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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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Wednesday, 10 December 14
SHIPPING MARKET INSIGHT - GEORGE ILIOPOULOS, INTERMODAL
COALspot.com: As 2014 is coming to an end, we look back to what has happened during the year and notice that SnP activity has been particularly sof ...
Wednesday, 10 December 14
WORLD HARD COAL MARKET 2014: PRODUCTION AND TRADE STAGNATING, IMPORTS TO GERMANY AND EUROPE ON THE DECLINE
Press Release: German Coal Importers Association (VDKi) criticizes regulations ordering reduction of CO2 emissions from coal-fired power plants as ...
Tuesday, 09 December 14
PRESSURE ON CHINA COAL MINERS TO CONTINUE DESPITE GOVERNMENT SUPPORT - FITCH
COALspot.com: Fitch Ratings says that Chinese coal mining companies will continue to be pressured by low prices, which will persist despite recent ...
Tuesday, 09 December 14
Q4' 2015, FOB INDONESIA COAL SWAP CLOSED AT $ 49.02 W/E 5 DEC
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$ 0.2 ...
Tuesday, 09 December 14
API 8 CFR SOUTH CHINA COAL SWAPS FELL 1.8% MONTH OVER MONTH
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery has decreased US$ 1.84 (-2.91%) month over month and US$ 0.95 (-1.52%) we ...
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Showing 3316 to 3320 news of total 6871 |
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- Star Paper Mills Limited - India
- Australian Commodity Traders Exchange
- Offshore Bulk Terminal Pte Ltd, Singapore
- Makarim & Taira - Indonesia
- Meenaskhi Energy Private Limited - India
- Karaikal Port Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Indian Oil Corporation Limited
- Coalindo Energy - Indonesia
- Renaissance Capital - South Africa
- Tata Chemicals Ltd - India
- Ambuja Cements Ltd - India
- GMR Energy Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Interocean Group of Companies - India
- Orica Mining Services - Indonesia
- Kideco Jaya Agung - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Electricity Authority, New Zealand
- Maheswari Brothers Coal Limited - India
- AsiaOL BioFuels Corp., Philippines
- Bukit Makmur.PT - Indonesia
- Indo Tambangraya Megah - Indonesia
- CIMB Investment Bank - Malaysia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Agrawal Coal Company - India
- Mintek Dendrill Indonesia
- Kartika Selabumi Mining - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Mercuria Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Simpson Spence & Young - Indonesia
- The University of Queensland
- Billiton Holdings Pty Ltd - Australia
- Mercator Lines Limited - India
- Videocon Industries ltd - India
- Asmin Koalindo Tuhup - Indonesia
- VISA Power Limited - India
- Deloitte Consulting - India
- IHS Mccloskey Coal Group - USA
- Xindia Steels Limited - India
- Binh Thuan Hamico - Vietnam
- Bank of Tokyo Mitsubishi UFJ Ltd
- Heidelberg Cement - Germany
- Vedanta Resources Plc - India
- Sojitz Corporation - Japan
- Central Java Power - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- CNBM International Corporation - China
- Medco Energi Mining Internasional
- Bhushan Steel Limited - India
- Indogreen Group - Indonesia
- Semirara Mining Corp, Philippines
- Parry Sugars Refinery, India
- Petron Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Formosa Plastics Group - Taiwan
- Central Electricity Authority - India
- Grasim Industreis Ltd - India
- Merrill Lynch Commodities Europe
- Gujarat Mineral Development Corp Ltd - India
- Tamil Nadu electricity Board
- Ceylon Electricity Board - Sri Lanka
- Eastern Coal Council - USA
- Borneo Indobara - Indonesia
- Australian Coal Association
- White Energy Company Limited
- Globalindo Alam Lestari - Indonesia
- Antam Resourcindo - Indonesia
- Energy Link Ltd, New Zealand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Attock Cement Pakistan Limited
- Coastal Gujarat Power Limited - India
- Orica Australia Pty. Ltd.
