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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, 28 November 14
NEW BIMCO CLAUSE AIMS TO REDUCE SUPPLIERS' RELIANCE ON SHIP ARREST FOR CHARTERERS' UNPAID BUNKERS
KNOWLEDGE TO ELEVATE
Ship owners can, on occasion, find themselves in the invidious position of suffering unexpected loss of hire due to a tim ...
Friday, 28 November 14
JSW ENERGY AND GRM RESOURCES JOIN GLOBALCOAL
COALspot.com: globalCOAL® announced yesterday that two new Market Members have joined its online coal trading platform. According globaCOAL&rsq ...
Thursday, 27 November 14
MINING SERVICES TAX SPIKED BY 233% - BISNIS INDONESIA
COALspot.com: The Energy and Mineral Resources Department of Indonesia said the tax contribution from mining services sector in the 3rd Q 2014 ...
Thursday, 27 November 14
PANAMAX : EXPECTATION'S FOR A STRONG END OF YEAR RUSH, DISAPPEAR DAY BY DAY - FEARNLEYS
Handy
“We have experienced a firming market the last couple of weeks. More activity from cargo owners in the Atlantic and less available to ...
Wednesday, 26 November 14
OVERSUPPLY OF TONNAGE PUSHED PANAMAX SEGMENT DOWN FOR ANOTHER WEEK
COALspot.com: The Dry Bulk market managed to reverse its course from the week prior and with the sole exception of the Panamax segment, we witnesse ...
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- Minerals Council of Australia
- Trasteel International SA, Italy
- Bharathi Cement Corporation - India
- South Luzon Thermal Energy Corporation
- Sree Jayajothi Cements Limited - India
- Carbofer General Trading SA - India
- Africa Commodities Group - South Africa
- Ceylon Electricity Board - Sri Lanka
- ICICI Bank Limited - India
- New Zealand Coal & Carbon
- Bangladesh Power Developement Board
- Mercator Lines Limited - India
- Billiton Holdings Pty Ltd - Australia
- Simpson Spence & Young - Indonesia
- Therma Luzon, Inc, Philippines
- Straits Asia Resources Limited - Singapore
- SN Aboitiz Power Inc, Philippines
- San Jose City I Power Corp, Philippines
- Alfred C Toepfer International GmbH - Germany
- Videocon Industries ltd - India
- SMG Consultants - Indonesia
- Mercuria Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- TeaM Sual Corporation - Philippines
- Kohat Cement Company Ltd. - Pakistan
- Salva Resources Pvt Ltd - India
- Renaissance Capital - South Africa
- Lanco Infratech Ltd - India
- Thai Mozambique Logistica
- Bulk Trading Sa - Switzerland
- Planning Commission, India
- Bukit Asam (Persero) Tbk - Indonesia
- Kumho Petrochemical, South Korea
- Singapore Mercantile Exchange
- Attock Cement Pakistan Limited
- Siam City Cement - Thailand
- Karaikal Port Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Binh Thuan Hamico - Vietnam
- Pendopo Energi Batubara - Indonesia
- Sakthi Sugars Limited - India
- Wilmar Investment Holdings
- The State Trading Corporation of India Ltd
- Standard Chartered Bank - UAE
- Altura Mining Limited, Indonesia
- Indika Energy - Indonesia
- Madhucon Powers Ltd - India
- Independent Power Producers Association of India
- Grasim Industreis Ltd - India
- Aditya Birla Group - India
- GMR Energy Limited - India
- Bayan Resources Tbk. - Indonesia
- Interocean Group of Companies - India
- India Bulls Power Limited - India
- Agrawal Coal Company - India
- Orica Mining Services - Indonesia
- Bhushan Steel Limited - India
- Heidelberg Cement - Germany
- Pipit Mutiara Jaya. PT, Indonesia
- Global Business Power Corporation, Philippines
- Eastern Energy - Thailand
- Sojitz Corporation - Japan
- Goldman Sachs - Singapore
- PTC India Limited - India
- Georgia Ports Authority, United States
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- The University of Queensland
- Indonesian Coal Mining Association
- Semirara Mining Corp, Philippines
- Indian Energy Exchange, India
- Globalindo Alam Lestari - Indonesia
- Parry Sugars Refinery, India
- LBH Netherlands Bv - Netherlands
- MS Steel International - UAE
- Star Paper Mills Limited - India
- Orica Australia Pty. Ltd.
