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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, 02 December 14
FOB RICHARDS BAY COAL SWAPS LOST MONTH OVER MONTH
COALspot.com: API 4 FOB Richards Bay Coal for delivery Q1' 2015 lost month on month, week on week and day over day.
The Q1 swap has lost U ...
Tuesday, 02 December 14
SUB-BIT FOB INDONESIA COAL Q1' 15 DELIVERY SWAP CLOSED AT US$ 49.50
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$ 0.4 ...
Monday, 01 December 14
SGX'S FOB NEWCASTLE COAL SWAP FOR Q1' 2015 DELIVERY CLOSED AT US$ 52.50
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2015 delivery closed at US$ 52.50 on 28 November after losing US$ 1.20 (-2.23%) month ove ...
Monday, 01 December 14
Q2' 15 DELIVERY CFR SOUTH CHINA COAL SWAP CLOSED 0.42% LOWER THAN Q1' 15 DELIVERY CLOSING
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery has decreased US$ 2.45 (-3.78%) month over month and US$ 0.67 (-1.06%) we ...
Sunday, 30 November 14
SUPRAMAX COAL FREIGHT RATES FROM INDONESIA TO INDIA : FIRM
COALspot.com: The BDI fell 171 points and closed at 1153 points on Friday 28 November 2014. The Cape index also lost 887 points and closed at 2151 ...
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Showing 3336 to 3340 news of total 6871 |
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- Sree Jayajothi Cements Limited - India
- Petron Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Essar Steel Hazira Ltd - India
- Mintek Dendrill Indonesia
- Siam City Cement PLC, Thailand
- Parry Sugars Refinery, India
- Bharathi Cement Corporation - India
- Formosa Plastics Group - Taiwan
- VISA Power Limited - India
- Georgia Ports Authority, United States
- Tata Chemicals Ltd - India
- Mercator Lines Limited - India
- Minerals Council of Australia
- TNB Fuel Sdn Bhd - Malaysia
- Coalindo Energy - Indonesia
- Globalindo Alam Lestari - Indonesia
- Directorate Of Revenue Intelligence - India
- Indogreen Group - Indonesia
- Posco Energy - South Korea
- Coastal Gujarat Power Limited - India
- Leighton Contractors Pty Ltd - Australia
- Wood Mackenzie - Singapore
- Attock Cement Pakistan Limited
- The State Trading Corporation of India Ltd
- Gujarat Electricity Regulatory Commission - India
- The Treasury - Australian Government
- Vedanta Resources Plc - India
- Medco Energi Mining Internasional
- AsiaOL BioFuels Corp., Philippines
- Eastern Energy - Thailand
- Central Java Power - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Holcim Trading Pte Ltd - Singapore
- ASAPP Information Group - India
- Riau Bara Harum - Indonesia
- Chamber of Mines of South Africa
- Commonwealth Bank - Australia
- Chettinad Cement Corporation Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Star Paper Mills Limited - India
- Carbofer General Trading SA - India
- Tamil Nadu electricity Board
- GVK Power & Infra Limited - India
- Bukit Makmur.PT - Indonesia
- Bayan Resources Tbk. - Indonesia
- Salva Resources Pvt Ltd - India
- Malabar Cements Ltd - India
- Straits Asia Resources Limited - Singapore
- Standard Chartered Bank - UAE
- Trasteel International SA, Italy
- GAC Shipping (India) Pvt Ltd
- GMR Energy Limited - India
- Grasim Industreis Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Parliament of New Zealand
- Meralco Power Generation, Philippines
- New Zealand Coal & Carbon
- Binh Thuan Hamico - Vietnam
- Ind-Barath Power Infra Limited - India
- TeaM Sual Corporation - Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Merrill Lynch Commodities Europe
- Baramulti Group, Indonesia
- Pendopo Energi Batubara - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- Oldendorff Carriers - Singapore
- Kideco Jaya Agung - Indonesia
- Maheswari Brothers Coal Limited - India
- Sojitz Corporation - Japan
- South Luzon Thermal Energy Corporation
- PetroVietnam Power Coal Import and Supply Company
- Altura Mining Limited, Indonesia
- Sindya Power Generating Company Private Ltd
- Port Waratah Coal Services - Australia
- OPG Power Generation Pvt Ltd - India
- Heidelberg Cement - Germany
- Eastern Coal Council - USA
- Bukit Baiduri Energy - Indonesia
- Samtan Co., Ltd - South Korea
- Ministry of Finance - Indonesia
- Therma Luzon, Inc, Philippines
- Manunggal Multi Energi - Indonesia
- Iligan Light & Power Inc, Philippines
- PowerSource Philippines DevCo
- Krishnapatnam Port Company Ltd. - India
- Semirara Mining and Power Corporation, Philippines
- Anglo American - United Kingdom
