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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, 18 November 14
VALEMAX DEAL TO DETERMINE DRY BULK MARKET'S FATE - DREWRY MARITIME RESEARCH
Vale’s accord to sell and lease four Valemax vessels to COSCO might have negative repercussions on dry bulk freight rates. Vale has committed ...
Tuesday, 18 November 14
SUB-BIT FOB INDONESIA COAL SWAP DELIVERY Q2' 2015 CLOSED AT $ 49.55; DOWN 4.10% M-O-M
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 lost month on month, gained week on week and day on day.
The Q1 swap has lost US ...
Tuesday, 18 November 14
FOB RICHARDS BAY COAL SWAP FOR Q1' 2015 DELIVERY CLOSED AT $ 66.31; UP 1.33% W-O-W
COALspot.com: API 4 FOB Richards Bay Coal swap for Q1’ 2015 delivery has gained US$ 0.27 (+0.41%) month over month and US$ 0.87 (+1.33%) week ...
Tuesday, 18 November 14
CHEAP OIL PRICES COULD RESHAPE GLOBAL OIL EXPORTING MAP - HELLENIC SHIPPING
Tanker owners have enjoyed a rather healthy 2014, but as the year draws to a close, the fall of oil prices is bound to reshape traditional, as well ...
Monday, 17 November 14
SKULD ISSUES URGENT NOTICE ON BANKRUPTCY OF OW BUNKER A/S
Further to the Association’s advices of 7 November 2014, more information has come to light with respect to the potential impact and scale of ...
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Showing 3366 to 3370 news of total 6871 |
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- The State Trading Corporation of India Ltd
- Indogreen Group - Indonesia
- Riau Bara Harum - Indonesia
- Kartika Selabumi Mining - Indonesia
- Manunggal Multi Energi - Indonesia
- Bhushan Steel Limited - India
- Mercator Lines Limited - India
- Meenaskhi Energy Private Limited - India
- Eastern Energy - Thailand
- GAC Shipping (India) Pvt Ltd
- The University of Queensland
- SN Aboitiz Power Inc, Philippines
- Kepco SPC Power Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Indonesian Coal Mining Association
- Alfred C Toepfer International GmbH - Germany
- Grasim Industreis Ltd - India
- Karaikal Port Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Altura Mining Limited, Indonesia
- Australian Commodity Traders Exchange
- Romanian Commodities Exchange
- SMG Consultants - Indonesia
- Marubeni Corporation - India
- Indian Energy Exchange, India
- Samtan Co., Ltd - South Korea
- Neyveli Lignite Corporation Ltd, - India
- International Coal Ventures Pvt Ltd - India
- Parry Sugars Refinery, India
- Bayan Resources Tbk. - Indonesia
- Gujarat Sidhee Cement - India
- CIMB Investment Bank - Malaysia
- Bahari Cakrawala Sebuku - Indonesia
- Mintek Dendrill Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Singapore Mercantile Exchange
- Thiess Contractors Indonesia
- Minerals Council of Australia
- Interocean Group of Companies - India
- Cigading International Bulk Terminal - Indonesia
- European Bulk Services B.V. - Netherlands
- Port Waratah Coal Services - Australia
- Essar Steel Hazira Ltd - India
- GVK Power & Infra Limited - India
- Vedanta Resources Plc - India
- Sical Logistics Limited - India
- ICICI Bank Limited - India
- Eastern Coal Council - USA
- Ambuja Cements Ltd - India
- Bukit Baiduri Energy - Indonesia
- Barasentosa Lestari - Indonesia
- Global Coal Blending Company Limited - Australia
- Coal and Oil Company - UAE
- Thai Mozambique Logistica
- Central Electricity Authority - India
- OPG Power Generation Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Medco Energi Mining Internasional
- Coastal Gujarat Power Limited - India
- Metalloyd Limited - United Kingdom
- Petron Corporation, Philippines
- SMC Global Power, Philippines
- Toyota Tsusho Corporation, Japan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Trasteel International SA, Italy
- TeaM Sual Corporation - Philippines
- Therma Luzon, Inc, Philippines
- Banpu Public Company Limited - Thailand
- Makarim & Taira - Indonesia
- Indika Energy - Indonesia
- Africa Commodities Group - South Africa
- Mjunction Services Limited - India
- Commonwealth Bank - Australia
- Mercuria Energy - Indonesia
- Rio Tinto Coal - Australia
- Heidelberg Cement - Germany
- Holcim Trading Pte Ltd - Singapore
- Vizag Seaport Private Limited - India
- White Energy Company Limited
- Indian Oil Corporation Limited
- Bank of Tokyo Mitsubishi UFJ Ltd
- PTC India Limited - India
- Australian Coal Association
- Jaiprakash Power Ventures ltd
- GN Power Mariveles Coal Plant, Philippines
- Uttam Galva Steels Limited - India
- Intertek Mineral Services - Indonesia
- Georgia Ports Authority, United States
- Directorate Of Revenue Intelligence - India
- Kideco Jaya Agung - Indonesia
- Anglo American - United Kingdom
- Billiton Holdings Pty Ltd - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Kaltim Prima Coal - Indonesia
- IHS Mccloskey Coal Group - USA
- Orica Mining Services - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Latin American Coal - Colombia
- Sinarmas Energy and Mining - Indonesia
- Parliament of New Zealand
- Kapuas Tunggal Persada - Indonesia
- Xindia Steels Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Baramulti Group, Indonesia
- Cement Manufacturers Association - India
- Energy Link Ltd, New Zealand
- Pendopo Energi Batubara - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Orica Australia Pty. Ltd.
