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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, 30 December 14
U.S WEEKLY COAL PRODUCTION ALMOST FLAT AT -0.2%
COALspot.com – United States the world's one of the largest coal producers, produced approximately 19.8 million short tons (mmst) of coal ...
Monday, 29 December 14
CHINESE COAL IMPORTS: REGULATORY RISKS? - CLARKSONS
In recent years, Chinese seaborne coal imports have surged, registering average growth of 67% p.a. between 2009 and 2013 to total 265mt. However, t ...
Monday, 29 December 14
BULK MARKET ENDS YEAR ON SOUR NOTE, SHIPBROKER SEES 'BUMPY ROAD AHEAD' - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
2014 was supposed to be the year that the dry bulk market would stage a comeback and a sustainable one for that matter. However, while for the most ...
Monday, 29 December 14
Q1'15 CFR SOUTH CHINA COAL SWAP CLOSED AT $59.42
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery has decreased by US$ 3.51 (-5.58%) month over month and US$ 0.08 (-0.13%) ...
Monday, 29 December 14
SGX'S FOB NEWCASTLE COAL SWAPS IMPROVED W-O-W, LOST M-O-M
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2015 delivery lost US$ 1.44 per MT (-2.73%) month over month and gained US$ 0.36 (+0.71%) ...
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Showing 3286 to 3290 news of total 6871 |
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- Antam Resourcindo - Indonesia
- Australian Coal Association
- Chettinad Cement Corporation Ltd - India
- Goldman Sachs - Singapore
- Semirara Mining and Power Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Kaltim Prima Coal - Indonesia
- SMG Consultants - Indonesia
- Toyota Tsusho Corporation, Japan
- LBH Netherlands Bv - Netherlands
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Port Waratah Coal Services - Australia
- Leighton Contractors Pty Ltd - Australia
- Savvy Resources Ltd - HongKong
- Meenaskhi Energy Private Limited - India
- SN Aboitiz Power Inc, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Asmin Koalindo Tuhup - Indonesia
- Attock Cement Pakistan Limited
- Therma Luzon, Inc, Philippines
- Formosa Plastics Group - Taiwan
- Semirara Mining Corp, Philippines
- PowerSource Philippines DevCo
- London Commodity Brokers - England
- Latin American Coal - Colombia
- Kumho Petrochemical, South Korea
- ICICI Bank Limited - India
- Bukit Baiduri Energy - Indonesia
- Sakthi Sugars Limited - India
- Karaikal Port Pvt Ltd - India
- Minerals Council of Australia
- Vizag Seaport Private Limited - India
- Aboitiz Power Corporation - Philippines
- Altura Mining Limited, Indonesia
- Billiton Holdings Pty Ltd - Australia
- Independent Power Producers Association of India
- McConnell Dowell - Australia
- Australian Commodity Traders Exchange
- South Luzon Thermal Energy Corporation
- Banpu Public Company Limited - Thailand
- Uttam Galva Steels Limited - India
- TeaM Sual Corporation - Philippines
- Standard Chartered Bank - UAE
- Indika Energy - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Baramulti Group, Indonesia
- White Energy Company Limited
- Barasentosa Lestari - Indonesia
- Indian Oil Corporation Limited
- Bhoruka Overseas - Indonesia
- Meralco Power Generation, Philippines
- Gujarat Electricity Regulatory Commission - India
- PTC India Limited - India
- Wood Mackenzie - Singapore
- Tata Chemicals Ltd - India
- Siam City Cement PLC, Thailand
- Orica Australia Pty. Ltd.
