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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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Thursday, 01 January 15
FOB RICHARDS BAY COAL SWAPS CLOSED AT $63.47 PMT ON 26 DEC, SGX DATA SHOWS
COALspot.com: API 4 FOB Richards Bay Coal for delivery Q1' 2015 lost month on month and week over week.
The Q1 swap has lost US$ 3.37 (-4. ...
Wednesday, 31 December 14
COASTAL ENERGEN (C&O) COMMENCES 1ST UNIT OF 1200 MW POWER PLANT IN INDIA
COALspot.com: Coastal Energen, part of the Coal & Oil Group, announced last week the commissioning and commencement of power production at the ...
Wednesday, 31 December 14
SUB-BIT INDONESIA COAL Q2' 15 DELIVERY SWAP CLOSED 1.03% LOWER COMPARED TO AVERAGE Q1' 15 DELIVERY PRICE - SGX
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 lost month on month and gained week over week.
The Q1 swap has lost US$ 1.35 (-2 ...
Tuesday, 30 December 14
SHIP PRICES KEEP ON FALLING, SALES COME EARLY FOR SHIP OWNERS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Ship prices keep on falling on the back of low freight rates. According to the latest report from shipbroker Allied Shipbroking, January sales seem ...
Tuesday, 30 December 14
INDIA INC TO BENEFIT AS IMPORTED COAL PRICES SET TO FALL - RAHUL PRITHIANI
The Hindu: India‘s coal import volumes are set to rise by over 30 per cent over the next two years to 214 million tonnes in 2015-16, as domes ...
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- San Jose City I Power Corp, Philippines
- IHS Mccloskey Coal Group - USA
- Billiton Holdings Pty Ltd - Australia
- Baramulti Group, Indonesia
- Aboitiz Power Corporation - Philippines
- Altura Mining Limited, Indonesia
- Tata Chemicals Ltd - India
- Coal and Oil Company - UAE
- India Bulls Power Limited - India
- Bulk Trading Sa - Switzerland
- Formosa Plastics Group - Taiwan
- Electricity Authority, New Zealand
- Salva Resources Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Ministry of Finance - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Sarangani Energy Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Eastern Energy - Thailand
- Petrochimia International Co. Ltd.- Taiwan
- Bhatia International Limited - India
- Rio Tinto Coal - Australia
- Mintek Dendrill Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Intertek Mineral Services - Indonesia
- Dalmia Cement Bharat India
- Electricity Generating Authority of Thailand
- Australian Coal Association
- Chamber of Mines of South Africa
- Central Java Power - Indonesia
- International Coal Ventures Pvt Ltd - India
- Deloitte Consulting - India
- Medco Energi Mining Internasional
- Agrawal Coal Company - India
- Chettinad Cement Corporation Ltd - India
- Bukit Baiduri Energy - Indonesia
- Grasim Industreis Ltd - India
- Renaissance Capital - South Africa
- Bhushan Steel Limited - India
- Holcim Trading Pte Ltd - Singapore
- Videocon Industries ltd - India
- Rashtriya Ispat Nigam Limited - India
- Commonwealth Bank - Australia
- GVK Power & Infra Limited - India
- Jindal Steel & Power Ltd - India
- Ind-Barath Power Infra Limited - India
- Economic Council, Georgia
- IEA Clean Coal Centre - UK
- Vizag Seaport Private Limited - India
- Metalloyd Limited - United Kingdom
- Karbindo Abesyapradhi - Indoneisa
- Indian Oil Corporation Limited
- Bukit Asam (Persero) Tbk - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- ASAPP Information Group - India
- Straits Asia Resources Limited - Singapore
- South Luzon Thermal Energy Corporation
- Madhucon Powers Ltd - India
- Banpu Public Company Limited - Thailand
- Binh Thuan Hamico - Vietnam
- Price Waterhouse Coopers - Russia
- Bhoruka Overseas - Indonesia
- Toyota Tsusho Corporation, Japan
- Lanco Infratech Ltd - India
- Oldendorff Carriers - Singapore
- Indika Energy - Indonesia
- The State Trading Corporation of India Ltd
- Riau Bara Harum - Indonesia
- PNOC Exploration Corporation - Philippines
- Globalindo Alam Lestari - Indonesia
- McConnell Dowell - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- GMR Energy Limited - India
- Alfred C Toepfer International GmbH - Germany
- Bangladesh Power Developement Board
- Cement Manufacturers Association - India
- Siam City Cement PLC, Thailand
- Iligan Light & Power Inc, Philippines
- Ministry of Transport, Egypt
- Marubeni Corporation - India
- Xindia Steels Limited - India
- Thai Mozambique Logistica
- Kumho Petrochemical, South Korea
- Sojitz Corporation - Japan
- Georgia Ports Authority, United States
- Indian Energy Exchange, India
- Sree Jayajothi Cements Limited - India
- Antam Resourcindo - Indonesia
- Kepco SPC Power Corporation, Philippines
