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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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Thursday, 20 November 14
HANDY: INDO ROUNDS ARE BEING FIXED IN REGION OF US$ 10K - FEARNLEYS
Handy
In the Atlantic we have experienced firmer rates this week much lead by the grain activity out of USG. Vsls open in the USG can achieve in ...
Thursday, 20 November 14
DEMAND FOR DRY BULK CARRIERS INCREASES ON THE BACK OF HEIGHTENED FREIGHT RATE MARKET - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Ship owners are looking to take advantage of favorable market conditions through the acquisition of more dry bulk carriers. According to shipbroker ...
Wednesday, 19 November 14
INDONESIA FUEL-PRICE RISE A CLEAR, POSITIVE REFORM SIGNAL - FITCH
COALspot.com: Indonesia's hike of more than 30% in administered fuel prices, announced on 17 November, provides a clear, positive signal of the ...
Wednesday, 19 November 14
CAPES WERE UNDER PRESSURE; LOST 20% WITHIN A WEEK
COALspot.com: " The negative environment in which the week prior ended, marked this past week as well, which closed off on Friday noting the f ...
Wednesday, 19 November 14
SHIPPING MARKET INSIGHT - BY KATERINA RESTIS
The current Ebola outbreak in West Africa has been declared as a worldwide health emergency by the World Health Organization and has had a great im ...
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- MS Steel International - UAE
- Bank of Tokyo Mitsubishi UFJ Ltd
- Pipit Mutiara Jaya. PT, Indonesia
- ASAPP Information Group - India
- OPG Power Generation Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- SMC Global Power, Philippines
- Indian Energy Exchange, India
- Samtan Co., Ltd - South Korea
- Bhoruka Overseas - Indonesia
- Indonesian Coal Mining Association
- Ministry of Transport, Egypt
- Posco Energy - South Korea
- Savvy Resources Ltd - HongKong
- Simpson Spence & Young - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Manunggal Multi Energi - Indonesia
- Sarangani Energy Corporation, Philippines
- Ambuja Cements Ltd - India
- Therma Luzon, Inc, Philippines
- LBH Netherlands Bv - Netherlands
- Global Business Power Corporation, Philippines
- PowerSource Philippines DevCo
- Vijayanagar Sugar Pvt Ltd - India
- Chamber of Mines of South Africa
- Independent Power Producers Association of India
- Bhatia International Limited - India
- The State Trading Corporation of India Ltd
- Karbindo Abesyapradhi - Indoneisa
- Pendopo Energi Batubara - Indonesia
- Makarim & Taira - Indonesia
- Binh Thuan Hamico - Vietnam
- Thiess Contractors Indonesia
- South Luzon Thermal Energy Corporation
- TeaM Sual Corporation - Philippines
- Semirara Mining Corp, Philippines
- Coal and Oil Company - UAE
- Leighton Contractors Pty Ltd - Australia
- CNBM International Corporation - China
- Bharathi Cement Corporation - India
- IEA Clean Coal Centre - UK
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Uttam Galva Steels Limited - India
- Antam Resourcindo - Indonesia
- Energy Link Ltd, New Zealand
- GAC Shipping (India) Pvt Ltd
- Kepco SPC Power Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Intertek Mineral Services - Indonesia
- Cigading International Bulk Terminal - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Kartika Selabumi Mining - Indonesia
- Grasim Industreis Ltd - India
- Heidelberg Cement - Germany
- Orica Australia Pty. Ltd.