- Iligan Light & Power Inc, Philippines
- Edison Trading Spa - Italy
- Goldman Sachs - Singapore
- Ministry of Mines - Canada
- Larsen & Toubro Limited - India
- Kobexindo Tractors - Indoneisa
- Straits Asia Resources Limited - Singapore
- Merrill Lynch Commodities Europe
- Economic Council, Georgia
- Sree Jayajothi Cements Limited - India
- Antam Resourcindo - Indonesia
- Oldendorff Carriers - Singapore
- Global Business Power Corporation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Gujarat Electricity Regulatory Commission - India
- Chettinad Cement Corporation Ltd - India
- Bhoruka Overseas - Indonesia
- Renaissance Capital - South Africa
- PowerSource Philippines DevCo
- Aditya Birla Group - India
- Sojitz Corporation - Japan
- Electricity Authority, New Zealand
- MS Steel International - UAE
- Ceylon Electricity Board - Sri Lanka
- Lanco Infratech Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sarangani Energy Corporation, Philippines
- Bangladesh Power Developement Board
- Bhatia International Limited - India
- McConnell Dowell - Australia
- PNOC Exploration Corporation - Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Dalmia Cement Bharat India
- Malabar Cements Ltd - India
- CNBM International Corporation - China
- San Jose City I Power Corp, Philippines
- Power Finance Corporation Ltd., India
- Salva Resources Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Siam City Cement - Thailand
- Sakthi Sugars Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Timah Investasi Mineral - Indoneisa
- Jindal Steel & Power Ltd - India
- Videocon Industries ltd - India
- Planning Commission, India
- Standard Chartered Bank - UAE
- Bulk Trading Sa - Switzerland
- Jorong Barutama Greston.PT - Indonesia
- ASAPP Information Group - India
- Ministry of Finance - Indonesia
- Star Paper Mills Limited - India
- Attock Cement Pakistan Limited
- Miang Besar Coal Terminal - Indonesia
- The Treasury - Australian Government
- Rashtriya Ispat Nigam Limited - India
- Semirara Mining Corp, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Deloitte Consulting - India
- Tamil Nadu electricity Board
- Electricity Generating Authority of Thailand
- South Luzon Thermal Energy Corporation
- Petrochimia International Co. Ltd.- Taiwan
- Kumho Petrochemical, South Korea
- Siam City Cement PLC, Thailand
- Bharathi Cement Corporation - India
- Central Java Power - Indonesia
- Global Green Power PLC Corporation, Philippines
- Borneo Indobara - Indonesia
- Meralco Power Generation, Philippines
- Agrawal Coal Company - India
- Independent Power Producers Association of India
- Karbindo Abesyapradhi - Indoneisa
- Savvy Resources Ltd - HongKong
- Energy Development Corp, Philippines
- London Commodity Brokers - England
- Indo Tambangraya Megah - Indonesia
- Wood Mackenzie - Singapore
- Asmin Koalindo Tuhup - Indonesia
- Tata Chemicals Ltd - India
- VISA Power Limited - India
- Carbofer General Trading SA - India
- Kalimantan Lumbung Energi - Indonesia
- India Bulls Power Limited - India
- Semirara Mining and Power Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- Madhucon Powers Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Krishnapatnam Port Company Ltd. - India
- Wilmar Investment Holdings
- Simpson Spence & Young - Indonesia
- GMR Energy Limited - India
- Ministry of Transport, Egypt
- TNB Fuel Sdn Bhd - Malaysia
- Posco Energy - South Korea
- PetroVietnam Power Coal Import and Supply Company
- Coalindo Energy - Indonesia
- Aboitiz Power Corporation - Philippines
- Maheswari Brothers Coal Limited - India
- Bukit Makmur.PT - Indonesia
- Price Waterhouse Coopers - Russia
- Formosa Plastics Group - Taiwan
- New Zealand Coal & Carbon
- IEA Clean Coal Centre - UK
- Chamber of Mines of South Africa
- Binh Thuan Hamico - Vietnam
- Sindya Power Generating Company Private Ltd
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