- Rio Tinto Coal - Australia
- Jaiprakash Power Ventures ltd
- Kapuas Tunggal Persada - Indonesia
- Posco Energy - South Korea
- Power Finance Corporation Ltd., India
- Ceylon Electricity Board - Sri Lanka
- Jindal Steel & Power Ltd - India
- International Coal Ventures Pvt Ltd - India
- Petron Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Lanco Infratech Ltd - India
- Star Paper Mills Limited - India
- Anglo American - United Kingdom
- Chamber of Mines of South Africa
- The Treasury - Australian Government
- Parliament of New Zealand
- Borneo Indobara - Indonesia
- Ministry of Mines - Canada
- Africa Commodities Group - South Africa
- Xindia Steels Limited - India
- Holcim Trading Pte Ltd - Singapore
- Global Green Power PLC Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Energy Link Ltd, New Zealand
- Intertek Mineral Services - Indonesia
- Orica Mining Services - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Bank of Tokyo Mitsubishi UFJ Ltd
- Manunggal Multi Energi - Indonesia
- Medco Energi Mining Internasional
- San Jose City I Power Corp, Philippines
- Cement Manufacturers Association - India
- Global Business Power Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Larsen & Toubro Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Tamil Nadu electricity Board
- Miang Besar Coal Terminal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- Kohat Cement Company Ltd. - Pakistan
- Makarim & Taira - Indonesia
- Simpson Spence & Young - Indonesia
- ASAPP Information Group - India
- The State Trading Corporation of India Ltd
- Gujarat Sidhee Cement - India
- Indian Energy Exchange, India
- Maharashtra Electricity Regulatory Commission - India
- Deloitte Consulting - India
- Grasim Industreis Ltd - India
- Ambuja Cements Ltd - India
- Riau Bara Harum - Indonesia
- Maheswari Brothers Coal Limited - India
- Indogreen Group - Indonesia
- Electricity Generating Authority of Thailand
- Global Coal Blending Company Limited - Australia
- Sarangani Energy Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Sree Jayajothi Cements Limited - India
- Eastern Energy - Thailand
- Bayan Resources Tbk. - Indonesia
- The University of Queensland
- Thai Mozambique Logistica
- Parry Sugars Refinery, India
- Kobexindo Tractors - Indoneisa
- Trasteel International SA, Italy
- Neyveli Lignite Corporation Ltd, - India
- Bharathi Cement Corporation - India
- Samtan Co., Ltd - South Korea
- VISA Power Limited - India
- Coalindo Energy - Indonesia
- Oldendorff Carriers - Singapore
- GVK Power & Infra Limited - India
- Wilmar Investment Holdings
- OPG Power Generation Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- India Bulls Power Limited - India
- Aditya Birla Group - India
- Malabar Cements Ltd - India
- Essar Steel Hazira Ltd - India
- Bulk Trading Sa - Switzerland
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Marubeni Corporation - India
- Planning Commission, India
- Bhushan Steel Limited - India
- CNBM International Corporation - China
- Globalindo Alam Lestari - Indonesia
- IHS Mccloskey Coal Group - USA
- Madhucon Powers Ltd - India
- Price Waterhouse Coopers - Russia
- Electricity Authority, New Zealand
- Vedanta Resources Plc - India
- SMC Global Power, Philippines
- Agrawal Coal Company - India
- Central Java Power - Indonesia
- Directorate Of Revenue Intelligence - India
- Ministry of Transport, Egypt
- Pendopo Energi Batubara - Indonesia
- Coal and Oil Company - UAE
- Siam City Cement - Thailand
- Merrill Lynch Commodities Europe
- Sical Logistics Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Mercuria Energy - Indonesia
- Ind-Barath Power Infra Limited - India
- Sindya Power Generating Company Private Ltd
- Indonesian Coal Mining Association
- GN Power Mariveles Coal Plant, Philippines
- Renaissance Capital - South Africa
- Edison Trading Spa - Italy
- Coastal Gujarat Power Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Iligan Light & Power Inc, Philippines
- GMR Energy Limited - India
- Mjunction Services Limited - India
- Economic Council, Georgia
- Bhatia International Limited - India
- Kideco Jaya Agung - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bangladesh Power Developement Board
- Kartika Selabumi Mining - Indonesia
- Heidelberg Cement - Germany
- Interocean Group of Companies - India
- Ministry of Finance - Indonesia
- GAC Shipping (India) Pvt Ltd
- Carbofer General Trading SA - India
- Karbindo Abesyapradhi - Indoneisa
- Romanian Commodities Exchange
- Krishnapatnam Port Company Ltd. - India
- Central Electricity Authority - India
- IEA Clean Coal Centre - UK
- Indo Tambangraya Megah - Indonesia
- Sojitz Corporation - Japan
- MS Steel International - UAE
- Thiess Contractors Indonesia
- Salva Resources Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Dalmia Cement Bharat India
- Timah Investasi Mineral - Indoneisa
- Petrochimia International Co. Ltd.- Taiwan
- Georgia Ports Authority, United States
- Videocon Industries ltd - India
- Singapore Mercantile Exchange
- Kepco SPC Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Eastern Coal Council - USA
- Mercator Lines Limited - India
- Mintek Dendrill Indonesia
- Energy Development Corp, Philippines
- Straits Asia Resources Limited - Singapore
- Kalimantan Lumbung Energi - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Commonwealth Bank - Australia
- New Zealand Coal & Carbon
- Pipit Mutiara Jaya. PT, Indonesia
- CIMB Investment Bank - Malaysia
- Vijayanagar Sugar Pvt Ltd - India
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