- Sakthi Sugars Limited - India
- Wood Mackenzie - Singapore
- Price Waterhouse Coopers - Russia
- CIMB Investment Bank - Malaysia
- India Bulls Power Limited - India
- Indogreen Group - Indonesia
- Rio Tinto Coal - Australia
- Neyveli Lignite Corporation Ltd, - India
- Maharashtra Electricity Regulatory Commission - India
- Australian Commodity Traders Exchange
- Renaissance Capital - South Africa
- Alfred C Toepfer International GmbH - Germany
- Port Waratah Coal Services - Australia
- Holcim Trading Pte Ltd - Singapore
- Ind-Barath Power Infra Limited - India
- Directorate Of Revenue Intelligence - India
- Kohat Cement Company Ltd. - Pakistan
- Latin American Coal - Colombia
- Indo Tambangraya Megah - Indonesia
- Meenaskhi Energy Private Limited - India
- Tata Chemicals Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Coastal Gujarat Power Limited - India
- Aboitiz Power Corporation - Philippines
- The University of Queensland
- Miang Besar Coal Terminal - Indonesia
- Commonwealth Bank - Australia
- Timah Investasi Mineral - Indoneisa
- Lanco Infratech Ltd - India
- The Treasury - Australian Government
- Carbofer General Trading SA - India
- Videocon Industries ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Global Coal Blending Company Limited - Australia
- Vedanta Resources Plc - India
- IHS Mccloskey Coal Group - USA
- Kapuas Tunggal Persada - Indonesia
- Vizag Seaport Private Limited - India
- Essar Steel Hazira Ltd - India
- Riau Bara Harum - Indonesia
- PTC India Limited - India
- GMR Energy Limited - India
- Rashtriya Ispat Nigam Limited - India
- Bangladesh Power Developement Board
- Mercuria Energy - Indonesia
- Meralco Power Generation, Philippines
- European Bulk Services B.V. - Netherlands
- Xindia Steels Limited - India
- Larsen & Toubro Limited - India
- McConnell Dowell - Australia
- Parliament of New Zealand
- Singapore Mercantile Exchange
- White Energy Company Limited
- Bulk Trading Sa - Switzerland
- Malabar Cements Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Karaikal Port Pvt Ltd - India
- Planning Commission, India
- Energy Development Corp, Philippines
- Ministry of Mines - Canada
- Electricity Generating Authority of Thailand
- Salva Resources Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- GN Power Mariveles Coal Plant, Philippines
- Tamil Nadu electricity Board
- Formosa Plastics Group - Taiwan
- Krishnapatnam Port Company Ltd. - India
- Bukit Makmur.PT - Indonesia
- Banpu Public Company Limited - Thailand
- Attock Cement Pakistan Limited
- Central Java Power - Indonesia
- Toyota Tsusho Corporation, Japan
- Semirara Mining and Power Corporation, Philippines
- Altura Mining Limited, Indonesia
- Jaiprakash Power Ventures ltd
- Bukit Asam (Persero) Tbk - Indonesia
- Interocean Group of Companies - India
- Star Paper Mills Limited - India
- Ministry of Finance - Indonesia
- Sojitz Corporation - Japan
- Anglo American - United Kingdom
- Trasteel International SA, Italy
- London Commodity Brokers - England
- Kalimantan Lumbung Energi - Indonesia
- Globalindo Alam Lestari - Indonesia
- SN Aboitiz Power Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- GVK Power & Infra Limited - India
- Bukit Baiduri Energy - Indonesia
- Minerals Council of Australia
- Eastern Coal Council - USA
- Marubeni Corporation - India
- Power Finance Corporation Ltd., India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Petron Corporation, Philippines
- Oldendorff Carriers - Singapore
- Bahari Cakrawala Sebuku - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Standard Chartered Bank - UAE
- Indian Oil Corporation Limited
- Mjunction Services Limited - India
- Kumho Petrochemical, South Korea
- ICICI Bank Limited - India
- Sindya Power Generating Company Private Ltd
- VISA Power Limited - India
- Borneo Indobara - Indonesia
- Barasentosa Lestari - Indonesia
- Orica Mining Services - Indonesia
- Gujarat Sidhee Cement - India
- Iligan Light & Power Inc, Philippines
- Siam City Cement - Thailand
- Electricity Authority, New Zealand
- Eastern Energy - Thailand
- Maheswari Brothers Coal Limited - India
- Jindal Steel & Power Ltd - India
- Mercator Lines Limited - India
- Edison Trading Spa - Italy
- SMG Consultants - Indonesia
- Cement Manufacturers Association - India
- Medco Energi Mining Internasional
- Goldman Sachs - Singapore
- Central Electricity Authority - India
- Aditya Birla Group - India
- Dalmia Cement Bharat India
- Kobexindo Tractors - Indoneisa
- Jorong Barutama Greston.PT - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Australian Coal Association
- Madhucon Powers Ltd - India
- Deloitte Consulting - India
- San Jose City I Power Corp, Philippines
- Kaltim Prima Coal - Indonesia
- Sical Logistics Limited - India
- Africa Commodities Group - South Africa
- Sinarmas Energy and Mining - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Global Green Power PLC Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Wilmar Investment Holdings
- Baramulti Group, Indonesia
- Kideco Jaya Agung - Indonesia
- Bhushan Steel Limited - India
- Coalindo Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Mintek Dendrill Indonesia
- Straits Asia Resources Limited - Singapore
- Economic Council, Georgia
- Merrill Lynch Commodities Europe
- Thai Mozambique Logistica
- Agrawal Coal Company - India
- Indika Energy - Indonesia
- Bayan Resources Tbk. - Indonesia
- New Zealand Coal & Carbon
- Chettinad Cement Corporation Ltd - India
- Parry Sugars Refinery, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sree Jayajothi Cements Limited - India
- Georgia Ports Authority, United States
- Ceylon Electricity Board - Sri Lanka
- Romanian Commodities Exchange
- Siam City Cement PLC, Thailand
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