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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, 16 December 14
THIS PRICE IS A STEAL - EVA TZIMA
COALspot.com: Despite concerns that the slowdown of the Chinese economy would affect imports of iron ore, it seems that this has not been the case ...
Tuesday, 16 December 14
FOB RICHARDS BAY COAL SWAP FOR Q2' 15 DELIVERY CLOSED AT US$ 65.60 PMT
COALspot.com: API 4 FOB Richards Bay Coal for delivery Q1' 2015 lost month on month.
The Q1 swap has lost US$ 0.18 (-0.27%) month on month ...
Tuesday, 16 December 14
SUB-BIT FOB INDONESIA COAL SWAP CONTINUES ITS FALL
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 lost month on month, week over week and day on day.
The Q1 swap has lost US$ 1.7 ...
Monday, 15 December 14
WILL TANKERS BENEFIT FROM REEMERGENCE OF FLOATING STORAGE PLAYS? - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The tanker market has been seeing high freight rates for some time now, riding on the back of low oil prices, which are boosting demand from develo ...
Monday, 15 December 14
INDONESIAN COAL PRICE REFERENCE CRASHES THROUGH $65
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia revised down the coal bench mark price once again in December. HBA for t ...
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Showing 3306 to 3310 news of total 6871 |
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- SN Aboitiz Power Inc, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Madhucon Powers Ltd - India
- Bhushan Steel Limited - India
- Holcim Trading Pte Ltd - Singapore
- GN Power Mariveles Coal Plant, Philippines
- Straits Asia Resources Limited - Singapore
- The University of Queensland
- Edison Trading Spa - Italy
- Karaikal Port Pvt Ltd - India
- Bukit Baiduri Energy - Indonesia
- Coal and Oil Company - UAE
- Vizag Seaport Private Limited - India
- Semirara Mining and Power Corporation, Philippines
- Rio Tinto Coal - Australia
- Siam City Cement - Thailand
- Oldendorff Carriers - Singapore
- Xindia Steels Limited - India
- Wood Mackenzie - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Deloitte Consulting - India
- Borneo Indobara - Indonesia
- Simpson Spence & Young - Indonesia
- Timah Investasi Mineral - Indoneisa
- Aditya Birla Group - India
- Sarangani Energy Corporation, Philippines
- Power Finance Corporation Ltd., India
- Neyveli Lignite Corporation Ltd, - India
- Jindal Steel & Power Ltd - India
- Kumho Petrochemical, South Korea
- Sree Jayajothi Cements Limited - India
- Sindya Power Generating Company Private Ltd
- SMG Consultants - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bayan Resources Tbk. - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Altura Mining Limited, Indonesia
- GAC Shipping (India) Pvt Ltd
- VISA Power Limited - India
- The Treasury - Australian Government
- South Luzon Thermal Energy Corporation
- Meralco Power Generation, Philippines
- Lanco Infratech Ltd - India
- Jaiprakash Power Ventures ltd
- Singapore Mercantile Exchange
- The State Trading Corporation of India Ltd
- Bhatia International Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- CIMB Investment Bank - Malaysia
- Kideco Jaya Agung - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Banpu Public Company Limited - Thailand
- Larsen & Toubro Limited - India
- White Energy Company Limited
- Indika Energy - Indonesia
- Therma Luzon, Inc, Philippines
- Indian Energy Exchange, India
- Posco Energy - South Korea
- Global Coal Blending Company Limited - Australia
- Commonwealth Bank - Australia
- Ministry of Transport, Egypt
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indo Tambangraya Megah - Indonesia
- Romanian Commodities Exchange
- Central Electricity Authority - India
- Global Business Power Corporation, Philippines
- Attock Cement Pakistan Limited
- Offshore Bulk Terminal Pte Ltd, Singapore
- Pendopo Energi Batubara - Indonesia
- Renaissance Capital - South Africa
- Semirara Mining Corp, Philippines
- GVK Power & Infra Limited - India
- Samtan Co., Ltd - South Korea
- Central Java Power - Indonesia
- Thai Mozambique Logistica
- OPG Power Generation Pvt Ltd - India
- Makarim & Taira - Indonesia
- Goldman Sachs - Singapore
- Bulk Trading Sa - Switzerland
- Africa Commodities Group - South Africa
- Mjunction Services Limited - India
- Grasim Industreis Ltd - India
- Parry Sugars Refinery, India
- Orica Mining Services - Indonesia
- Star Paper Mills Limited - India
- Ind-Barath Power Infra Limited - India
- Wilmar Investment Holdings
- Energy Development Corp, Philippines
- Metalloyd Limited - United Kingdom
- Riau Bara Harum - Indonesia
- SMC Global Power, Philippines
- Ministry of Finance - Indonesia
- Binh Thuan Hamico - Vietnam
- Maharashtra Electricity Regulatory Commission - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Billiton Holdings Pty Ltd - Australia
- New Zealand Coal & Carbon
- Anglo American - United Kingdom
- Manunggal Multi Energi - Indonesia
- San Jose City I Power Corp, Philippines
- Dalmia Cement Bharat India
- GMR Energy Limited - India
- Sical Logistics Limited - India
- Aboitiz Power Corporation - Philippines
- Minerals Council of Australia
- Ambuja Cements Ltd - India
- Mercator Lines Limited - India
- Sojitz Corporation - Japan
- Baramulti Group, Indonesia
- Merrill Lynch Commodities Europe
- Petron Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Interocean Group of Companies - India
- Agrawal Coal Company - India
- CNBM International Corporation - China
- Global Green Power PLC Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Coalindo Energy - Indonesia
- Georgia Ports Authority, United States
- Kaltim Prima Coal - Indonesia
- Port Waratah Coal Services - Australia
- Jorong Barutama Greston.PT - Indonesia
- Malabar Cements Ltd - India
- Eastern Energy - Thailand
- Bhoruka Overseas - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Orica Australia Pty. Ltd.