- Gujarat Sidhee Cement - India
- Medco Energi Mining Internasional
- Dalmia Cement Bharat India
- Tamil Nadu electricity Board
- Banpu Public Company Limited - Thailand
- Neyveli Lignite Corporation Ltd, - India
- Romanian Commodities Exchange
- Xindia Steels Limited - India
- Merrill Lynch Commodities Europe
- International Coal Ventures Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- Manunggal Multi Energi - Indonesia
- Ambuja Cements Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Essar Steel Hazira Ltd - India
- CIMB Investment Bank - Malaysia
- Coastal Gujarat Power Limited - India
- Port Waratah Coal Services - Australia
- White Energy Company Limited
- Australian Coal Association
- Bahari Cakrawala Sebuku - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Formosa Plastics Group - Taiwan
- Marubeni Corporation - India
- Kideco Jaya Agung - Indonesia
- London Commodity Brokers - England
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Borneo Indobara - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Power Finance Corporation Ltd., India
- Savvy Resources Ltd - HongKong
- Jindal Steel & Power Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Sarangani Energy Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Latin American Coal - Colombia
- Global Green Power PLC Corporation, Philippines
- Edison Trading Spa - Italy
- PNOC Exploration Corporation - Philippines
- IHS Mccloskey Coal Group - USA
- Central Electricity Authority - India
- Global Coal Blending Company Limited - Australia
- Jorong Barutama Greston.PT - Indonesia
- Ministry of Transport, Egypt
- Aboitiz Power Corporation - Philippines
- Makarim & Taira - Indonesia
- SMC Global Power, Philippines
- Jaiprakash Power Ventures ltd
- Energy Link Ltd, New Zealand
- Anglo American - United Kingdom
- Antam Resourcindo - Indonesia
- Coal and Oil Company - UAE
- Gujarat Electricity Regulatory Commission - India
- Metalloyd Limited - United Kingdom
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Australian Commodity Traders Exchange
- OPG Power Generation Pvt Ltd - India
- Petron Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- VISA Power Limited - India
- Iligan Light & Power Inc, Philippines
- Bhoruka Overseas - Indonesia
- Meenaskhi Energy Private Limited - India
- Kaltim Prima Coal - Indonesia
- Vedanta Resources Plc - India
- Tata Chemicals Ltd - India
- Meralco Power Generation, Philippines
- Eastern Coal Council - USA
- Sindya Power Generating Company Private Ltd
- Kobexindo Tractors - Indoneisa
- Riau Bara Harum - Indonesia
- Ministry of Finance - Indonesia
- Uttam Galva Steels Limited - India
- Maheswari Brothers Coal Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Indo Tambangraya Megah - Indonesia
- GVK Power & Infra Limited - India
- Toyota Tsusho Corporation, Japan
- Electricity Generating Authority of Thailand
- Barasentosa Lestari - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Parliament of New Zealand
- Krishnapatnam Port Company Ltd. - India
- European Bulk Services B.V. - Netherlands
- Economic Council, Georgia
- Baramulti Group, Indonesia
- Miang Besar Coal Terminal - Indonesia
- Indian Oil Corporation Limited
- PowerSource Philippines DevCo
- Timah Investasi Mineral - Indoneisa
- Semirara Mining and Power Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Sical Logistics Limited - India
- Kartika Selabumi Mining - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Chamber of Mines of South Africa
- AsiaOL BioFuels Corp., Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Holcim Trading Pte Ltd - Singapore
- Energy Development Corp, Philippines
- Siam City Cement PLC, Thailand
- Vizag Seaport Private Limited - India
- Cigading International Bulk Terminal - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Kepco SPC Power Corporation, Philippines
- Posco Energy - South Korea
- Intertek Mineral Services - Indonesia
- Ind-Barath Power Infra Limited - India
- Deloitte Consulting - India
- McConnell Dowell - Australia
- Wood Mackenzie - Singapore
- CNBM International Corporation - China
- Malabar Cements Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Coalindo Energy - Indonesia
- Chettinad Cement Corporation Ltd - India
- Cement Manufacturers Association - India
- Commonwealth Bank - Australia
- Mintek Dendrill Indonesia
- Oldendorff Carriers - Singapore
- Thiess Contractors Indonesia
- Leighton Contractors Pty Ltd - Australia
- Rashtriya Ispat Nigam Limited - India
- Samtan Co., Ltd - South Korea
- Petrochimia International Co. Ltd.- Taiwan
- ASAPP Information Group - India
- Central Java Power - Indonesia
- Bhatia International Limited - India
- The Treasury - Australian Government
- Mjunction Services Limited - India
- Bukit Baiduri Energy - Indonesia
- IEA Clean Coal Centre - UK
- Electricity Authority, New Zealand
- Rio Tinto Coal - Australia
- Larsen & Toubro Limited - India
- GAC Shipping (India) Pvt Ltd
- Ministry of Mines - Canada
- Indogreen Group - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
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