- Kepco SPC Power Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Antam Resourcindo - Indonesia
- Energy Link Ltd, New Zealand
- Bulk Trading Sa - Switzerland
- Ministry of Transport, Egypt
- Savvy Resources Ltd - HongKong
- Rio Tinto Coal - Australia
- Ceylon Electricity Board - Sri Lanka
- Timah Investasi Mineral - Indoneisa
- International Coal Ventures Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Alfred C Toepfer International GmbH - Germany
- Romanian Commodities Exchange
- Cement Manufacturers Association - India
- Renaissance Capital - South Africa
- Videocon Industries ltd - India
- Electricity Generating Authority of Thailand
- Madhucon Powers Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Xindia Steels Limited - India
- Kobexindo Tractors - Indoneisa
- Petrochimia International Co. Ltd.- Taiwan
- Borneo Indobara - Indonesia
- Electricity Authority, New Zealand
- Energy Development Corp, Philippines
- Bhoruka Overseas - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Meenaskhi Energy Private Limited - India
- London Commodity Brokers - England
- Deloitte Consulting - India
- Bhushan Steel Limited - India
- The University of Queensland
- Indonesian Coal Mining Association
- European Bulk Services B.V. - Netherlands
- Toyota Tsusho Corporation, Japan
- Asmin Koalindo Tuhup - Indonesia
- PNOC Exploration Corporation - Philippines
- Lanco Infratech Ltd - India
- Intertek Mineral Services - Indonesia
- Global Green Power PLC Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- McConnell Dowell - Australia
- Neyveli Lignite Corporation Ltd, - India
- LBH Netherlands Bv - Netherlands
- Offshore Bulk Terminal Pte Ltd, Singapore
- Power Finance Corporation Ltd., India
- Vizag Seaport Private Limited - India
- Barasentosa Lestari - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Ministry of Mines - Canada
- Mercuria Energy - Indonesia
- SN Aboitiz Power Inc, Philippines
- Indian Oil Corporation Limited
- India Bulls Power Limited - India
- Larsen & Toubro Limited - India
- Jindal Steel & Power Ltd - India
- Banpu Public Company Limited - Thailand
- Cigading International Bulk Terminal - Indonesia
- SMC Global Power, Philippines
- Indo Tambangraya Megah - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bhatia International Limited - India
- Indika Energy - Indonesia
- Kaltim Prima Coal - Indonesia
- Independent Power Producers Association of India
- Australian Coal Association
- Economic Council, Georgia
- Wilmar Investment Holdings
- Thai Mozambique Logistica
- Uttam Galva Steels Limited - India
- Karaikal Port Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Thiess Contractors Indonesia
- ICICI Bank Limited - India
- Planning Commission, India
- Maharashtra Electricity Regulatory Commission - India
- Kumho Petrochemical, South Korea
- Kapuas Tunggal Persada - Indonesia
- Australian Commodity Traders Exchange
- Bukit Asam (Persero) Tbk - Indonesia
- Aditya Birla Group - India
- MS Steel International - UAE
- Edison Trading Spa - Italy
- Aboitiz Power Corporation - Philippines
- Semirara Mining Corp, Philippines
- SMG Consultants - Indonesia
- CNBM International Corporation - China
- White Energy Company Limited
- Indian Energy Exchange, India
- Makarim & Taira - Indonesia
- Central Electricity Authority - India
- Jaiprakash Power Ventures ltd
- Dalmia Cement Bharat India
- Africa Commodities Group - South Africa
- Orica Australia Pty. Ltd.
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PTC India Limited - India
- Sarangani Energy Corporation, Philippines
- Coal and Oil Company - UAE
- Ambuja Cements Ltd - India
- Global Business Power Corporation, Philippines
- Agrawal Coal Company - India
- IEA Clean Coal Centre - UK
- Orica Mining Services - Indonesia
- Mjunction Services Limited - India
- Latin American Coal - Colombia
- Siam City Cement - Thailand
- Simpson Spence & Young - Indonesia
- IHS Mccloskey Coal Group - USA
- Sical Logistics Limited - India
- Goldman Sachs - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Metalloyd Limited - United Kingdom
- Bangladesh Power Developement Board
- Sakthi Sugars Limited - India
- Billiton Holdings Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- CIMB Investment Bank - Malaysia
- Singapore Mercantile Exchange
- Kartika Selabumi Mining - Indonesia
- Interocean Group of Companies - India
- Marubeni Corporation - India
- Jorong Barutama Greston.PT - Indonesia
- Price Waterhouse Coopers - Russia
- Sinarmas Energy and Mining - Indonesia
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