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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, 23 December 14
SHIPOWNERS ARE FINALIZING MORE DEALS AS YEAR END COMES CLOSER - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS WORLDWIDE
With the 2014 year just a few days before waving goodbye, shipowners are looking to close their pending deals in both the newbuilding and S&P m ...
Monday, 22 December 14
Q2'15 CFR SOUTH CHINA COAL SWAP CLOSED $ 0.30 LOWER THAN Q1'15 CLOSING
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery has decreased by US$ 3.67 (-5.81%) month over month and US$ 0.35 (-0.58%) ...
Monday, 22 December 14
API 5 FOB NEWCASTLE COAL SWAPS ARE HEADING SOUTH
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2015 delivery lost US$ 1.71 per MT (-3.24%) and closed at US$ 51.02 on 19 December month ...
Sunday, 21 December 14
PANAMAX COAL FREIGHT FROM INDONESIA TO INDIA FALLS FURTHER
COALspot.com: The BDI continued its fall as cape index lost heavily week on week.
The BDI was down 6.95 percent week over week and closed at 8 ...
Friday, 19 December 14
HOW WILL LOWER BUNKER PRICES AFFECT THE SUBSTANTIAL OVERCAPACITY IN DRY BULK MARKET? - BIMCO
As bunker fuel costs have come down from USD 600 per tonnes to USD 330 per tonnes in the past 6 months, much talk about increased ship speed have s ...
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Showing 3296 to 3300 news of total 6871 |
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- India Bulls Power Limited - India
- Iligan Light & Power Inc, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Wood Mackenzie - Singapore
- Gujarat Sidhee Cement - India
- PowerSource Philippines DevCo
- Australian Coal Association
- Karaikal Port Pvt Ltd - India
- Georgia Ports Authority, United States
- Banpu Public Company Limited - Thailand
- Petrochimia International Co. Ltd.- Taiwan
- Offshore Bulk Terminal Pte Ltd, Singapore
- Leighton Contractors Pty Ltd - Australia
- Kumho Petrochemical, South Korea
- Ceylon Electricity Board - Sri Lanka
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- GVK Power & Infra Limited - India
- Bhushan Steel Limited - India
- Mercator Lines Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Edison Trading Spa - Italy
- Borneo Indobara - Indonesia
- Bhoruka Overseas - Indonesia
- Salva Resources Pvt Ltd - India
- Ambuja Cements Ltd - India
- TeaM Sual Corporation - Philippines
- Samtan Co., Ltd - South Korea
- Port Waratah Coal Services - Australia
- Indian Oil Corporation Limited
- Indian Energy Exchange, India
- Bulk Trading Sa - Switzerland
- Bhatia International Limited - India
- Globalindo Alam Lestari - Indonesia
- Indonesian Coal Mining Association
- Sindya Power Generating Company Private Ltd
- Meralco Power Generation, Philippines
- Bukit Baiduri Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Marubeni Corporation - India
- Rio Tinto Coal - Australia
- Carbofer General Trading SA - India
- Dalmia Cement Bharat India
- Vijayanagar Sugar Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Attock Cement Pakistan Limited
- Sree Jayajothi Cements Limited - India
- Global Coal Blending Company Limited - Australia
- Baramulti Group, Indonesia
- Price Waterhouse Coopers - Russia
- Thai Mozambique Logistica
- Kepco SPC Power Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Binh Thuan Hamico - Vietnam
- Thiess Contractors Indonesia
- London Commodity Brokers - England
- Eastern Coal Council - USA
- Maheswari Brothers Coal Limited - India
- Coastal Gujarat Power Limited - India
- Holcim Trading Pte Ltd - Singapore
- Gujarat Electricity Regulatory Commission - India
- Makarim & Taira - Indonesia
- Posco Energy - South Korea
- Standard Chartered Bank - UAE
- Karbindo Abesyapradhi - Indoneisa
- Kartika Selabumi Mining - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Sakthi Sugars Limited - India
- Energy Development Corp, Philippines
- Xindia Steels Limited - India
- Electricity Authority, New Zealand
- Minerals Council of Australia
- Energy Link Ltd, New Zealand
- Kapuas Tunggal Persada - Indonesia
- Indo Tambangraya Megah - Indonesia
- Toyota Tsusho Corporation, Japan
- Intertek Mineral Services - Indonesia
- Chamber of Mines of South Africa
- Cement Manufacturers Association - India
- The Treasury - Australian Government
- Medco Energi Mining Internasional
- Australian Commodity Traders Exchange
- Directorate Of Revenue Intelligence - India
- Agrawal Coal Company - India
- ICICI Bank Limited - India
- Semirara Mining Corp, Philippines
- Aditya Birla Group - India
- Manunggal Multi Energi - Indonesia
- Therma Luzon, Inc, Philippines
- Heidelberg Cement - Germany
- Mercuria Energy - Indonesia
- Simpson Spence & Young - Indonesia
- Krishnapatnam Port Company Ltd. - India
- GN Power Mariveles Coal Plant, Philippines
- CNBM International Corporation - China
- Singapore Mercantile Exchange
- Antam Resourcindo - Indonesia
- Lanco Infratech Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Romanian Commodities Exchange
- Maharashtra Electricity Regulatory Commission - India
- McConnell Dowell - Australia
- Oldendorff Carriers - Singapore
- Orica Australia Pty. Ltd.
