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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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Monday, 10 November 14
Q4' 15 FOB INDONESIA COAL SWAP CLOSED LOWER THAN Q1' 15 CLOSING PRICE OF US$ 49.58 ON LAST FRIDAY
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 lost month on month, week on week and day on day.
The Q1 swap has lost just US$ ...
Monday, 10 November 14
SGX'S API 4 FOB RICHARDS BAY COAL SWAP FOR Q1' 2015 DELIVERY CLOSED AT US$ 65.44 ON 7 NOV, LOST 4.08% M-O-M
COALspot.com: API 4 FOB Richards Bay Coal swap for Q1’ 2015 delivery has decreased US$ 2.78 (-4.08%) month over month and US$ 1.41 (-2.11%) w ...
Monday, 10 November 14
MOZAMBIQUE SIGNED CONTRACT WITH ETA STAR OF UAE FOR OPEN CAST COAL MINE IN TETE - AIM
- ETA Star to build slurry pipeline over the 600 kilometers to Beira in Mozambique to transport coal.
- The viability studies show the presence o ...
Monday, 10 November 14
YEAR 2015 CFR SOUTH CHINA COAL SWAP SHOWS A WEAK TREND THIS PAST WEEK
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery has decreased US$ 3.74 (-5.63%) month over month and US$ 2.19 (+3.37%) we ...
Sunday, 09 November 14
CAPE INDEX UP 3.06%; PANAMAX INDEX FELL 4.05%
COALspot.com: The BDI was almost at same levels compared to last week closing or just increased 0.77 pct from last week. The BDI was closed at 1437 ...
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Showing 3386 to 3390 news of total 6871 |
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- Billiton Holdings Pty Ltd - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ministry of Mines - Canada
- Coal and Oil Company - UAE
- Ministry of Transport, Egypt
- Grasim Industreis Ltd - India
- Cement Manufacturers Association - India
- European Bulk Services B.V. - Netherlands
- Semirara Mining and Power Corporation, Philippines
- Tamil Nadu electricity Board
- Gujarat Electricity Regulatory Commission - India
- Pendopo Energi Batubara - Indonesia
- Kartika Selabumi Mining - Indonesia
- Formosa Plastics Group - Taiwan
- Marubeni Corporation - India
- Goldman Sachs - Singapore
- Edison Trading Spa - Italy
- Kalimantan Lumbung Energi - Indonesia
- The Treasury - Australian Government
- Sical Logistics Limited - India
- Independent Power Producers Association of India
- Aditya Birla Group - India
- Vijayanagar Sugar Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Binh Thuan Hamico - Vietnam
- Trasteel International SA, Italy
- Indian Oil Corporation Limited
- Energy Link Ltd, New Zealand
- Commonwealth Bank - Australia
- Kohat Cement Company Ltd. - Pakistan
- Wood Mackenzie - Singapore
- Mjunction Services Limited - India
- Uttam Galva Steels Limited - India
- Maharashtra Electricity Regulatory Commission - India
- The State Trading Corporation of India Ltd
- Karbindo Abesyapradhi - Indoneisa
- Neyveli Lignite Corporation Ltd, - India
- Energy Development Corp, Philippines
- Orica Australia Pty. Ltd.
- Heidelberg Cement - Germany
- Miang Besar Coal Terminal - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Eastern Energy - Thailand
- Timah Investasi Mineral - Indoneisa
- Kapuas Tunggal Persada - Indonesia
- India Bulls Power Limited - India
- Chettinad Cement Corporation Ltd - India
- Maheswari Brothers Coal Limited - India
- Parliament of New Zealand
- Holcim Trading Pte Ltd - Singapore
- Vedanta Resources Plc - India
- Ministry of Finance - Indonesia
- Attock Cement Pakistan Limited
- Altura Mining Limited, Indonesia
- Sindya Power Generating Company Private Ltd
- Renaissance Capital - South Africa
- London Commodity Brokers - England
- Central Electricity Authority - India
- Straits Asia Resources Limited - Singapore
- Jaiprakash Power Ventures ltd
- Sakthi Sugars Limited - India
- Indonesian Coal Mining Association
- Leighton Contractors Pty Ltd - Australia
- Globalindo Alam Lestari - Indonesia
- Bharathi Cement Corporation - India
- Global Business Power Corporation, Philippines
- Siam City Cement PLC, Thailand
- CNBM International Corporation - China
- Directorate Of Revenue Intelligence - India
- Singapore Mercantile Exchange
- New Zealand Coal & Carbon
- Star Paper Mills Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bhatia International Limited - India
- Coalindo Energy - Indonesia
- ASAPP Information Group - India
- Power Finance Corporation Ltd., India
- Madhucon Powers Ltd - India
- Carbofer General Trading SA - India
- Ambuja Cements Ltd - India
- Thai Mozambique Logistica
