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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, 26 November 14
SHIPPING MARKET INSIGHT - EVA TZIMA
The tanker market has been enjoying some good returns lately. Ok, that may be a big understatement, but with all the ups and downs of the past year ...
Tuesday, 25 November 14
FISCAL BREAKEVEN OIL PRICES SHOW SOVEREIGN VULNERABILITY - FITCH
COALspot.com: The vulnerability of the sovereign credit profiles of net oil exporters, as shown by their fiscal breakeven oil prices, suggests that ...
Tuesday, 25 November 14
UK: TRIBUNAL RULES ON SPEED AND PERFORMANCE CLAIMS UNDER TWO CONSECUTIVE TIME CHARTERPARTIES - REED SMITH
KNOWLEDGE TO ELEVATE
“Owners not to be responsible if the vessel under the currency of this charter party stays at port or anchorage or ...
Tuesday, 25 November 14
FOB RICHARDS BAY COAL SWAP FOR Q4' 15 DELIVERY CLOSED AT US$ 68.20
COALspot.com: API 4 FOB Richards Bay Coal for delivery Q1' 2015 gained month on month, week on week and day over day.
The Q1 swap has gain ...
Tuesday, 25 November 14
SUB-BIT FOB INDONESIA COAL SWAP FOR Q2' 15 DELIVERY CLOSED AT $ 49.55
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 lost month on month, gained week on week.
The Q1 swap has lost US$ 0.12 (-0.24%) ...
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Showing 3346 to 3350 news of total 6871 |
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- Global Coal Blending Company Limited - Australia
- Australian Coal Association
- Africa Commodities Group - South Africa
- Posco Energy - South Korea
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SN Aboitiz Power Inc, Philippines
- Barasentosa Lestari - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Kalimantan Lumbung Energi - Indonesia
- Mercuria Energy - Indonesia
- Merrill Lynch Commodities Europe
- Salva Resources Pvt Ltd - India
- Minerals Council of Australia
- GMR Energy Limited - India
- Aditya Birla Group - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Marubeni Corporation - India
- Ind-Barath Power Infra Limited - India
- Borneo Indobara - Indonesia
- Kartika Selabumi Mining - Indonesia
- Pendopo Energi Batubara - Indonesia
- ICICI Bank Limited - India
- Mjunction Services Limited - India
- Ceylon Electricity Board - Sri Lanka
- Indo Tambangraya Megah - Indonesia
- Chettinad Cement Corporation Ltd - India
- Baramulti Group, Indonesia
- New Zealand Coal & Carbon
- Standard Chartered Bank - UAE
- Singapore Mercantile Exchange
- Orica Mining Services - Indonesia
- Makarim & Taira - Indonesia
- Coastal Gujarat Power Limited - India
- PTC India Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Oldendorff Carriers - Singapore
- Miang Besar Coal Terminal - Indonesia
- PNOC Exploration Corporation - Philippines
- Energy Development Corp, Philippines
- Kapuas Tunggal Persada - Indonesia
- Anglo American - United Kingdom
- Essar Steel Hazira Ltd - India
- Independent Power Producers Association of India
- Manunggal Multi Energi - Indonesia
- Economic Council, Georgia
- Price Waterhouse Coopers - Russia
- Medco Energi Mining Internasional
- Larsen & Toubro Limited - India
- Cigading International Bulk Terminal - Indonesia
- Aboitiz Power Corporation - Philippines
- Indogreen Group - Indonesia
- San Jose City I Power Corp, Philippines
- Bhushan Steel Limited - India
- Madhucon Powers Ltd - India
- Videocon Industries ltd - India
- Eastern Energy - Thailand
- Toyota Tsusho Corporation, Japan
- European Bulk Services B.V. - Netherlands
- India Bulls Power Limited - India
- Central Java Power - Indonesia
- Bhoruka Overseas - Indonesia
- Simpson Spence & Young - Indonesia
- SMG Consultants - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Central Electricity Authority - India
- McConnell Dowell - Australia
- Trasteel International SA, Italy
- Bukit Asam (Persero) Tbk - Indonesia
- Wood Mackenzie - Singapore
- Rio Tinto Coal - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- IEA Clean Coal Centre - UK
- The State Trading Corporation of India Ltd
- Binh Thuan Hamico - Vietnam
- Indian Energy Exchange, India
- Bulk Trading Sa - Switzerland
- Ambuja Cements Ltd - India
- Semirara Mining Corp, Philippines
- Australian Commodity Traders Exchange
- Parry Sugars Refinery, India
- Wilmar Investment Holdings
- Georgia Ports Authority, United States
- Holcim Trading Pte Ltd - Singapore
- Indonesian Coal Mining Association
- PowerSource Philippines DevCo
- Kepco SPC Power Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Latin American Coal - Colombia
- Ministry of Transport, Egypt
- Bukit Makmur.PT - Indonesia
- Sarangani Energy Corporation, Philippines
- Siam City Cement - Thailand
- Electricity Authority, New Zealand
- Directorate Of Revenue Intelligence - India
- Dalmia Cement Bharat India
- Directorate General of MIneral and Coal - Indonesia
- Karaikal Port Pvt Ltd - India
- Meralco Power Generation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Formosa Plastics Group - Taiwan
- Meenaskhi Energy Private Limited - India
- Bharathi Cement Corporation - India
- Interocean Group of Companies - India
- The University of Queensland
- Renaissance Capital - South Africa
- Alfred C Toepfer International GmbH - Germany
- Kumho Petrochemical, South Korea
- Kaltim Prima Coal - Indonesia
- South Luzon Thermal Energy Corporation
- Thai Mozambique Logistica
- Globalindo Alam Lestari - Indonesia
- Gujarat Sidhee Cement - India
- Jaiprakash Power Ventures ltd
- Goldman Sachs - Singapore
- Asmin Koalindo Tuhup - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- GVK Power & Infra Limited - India
- Banpu Public Company Limited - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Bahari Cakrawala Sebuku - Indonesia
- Global Business Power Corporation, Philippines
- Orica Australia Pty. Ltd.
