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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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Friday, 26 December 14
SHIPS FACE LOWER SULPHUR FUEL REQUIREMENTS IN EMISSION CONTROL AREAS FROM 1 JANUARY 2015 - IMO
Ships trading in designated emission control areas will have to use on board fuel oil with a sulphur content of no more than 0.10% from 1 January 2 ...
Wednesday, 24 December 14
CAPE DEMAND WAS STILL EXTREMELY SOFT THIS PAST WEEK ACROSS BOTH BASINS - INTERMODAL
COALspot.com: The performance of the Dry Bulk market, which found itself in desperate search of support for yet another week, has left very little ...
Wednesday, 24 December 14
MARKET INSIGHT - JOHN N. COTZIAS, INTERMODAL SNP BROKER
The year is coming to an end, and we should be able to assess if this was a good year, a bad year, or even a lousy one? The answer clearly de ...
Tuesday, 23 December 14
Q1'15 FOB INDONESIA COAL SWAP GAINED 48 CENTS IN ONE WEEK
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 lost month on month and gained week over week and day on day.
The Q1 swap has lo ...
Tuesday, 23 December 14
Q4'15 FOB RICHARDS BAY COAL SWAPS FALL $ 3.85 IN A MONTH
COALspot.com: API 4 FOB Richards Bay Coal for delivery Q1' 2015 lost month on month.
The Q1 swap has lost US$ 2.13 (-3.17%) month on month ...
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Showing 3291 to 3295 news of total 6871 |
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- Central Electricity Authority - India
- Singapore Mercantile Exchange
- Star Paper Mills Limited - India
- Vizag Seaport Private Limited - India
- Borneo Indobara - Indonesia
- Kapuas Tunggal Persada - Indonesia
- India Bulls Power Limited - India
- Mjunction Services Limited - India
- CIMB Investment Bank - Malaysia
- Metalloyd Limited - United Kingdom
- Antam Resourcindo - Indonesia
- Thiess Contractors Indonesia
- South Luzon Thermal Energy Corporation
- Mercator Lines Limited - India
- Commonwealth Bank - Australia
- Indika Energy - Indonesia
- Lanco Infratech Ltd - India
- Tata Chemicals Ltd - India
- Meralco Power Generation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Australian Commodity Traders Exchange
- Standard Chartered Bank - UAE
- Wood Mackenzie - Singapore
- Mercuria Energy - Indonesia
- Altura Mining Limited, Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Directorate Of Revenue Intelligence - India
- SMG Consultants - Indonesia
- Makarim & Taira - Indonesia
- Iligan Light & Power Inc, Philippines
- Global Coal Blending Company Limited - Australia
- Dalmia Cement Bharat India
- Gujarat Mineral Development Corp Ltd - India
- Samtan Co., Ltd - South Korea
- Banpu Public Company Limited - Thailand
- Ministry of Finance - Indonesia
- Marubeni Corporation - India
- Central Java Power - Indonesia
- Indian Energy Exchange, India
- Eastern Energy - Thailand
- Orica Australia Pty. Ltd.
- McConnell Dowell - Australia
- ASAPP Information Group - India
- Binh Thuan Hamico - Vietnam
- Edison Trading Spa - Italy
- Rashtriya Ispat Nigam Limited - India
- Renaissance Capital - South Africa
- Kaltim Prima Coal - Indonesia
- PowerSource Philippines DevCo
- Goldman Sachs - Singapore
- Maharashtra Electricity Regulatory Commission - India
- SN Aboitiz Power Inc, Philippines
- IHS Mccloskey Coal Group - USA
- Timah Investasi Mineral - Indoneisa
- Petron Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Riau Bara Harum - Indonesia
- Latin American Coal - Colombia
- Global Business Power Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Bharathi Cement Corporation - India
- Billiton Holdings Pty Ltd - Australia
- Madhucon Powers Ltd - India
- Electricity Generating Authority of Thailand
- Essar Steel Hazira Ltd - India
- Medco Energi Mining Internasional
- Kepco SPC Power Corporation, Philippines
- Bangladesh Power Developement Board
- Merrill Lynch Commodities Europe
- Bukit Makmur.PT - Indonesia
- Bulk Trading Sa - Switzerland
- TNB Fuel Sdn Bhd - Malaysia
- Grasim Industreis Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Formosa Plastics Group - Taiwan
- Jorong Barutama Greston.PT - Indonesia
- Bhushan Steel Limited - India
- SMC Global Power, Philippines
- Pendopo Energi Batubara - Indonesia
- Barasentosa Lestari - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- The University of Queensland
- Alfred C Toepfer International GmbH - Germany
- Manunggal Multi Energi - Indonesia
- Coastal Gujarat Power Limited - India
- Africa Commodities Group - South Africa
- Carbofer General Trading SA - India
- The Treasury - Australian Government