- India Bulls Power Limited - India
- Iligan Light & Power Inc, Philippines
- Ministry of Finance - Indonesia
- GAC Shipping (India) Pvt Ltd
- Indika Energy - Indonesia
- Baramulti Group, Indonesia
- Goldman Sachs - Singapore
- Global Coal Blending Company Limited - Australia
- Latin American Coal - Colombia
- Jindal Steel & Power Ltd - India
- Straits Asia Resources Limited - Singapore
- McConnell Dowell - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- PowerSource Philippines DevCo
- Bayan Resources Tbk. - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Bukit Baiduri Energy - Indonesia
- Riau Bara Harum - Indonesia
- Independent Power Producers Association of India
- PTC India Limited - India
- Samtan Co., Ltd - South Korea
- Pendopo Energi Batubara - Indonesia
- Sarangani Energy Corporation, Philippines
- Thiess Contractors Indonesia
- Wilmar Investment Holdings
- Global Green Power PLC Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Aditya Birla Group - India
- Banpu Public Company Limited - Thailand
- Sakthi Sugars Limited - India
- ICICI Bank Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Salva Resources Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Aboitiz Power Corporation - Philippines
- Cement Manufacturers Association - India
- Carbofer General Trading SA - India
- Planning Commission, India
- Trasteel International SA, Italy
- Altura Mining Limited, Indonesia
- Energy Development Corp, Philippines
- TeaM Sual Corporation - Philippines
- Vizag Seaport Private Limited - India
- South Luzon Thermal Energy Corporation
- Wood Mackenzie - Singapore
- Savvy Resources Ltd - HongKong
- Indian Energy Exchange, India
- New Zealand Coal & Carbon
- Standard Chartered Bank - UAE
- International Coal Ventures Pvt Ltd - India
- SMG Consultants - Indonesia
- Global Business Power Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Siam City Cement - Thailand
- Chamber of Mines of South Africa
- Jaiprakash Power Ventures ltd
- LBH Netherlands Bv - Netherlands
- Gujarat Sidhee Cement - India
- Ministry of Transport, Egypt
- Kaltim Prima Coal - Indonesia
- Lanco Infratech Ltd - India
- Bhoruka Overseas - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Mjunction Services Limited - India
- ASAPP Information Group - India
- Electricity Generating Authority of Thailand
- Indonesian Coal Mining Association
- Sinarmas Energy and Mining - Indonesia
- Commonwealth Bank - Australia
- Thai Mozambique Logistica
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Uttam Galva Steels Limited - India
- Larsen & Toubro Limited - India
- GVK Power & Infra Limited - India
- Meralco Power Generation, Philippines
- Anglo American - United Kingdom
- Bharathi Cement Corporation - India
- Chettinad Cement Corporation Ltd - India
- Manunggal Multi Energi - Indonesia
- London Commodity Brokers - England
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Sindya Power Generating Company Private Ltd
- OPG Power Generation Pvt Ltd - India
- Eastern Energy - Thailand
- Madhucon Powers Ltd - India
- Bulk Trading Sa - Switzerland
- Dalmia Cement Bharat India
- Bangladesh Power Developement Board
- Kumho Petrochemical, South Korea
- IEA Clean Coal Centre - UK
- European Bulk Services B.V. - Netherlands
- Malabar Cements Ltd - India
- Intertek Mineral Services - Indonesia
- Sical Logistics Limited - India
- Oldendorff Carriers - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Edison Trading Spa - Italy
- The State Trading Corporation of India Ltd
- Romanian Commodities Exchange
- The Treasury - Australian Government
- SN Aboitiz Power Inc, Philippines
- Ind-Barath Power Infra Limited - India
- Marubeni Corporation - India
- Price Waterhouse Coopers - Russia
- Timah Investasi Mineral - Indoneisa
- Rio Tinto Coal - Australia
- Singapore Mercantile Exchange
- TNB Fuel Sdn Bhd - Malaysia
- Rashtriya Ispat Nigam Limited - India
- Cigading International Bulk Terminal - Indonesia
- Coal and Oil Company - UAE
- San Jose City I Power Corp, Philippines
- Metalloyd Limited - United Kingdom
- PNOC Exploration Corporation - Philippines
- PetroVietnam Power Coal Import and Supply Company
- Therma Luzon, Inc, Philippines
- MS Steel International - UAE
- Port Waratah Coal Services - Australia
- Leighton Contractors Pty Ltd - Australia
- Africa Commodities Group - South Africa
- Posco Energy - South Korea
- Siam City Cement PLC, Thailand
- SMC Global Power, Philippines
- Economic Council, Georgia
- Directorate Of Revenue Intelligence - India
- Miang Besar Coal Terminal - Indonesia
- Minerals Council of Australia
- Bhatia International Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Barasentosa Lestari - Indonesia
- Ministry of Mines - Canada
- Power Finance Corporation Ltd., India
- Sree Jayajothi Cements Limited - India
- Toyota Tsusho Corporation, Japan
- Parliament of New Zealand
- Georgia Ports Authority, United States
- Directorate General of MIneral and Coal - Indonesia
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