corporation - Philippines
- Dalmia Cement Bharat India
- GVK Power & Infra Limited - India
- Altura Mining Limited, Indonesia
- Indian Energy Exchange, India
- SMG Consultants - Indonesia
- Marubeni Corporation - India
- The University of Queensland
- Orica Australia Pty. Ltd.
- Deloitte Consulting - India
- Attock Cement Pakistan Limited
- Manunggal Multi Energi - Indonesia
- Bhatia International Limited - India
- Eastern Energy - Thailand
- Bharathi Cement Corporation - India
- TeaM Sual Corporation - Philippines
- Global Coal Blending Company Limited - Australia
- Wilmar Investment Holdings
- The State Trading Corporation of India Ltd
- Mercuria Energy - Indonesia
- Gujarat Sidhee Cement - India
- Australian Coal Association
- Aditya Birla Group - India
- Electricity Authority, New Zealand
- Toyota Tsusho Corporation, Japan
- South Luzon Thermal Energy Corporation
- Offshore Bulk Terminal Pte Ltd, Singapore
- CIMB Investment Bank - Malaysia
- Eastern Coal Council - USA
- Romanian Commodities Exchange
- Coal and Oil Company - UAE
- PTC India Limited - India
- Timah Investasi Mineral - Indoneisa
- PetroVietnam Power Coal Import and Supply Company
- Sree Jayajothi Cements Limited - India
- Miang Besar Coal Terminal - Indonesia
- LBH Netherlands Bv - Netherlands
- Economic Council, Georgia
- GAC Shipping (India) Pvt Ltd
- AsiaOL BioFuels Corp., Philippines
- Bukit Baiduri Energy - Indonesia
- Makarim & Taira - Indonesia
- Edison Trading Spa - Italy
- The Treasury - Australian Government
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Rashtriya Ispat Nigam Limited - India
- GN Power Mariveles Coal Plant, Philippines
- GMR Energy Limited - India
- CNBM International Corporation - China
- Tata Chemicals Ltd - India
- Ministry of Mines - Canada
- Global Business Power Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- SMC Global Power, Philippines
- Star Paper Mills Limited - India
- Coalindo Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Intertek Mineral Services - Indonesia
- Parliament of New Zealand
- Neyveli Lignite Corporation Ltd, - India
- Kobexindo Tractors - Indoneisa
- Thai Mozambique Logistica
- Cement Manufacturers Association - India
- Parry Sugars Refinery, India
- Energy Link Ltd, New Zealand
- Salva Resources Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- Directorate Of Revenue Intelligence - India
- Agrawal Coal Company - India
- Ceylon Electricity Board - Sri Lanka
- Asmin Koalindo Tuhup - Indonesia
- Mjunction Services Limited - India
- Mercator Lines Limited - India
- Bhoruka Overseas - Indonesia
- Ind-Barath Power Infra Limited - India
- Larsen & Toubro Limited - India
- Jindal Steel & Power Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Malabar Cements Ltd - India
- Bukit Makmur.PT - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Heidelberg Cement - Germany
- Karaikal Port Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Binh Thuan Hamico - Vietnam
- Kumho Petrochemical, South Korea
- Thiess Contractors Indonesia
- Aboitiz Power Corporation - Philippines
- Grasim Industreis Ltd - India
- Posco Energy - South Korea
- Mintek Dendrill Indonesia
- Savvy Resources Ltd - HongKong
- Barasentosa Lestari - Indonesia
- VISA Power Limited - India
- Kideco Jaya Agung - Indonesia
- Ambuja Cements Ltd - India
- San Jose City I Power Corp, Philippines
- Alfred C Toepfer International GmbH - Germany
- Africa Commodities Group - South Africa
- Kohat Cement Company Ltd. - Pakistan
- Indonesian Coal Mining Association
- Australian Commodity Traders Exchange
- Meenaskhi Energy Private Limited - India
- Semirara Mining Corp, Philippines
- India Bulls Power Limited - India
- Central Electricity Authority - India
- Meralco Power Generation, Philippines
- Iligan Light & Power Inc, Philippines
- Singapore Mercantile Exchange
- Bukit Asam (Persero) Tbk - Indonesia
- Billiton Holdings Pty Ltd - Australia
- IHS Mccloskey Coal Group - USA
- Karbindo Abesyapradhi - Indoneisa
- White Energy Company Limited
- Sojitz Corporation - Japan
- Jaiprakash Power Ventures ltd
- Indika Energy - Indonesia
- London Commodity Brokers - England
- Bahari Cakrawala Sebuku - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Banpu Public Company Limited - Thailand
- Rio Tinto Coal - Australia
- Ministry of Finance - Indonesia
- Baramulti Group, Indonesia
- Simpson Spence & Young - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Planning Commission, India
- PowerSource Philippines DevCo
- Bulk Trading Sa - Switzerland
- Electricity Generating Authority of Thailand
- Renaissance Capital - South Africa
- Ministry of Transport, Egypt
- Semirara Mining and Power Corporation, Philippines
- Global Green Power PLC Corporation, Philippines
- Borneo Indobara - Indonesia
- Energy Development Corp, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Sakthi Sugars Limited - India
- International Coal Ventures Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Merrill Lynch Commodities Europe
- Interocean Group of Companies - India
- Anglo American - United Kingdom
- Directorate General of MIneral and Coal - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Wood Mackenzie - Singapore
- Vizag Seaport Private Limited - India
- Siam City Cement PLC, Thailand
- Georgia Ports Authority, United States
- Chettinad Cement Corporation Ltd - India
- Port Waratah Coal Services - Australia
- Straits Asia Resources Limited - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- MS Steel International - UAE
- Chamber of Mines of South Africa
- Essar Steel Hazira Ltd - India
- Bangladesh Power Developement Board
- Carbofer General Trading SA - India
- Coastal Gujarat Power Limited - India
- Latin American Coal - Colombia
- Kartika Selabumi Mining - Indonesia
- Tamil Nadu electricity Board
- Sical Logistics Limited - India
- Minerals Council of Australia
- Krishnapatnam Port Company Ltd. - India
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