- Rio Tinto Coal - Australia
- Vizag Seaport Private Limited - India
- Chamber of Mines of South Africa
- Petrochimia International Co. Ltd.- Taiwan
- International Coal Ventures Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Xindia Steels Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Asmin Koalindo Tuhup - Indonesia
- Orica Mining Services - Indonesia
- LBH Netherlands Bv - Netherlands
- Riau Bara Harum - Indonesia
- Global Green Power PLC Corporation, Philippines
- Lanco Infratech Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Agrawal Coal Company - India
- VISA Power Limited - India
- The University of Queensland
- Minerals Council of Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Salva Resources Pvt Ltd - India
- Borneo Indobara - Indonesia
- Central Java Power - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Indika Energy - Indonesia
- Anglo American - United Kingdom
- Alfred C Toepfer International GmbH - Germany
- Toyota Tsusho Corporation, Japan
- Tata Chemicals Ltd - India
- Interocean Group of Companies - India
- Port Waratah Coal Services - Australia
- SMG Consultants - Indonesia
- MS Steel International - UAE
- McConnell Dowell - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Semirara Mining Corp, Philippines
- Oldendorff Carriers - Singapore
- OPG Power Generation Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Sree Jayajothi Cements Limited - India
- Bukit Baiduri Energy - Indonesia
- Parry Sugars Refinery, India
- Medco Energi Mining Internasional
- GAC Shipping (India) Pvt Ltd
- Videocon Industries ltd - India
- Gujarat Sidhee Cement - India
- Metalloyd Limited - United Kingdom
- TeaM Sual Corporation - Philippines
- SMC Global Power, Philippines
- Wilmar Investment Holdings
- Kobexindo Tractors - Indoneisa
- Latin American Coal - Colombia
- Meralco Power Generation, Philippines
- PNOC Exploration Corporation - Philippines
- IEA Clean Coal Centre - UK
- Therma Luzon, Inc, Philippines
- San Jose City I Power Corp, Philippines
- Samtan Co., Ltd - South Korea
- Jorong Barutama Greston.PT - Indonesia
- CIMB Investment Bank - Malaysia
- Indogreen Group - Indonesia
- Kaltim Prima Coal - Indonesia
- Merrill Lynch Commodities Europe
- ICICI Bank Limited - India
- Price Waterhouse Coopers - Russia
- Barasentosa Lestari - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Indian Energy Exchange, India
- Mercator Lines Limited - India
- Planning Commission, India
- Ind-Barath Power Infra Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- White Energy Company Limited
- Savvy Resources Ltd - HongKong
- Mercuria Energy - Indonesia
- Georgia Ports Authority, United States
- Bangladesh Power Developement Board
- Bhoruka Overseas - Indonesia
- Australian Coal Association
- Indo Tambangraya Megah - Indonesia
- Kideco Jaya Agung - Indonesia
- GMR Energy Limited - India
- Standard Chartered Bank - UAE
- Dalmia Cement Bharat India
- Kumho Petrochemical, South Korea
- IHS Mccloskey Coal Group - USA
- Posco Energy - South Korea
- Sarangani Energy Corporation, Philippines
- Electricity Authority, New Zealand
- Bulk Trading Sa - Switzerland
- GVK Power & Infra Limited - India
- Petron Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Kepco SPC Power Corporation, Philippines
- Siam City Cement - Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Malabar Cements Ltd - India
- Iligan Light & Power Inc, Philippines
- Mintek Dendrill Indonesia
- Aboitiz Power Corporation - Philippines
- Romanian Commodities Exchange
- Sojitz Corporation - Japan
- Essar Steel Hazira Ltd - India
- Banpu Public Company Limited - Thailand
- Makarim & Taira - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Bayan Resources Tbk. - Indonesia
- Manunggal Multi Energi - Indonesia
- Meenaskhi Energy Private Limited - India
- Australian Commodity Traders Exchange
- Baramulti Group, Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Jindal Steel & Power Ltd - India
- Thiess Contractors Indonesia
- Larsen & Toubro Limited - India
- PTC India Limited - India
- Deloitte Consulting - India
- Antam Resourcindo - Indonesia
- Africa Commodities Group - South Africa
- Karaikal Port Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- South Luzon Thermal Energy Corporation
- Economic Council, Georgia
- Bhushan Steel Limited - India
- Eastern Coal Council - USA
- Simpson Spence & Young - Indonesia
- PowerSource Philippines DevCo
- Global Coal Blending Company Limited - Australia
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