- Energy Development Corp, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Salva Resources Pvt Ltd - India
- Aditya Birla Group - India
- Vijayanagar Sugar Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- Sical Logistics Limited - India
- Thai Mozambique Logistica
- Ceylon Electricity Board - Sri Lanka
- San Jose City I Power Corp, Philippines
- Globalindo Alam Lestari - Indonesia
- Deloitte Consulting - India
- Anglo American - United Kingdom
- Sojitz Corporation - Japan
- Bahari Cakrawala Sebuku - Indonesia
- Minerals Council of Australia
- New Zealand Coal & Carbon
- Bukit Baiduri Energy - Indonesia
- Global Green Power PLC Corporation, Philippines
- Port Waratah Coal Services - Australia
- Bhatia International Limited - India
- Chamber of Mines of South Africa
- Kumho Petrochemical, South Korea
- Bayan Resources Tbk. - Indonesia
- Vedanta Resources Plc - India
- Power Finance Corporation Ltd., India
- International Coal Ventures Pvt Ltd - India
- CNBM International Corporation - China
- Mintek Dendrill Indonesia
- White Energy Company Limited
- Posco Energy - South Korea
- GAC Shipping (India) Pvt Ltd
- Karbindo Abesyapradhi - Indoneisa
- London Commodity Brokers - England
- PTC India Limited - India
- AsiaOL BioFuels Corp., Philippines
- Sarangani Energy Corporation, Philippines
- Xindia Steels Limited - India
- TeaM Sual Corporation - Philippines
- Australian Coal Association
- Indonesian Coal Mining Association
- Bhoruka Overseas - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Gujarat Sidhee Cement - India
- Cigading International Bulk Terminal - Indonesia
- Kobexindo Tractors - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Savvy Resources Ltd - HongKong
- OPG Power Generation Pvt Ltd - India
- Independent Power Producers Association of India
- Cement Manufacturers Association - India
- Economic Council, Georgia
- Price Waterhouse Coopers - Russia
- Heidelberg Cement - Germany
- Gujarat Electricity Regulatory Commission - India
- Indogreen Group - Indonesia
- Toyota Tsusho Corporation, Japan
- Parry Sugars Refinery, India
- Malabar Cements Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Ministry of Mines - Canada
- Semirara Mining Corp, Philippines
- Maheswari Brothers Coal Limited - India
- Coalindo Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Aboitiz Power Corporation - Philippines
- Georgia Ports Authority, United States
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Simpson Spence & Young - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Coal and Oil Company - UAE
- MS Steel International - UAE
- VISA Power Limited - India
- Orica Mining Services - Indonesia
- Jindal Steel & Power Ltd - India
- Indian Oil Corporation Limited
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Planning Commission, India
- Straits Asia Resources Limited - Singapore
- Sree Jayajothi Cements Limited - India
- Indo Tambangraya Megah - Indonesia
- Ind-Barath Power Infra Limited - India
- Rio Tinto Coal - Australia
- LBH Netherlands Bv - Netherlands
- Larsen & Toubro Limited - India
- Electricity Authority, New Zealand
- Sakthi Sugars Limited - India
- Tamil Nadu electricity Board
- Therma Luzon, Inc, Philippines
- Agrawal Coal Company - India
- GVK Power & Infra Limited - India
- Sinarmas Energy and Mining - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- ICICI Bank Limited - India
- Ambuja Cements Ltd - India
- Baramulti Group, Indonesia
- Videocon Industries ltd - India
- Kartika Selabumi Mining - Indonesia
- Romanian Commodities Exchange
- Energy Link Ltd, New Zealand
- Siam City Cement - Thailand
- GMR Energy Limited - India
- European Bulk Services B.V. - Netherlands
- Siam City Cement PLC, Thailand
- Petrochimia International Co. Ltd.- Taiwan
- Pipit Mutiara Jaya. PT, Indonesia
- Uttam Galva Steels Limited - India
- Jaiprakash Power Ventures ltd
- Wilmar Investment Holdings
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Eastern Coal Council - USA
- Krishnapatnam Port Company Ltd. - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Oldendorff Carriers - Singapore
- IEA Clean Coal Centre - UK
- Interocean Group of Companies - India
- Intertek Mineral Services - Indonesia
- Ministry of Transport, Egypt
- Directorate General of MIneral and Coal - Indonesia
- The State Trading Corporation of India Ltd
- Kideco Jaya Agung - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Trasteel International SA, Italy
- Parliament of New Zealand
- Sindya Power Generating Company Private Ltd
- Chettinad Cement Corporation Ltd - India
- Attock Cement Pakistan Limited
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