- Petron Corporation, Philippines
- Planning Commission, India
- Kartika Selabumi Mining - Indonesia
- Kobexindo Tractors - Indoneisa
- Indonesian Coal Mining Association
- Mercator Lines Limited - India
- Mjunction Services Limited - India
- Meralco Power Generation, Philippines
- Energy Development Corp, Philippines
- Timah Investasi Mineral - Indoneisa
- PTC India Limited - India
- Barasentosa Lestari - Indonesia
- Simpson Spence & Young - Indonesia
- SMC Global Power, Philippines
- Energy Link Ltd, New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- Tamil Nadu electricity Board
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Jaiprakash Power Ventures ltd
- Indo Tambangraya Megah - Indonesia
- The University of Queensland
- Bank of Tokyo Mitsubishi UFJ Ltd
- European Bulk Services B.V. - Netherlands
- Parliament of New Zealand
- TeaM Sual Corporation - Philippines
- Ambuja Cements Ltd - India
- Trasteel International SA, Italy
- Eastern Coal Council - USA
- Central Electricity Authority - India
- Global Green Power PLC Corporation, Philippines
- Independent Power Producers Association of India
- Global Business Power Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Power Finance Corporation Ltd., India
- Bayan Resources Tbk. - Indonesia
- Standard Chartered Bank - UAE
- Ceylon Electricity Board - Sri Lanka
- Gujarat Electricity Regulatory Commission - India
- Sinarmas Energy and Mining - Indonesia
- Global Coal Blending Company Limited - Australia
- Merrill Lynch Commodities Europe
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Gujarat Sidhee Cement - India
- MS Steel International - UAE
- Bukit Makmur.PT - Indonesia
- Borneo Indobara - Indonesia
- Romanian Commodities Exchange
- Semirara Mining and Power Corporation, Philippines
- Parry Sugars Refinery, India
- Bahari Cakrawala Sebuku - Indonesia
- Port Waratah Coal Services - Australia
- PetroVietnam Power Coal Import and Supply Company
- Latin American Coal - Colombia
- Kaltim Prima Coal - Indonesia
- Goldman Sachs - Singapore
- Edison Trading Spa - Italy
- Directorate General of MIneral and Coal - Indonesia
- Therma Luzon, Inc, Philippines
- Anglo American - United Kingdom
- Kideco Jaya Agung - Indonesia
- Orica Mining Services - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Siam City Cement - Thailand
- TNB Fuel Sdn Bhd - Malaysia
- AsiaOL BioFuels Corp., Philippines
- Bharathi Cement Corporation - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Semirara Mining Corp, Philippines
- Africa Commodities Group - South Africa
- Samtan Co., Ltd - South Korea
- Carbofer General Trading SA - India
- Larsen & Toubro Limited - India
- Attock Cement Pakistan Limited
- Coastal Gujarat Power Limited - India
- Interocean Group of Companies - India
- New Zealand Coal & Carbon
- Maheswari Brothers Coal Limited - India
- Heidelberg Cement - Germany
- Indogreen Group - Indonesia
- SMG Consultants - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Orica Australia Pty. Ltd.
- Mercuria Energy - Indonesia
- Star Paper Mills Limited - India
- Sakthi Sugars Limited - India
- SN Aboitiz Power Inc, Philippines
- Sindya Power Generating Company Private Ltd
- LBH Netherlands Bv - Netherlands
- Essar Steel Hazira Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Aditya Birla Group - India
- Gujarat Mineral Development Corp Ltd - India
- PowerSource Philippines DevCo
- Vijayanagar Sugar Pvt Ltd - India
- Wilmar Investment Holdings
- London Commodity Brokers - England
- Posco Energy - South Korea
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- CIMB Investment Bank - Malaysia
- Maharashtra Electricity Regulatory Commission - India
- CNBM International Corporation - China
- Kohat Cement Company Ltd. - Pakistan
- Leighton Contractors Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- Makarim & Taira - Indonesia
- Krishnapatnam Port Company Ltd. - India
- The Treasury - Australian Government
- Singapore Mercantile Exchange
- Thiess Contractors Indonesia
- Coalindo Energy - Indonesia
- Ministry of Mines - Canada
- Wood Mackenzie - Singapore
- Manunggal Multi Energi - Indonesia
- Pendopo Energi Batubara - Indonesia
- ICICI Bank Limited - India
- GAC Shipping (India) Pvt Ltd
- Karaikal Port Pvt Ltd - India
- Uttam Galva Steels Limited - India
- Sical Logistics Limited - India
- OPG Power Generation Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- VISA Power Limited - India
- White Energy Company Limited
- Minerals Council of Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Australian Commodity Traders Exchange
- Malabar Cements Ltd - India
- Vedanta Resources Plc - India
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