- Vizag Seaport Private Limited - India
- Commonwealth Bank - Australia
- GMR Energy Limited - India
- MS Steel International - UAE
- The State Trading Corporation of India Ltd
- Asmin Koalindo Tuhup - Indonesia
- Ind-Barath Power Infra Limited - India
- Central Java Power - Indonesia
- Siam City Cement PLC, Thailand
- Electricity Generating Authority of Thailand
- New Zealand Coal & Carbon
- White Energy Company Limited
- Tamil Nadu electricity Board
- Indogreen Group - Indonesia
- Anglo American - United Kingdom
- Rashtriya Ispat Nigam Limited - India
- Ministry of Mines - Canada
- Bharathi Cement Corporation - India
- Power Finance Corporation Ltd., India
- Miang Besar Coal Terminal - Indonesia
- Coal and Oil Company - UAE
- TNB Fuel Sdn Bhd - Malaysia
- European Bulk Services B.V. - Netherlands
- Malabar Cements Ltd - India
- GAC Shipping (India) Pvt Ltd
- Eastern Energy - Thailand
- Videocon Industries ltd - India
- Essar Steel Hazira Ltd - India
- Kobexindo Tractors - Indoneisa
- Neyveli Lignite Corporation Ltd, - India
- Straits Asia Resources Limited - Singapore
- Metalloyd Limited - United Kingdom
- OPG Power Generation Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Barasentosa Lestari - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- SMG Consultants - Indonesia
- Petron Corporation, Philippines
- CIMB Investment Bank - Malaysia
- Madhucon Powers Ltd - India
- Orica Mining Services - Indonesia
- VISA Power Limited - India
- Pendopo Energi Batubara - Indonesia
- Jindal Steel & Power Ltd - India
- Timah Investasi Mineral - Indoneisa
- Mjunction Services Limited - India
- Central Electricity Authority - India
- Mintek Dendrill Indonesia
- Formosa Plastics Group - Taiwan
- Global Green Power PLC Corporation, Philippines
- PTC India Limited - India
- Bukit Makmur.PT - Indonesia
- Wilmar Investment Holdings
- Uttam Galva Steels Limited - India
- Gujarat Mineral Development Corp Ltd - India
- LBH Netherlands Bv - Netherlands
- Chettinad Cement Corporation Ltd - India
- Jaiprakash Power Ventures ltd
- Ministry of Finance - Indonesia
- SMC Global Power, Philippines
- Deloitte Consulting - India
- Vedanta Resources Plc - India
- Altura Mining Limited, Indonesia
- Parliament of New Zealand
- Economic Council, Georgia
- PetroVietnam Power Coal Import and Supply Company
- Cigading International Bulk Terminal - Indonesia
- South Luzon Thermal Energy Corporation
- Merrill Lynch Commodities Europe
- Parry Sugars Refinery, India
- PNOC Exploration Corporation - Philippines
- Indika Energy - Indonesia
- Bayan Resources Tbk. - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Goldman Sachs - Singapore
- Coalindo Energy - Indonesia
- Larsen & Toubro Limited - India
- ASAPP Information Group - India
- Sical Logistics Limited - India
- Semirara Mining and Power Corporation, Philippines
- Grasim Industreis Ltd - India
- Sojitz Corporation - Japan
- Kideco Jaya Agung - Indonesia
- The University of Queensland
- Kaltim Prima Coal - Indonesia
- Latin American Coal - Colombia
- Planning Commission, India
- Renaissance Capital - South Africa
- IHS Mccloskey Coal Group - USA
- Bank of Tokyo Mitsubishi UFJ Ltd
- Trasteel International SA, Italy
- Star Paper Mills Limited - India
- Bangladesh Power Developement Board
- Siam City Cement - Thailand
- Africa Commodities Group - South Africa
- Independent Power Producers Association of India
- Savvy Resources Ltd - HongKong
- Global Business Power Corporation, Philippines
- Tata Chemicals Ltd - India
- Riau Bara Harum - Indonesia
- IEA Clean Coal Centre - UK
- Interocean Group of Companies - India
- San Jose City I Power Corp, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Ministry of Transport, Egypt
- Alfred C Toepfer International GmbH - Germany
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- International Coal Ventures Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Sarangani Energy Corporation, Philippines
- Aboitiz Power Corporation - Philippines
- Jorong Barutama Greston.PT - Indonesia
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