- Samtan Co., Ltd - South Korea
- Heidelberg Cement - Germany
- Vedanta Resources Plc - India
- Mintek Dendrill Indonesia
- Ministry of Finance - Indonesia
- Chamber of Mines of South Africa
- Kideco Jaya Agung - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Iligan Light & Power Inc, Philippines
- Eastern Coal Council - USA
- Global Green Power PLC Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Edison Trading Spa - Italy
- OPG Power Generation Pvt Ltd - India
- Deloitte Consulting - India
- Sojitz Corporation - Japan
- Pipit Mutiara Jaya. PT, Indonesia
- Romanian Commodities Exchange
- Indika Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- Petron Corporation, Philippines
- Grasim Industreis Ltd - India
- Electricity Generating Authority of Thailand
- Planning Commission, India
- Maheswari Brothers Coal Limited - India
- Antam Resourcindo - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Bukit Baiduri Energy - Indonesia
- Therma Luzon, Inc, Philippines
- ASAPP Information Group - India
- Intertek Mineral Services - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Vizag Seaport Private Limited - India
- LBH Netherlands Bv - Netherlands
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- MS Steel International - UAE
- VISA Power Limited - India
- IHS Mccloskey Coal Group - USA
- Bank of Tokyo Mitsubishi UFJ Ltd
- Tata Chemicals Ltd - India
- Sical Logistics Limited - India
- Commonwealth Bank - Australia
- Sinarmas Energy and Mining - Indonesia
- CNBM International Corporation - China
- London Commodity Brokers - England
- Xindia Steels Limited - India
- Bhatia International Limited - India
- Mercator Lines Limited - India
- Riau Bara Harum - Indonesia
- Siam City Cement PLC, Thailand
- Kohat Cement Company Ltd. - Pakistan
- Semirara Mining and Power Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Indian Oil Corporation Limited
- Attock Cement Pakistan Limited
- Timah Investasi Mineral - Indoneisa
- CIMB Investment Bank - Malaysia
- Savvy Resources Ltd - HongKong
- Malabar Cements Ltd - India
- Carbofer General Trading SA - India
- Jorong Barutama Greston.PT - Indonesia
- Lanco Infratech Ltd - India
- Ministry of Mines - Canada
- Parliament of New Zealand
- Power Finance Corporation Ltd., India
- Uttam Galva Steels Limited - India
- Energy Link Ltd, New Zealand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Tamil Nadu electricity Board
- Metalloyd Limited - United Kingdom
- Star Paper Mills Limited - India
- Altura Mining Limited, Indonesia
- SMC Global Power, Philippines
- Agrawal Coal Company - India
- Rashtriya Ispat Nigam Limited - India
- The Treasury - Australian Government
- Coalindo Energy - Indonesia
- Cement Manufacturers Association - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Straits Asia Resources Limited - Singapore
- TeaM Sual Corporation - Philippines
- Jindal Steel & Power Ltd - India
- Port Waratah Coal Services - Australia
- Gujarat Electricity Regulatory Commission - India
- GAC Shipping (India) Pvt Ltd
- Thiess Contractors Indonesia
- Sakthi Sugars Limited - India
- Bangladesh Power Developement Board
- Coal and Oil Company - UAE
- TNB Fuel Sdn Bhd - Malaysia
- White Energy Company Limited
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