- Bukit Makmur.PT - Indonesia
- Coastal Gujarat Power Limited - India
- Directorate General of MIneral and Coal - Indonesia
- PTC India Limited - India
- Savvy Resources Ltd - HongKong
- Intertek Mineral Services - Indonesia
- Tamil Nadu electricity Board
- Barasentosa Lestari - Indonesia
- Chettinad Cement Corporation Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Ceylon Electricity Board - Sri Lanka
- Indian Oil Corporation Limited
- PNOC Exploration Corporation - Philippines
- Krishnapatnam Port Company Ltd. - India
- Electricity Generating Authority of Thailand
- Directorate Of Revenue Intelligence - India
- Independent Power Producers Association of India
- Videocon Industries ltd - India
- Vedanta Resources Plc - India
- IHS Mccloskey Coal Group - USA
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- LBH Netherlands Bv - Netherlands
- Marubeni Corporation - India
- Indogreen Group - Indonesia
- Carbofer General Trading SA - India
- TNB Fuel Sdn Bhd - Malaysia
- Gujarat Electricity Regulatory Commission - India
- Essar Steel Hazira Ltd - India
- Economic Council, Georgia
- Salva Resources Pvt Ltd - India
- MS Steel International - UAE
- International Coal Ventures Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Tata Chemicals Ltd - India
- TeaM Sual Corporation - Philippines
- Bangladesh Power Developement Board
- Ministry of Mines - Canada
- Meenaskhi Energy Private Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Kepco SPC Power Corporation, Philippines
- Latin American Coal - Colombia
- Australian Commodity Traders Exchange
- Iligan Light & Power Inc, Philippines
- ASAPP Information Group - India
- Chamber of Mines of South Africa
- Sakthi Sugars Limited - India
- Cigading International Bulk Terminal - Indonesia
- Trasteel International SA, Italy
- Medco Energi Mining Internasional
- Gujarat Mineral Development Corp Ltd - India
- Toyota Tsusho Corporation, Japan
- Rashtriya Ispat Nigam Limited - India
- Planning Commission, India
- McConnell Dowell - Australia
- Price Waterhouse Coopers - Russia
- European Bulk Services B.V. - Netherlands
- Indonesian Coal Mining Association
- AsiaOL BioFuels Corp., Philippines
- Heidelberg Cement - Germany
- Mintek Dendrill Indonesia
- Antam Resourcindo - Indonesia
- Cement Manufacturers Association - India
- Eastern Coal Council - USA
- ICICI Bank Limited - India
- Bharathi Cement Corporation - India
- Alfred C Toepfer International GmbH - Germany
- Kartika Selabumi Mining - Indonesia
- India Bulls Power Limited - India
- Uttam Galva Steels Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- IEA Clean Coal Centre - UK
- Parliament of New Zealand
- Gujarat Sidhee Cement - India
- Australian Coal Association
- Asmin Koalindo Tuhup - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Energy Link Ltd, New Zealand
- Electricity Authority, New Zealand
- Siam City Cement PLC, Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Thiess Contractors Indonesia
- PowerSource Philippines DevCo
- Standard Chartered Bank - UAE
- Formosa Plastics Group - Taiwan
- Kalimantan Lumbung Energi - Indonesia
- Mercuria Energy - Indonesia
- London Commodity Brokers - England
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