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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, 07 November 14
U.S. PRODUCED 85.60 MILLION SHORT TONS OF COAL IN OCTOBER, UP 2.88% M-O-M
COALspot.com – United States the world's one of the largest coal producers, produced approximately 19.0 million short tons (mmst) of coal ...
Thursday, 06 November 14
THE ATLANTIC HAS REMAINED STRONG WITH A HEALTHY SUPPLY OF NEW CARGOES
Handy
This week has continued its slow trend in both hemispheres and even though rates are a bit up w-o-w it is not a clear sign for any improvem ...
Wednesday, 05 November 14
CAPESIZE SEGMENT ENJOYED FIRMING RATES ACROSS BOTH BASINS
Following a fantastic week in terms of rate performance for Capes, the Dry Bulk market managed to note another positive weekly closing, which stron ...
Wednesday, 05 November 14
SHIPPING MARKET INSIGHT - PANOS TSILINGIRIS
COALspot.com: The steep appreciation in dry bulker values between late 2012 and March 2014 resulted in unrealistically expensive ship values compar ...
Tuesday, 04 November 14
INDONESIAN COAL SWAPS FOR 2015 DELIVERIES SHOW A WEAK TREND
COALspot.com: Indonesian coal swaps for delivery Q4' 2014 lost month on month and gained day on day and week on week, the trend was same as las ...
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- Gujarat Sidhee Cement - India
- Vijayanagar Sugar Pvt Ltd - India
- Energy Development Corp, Philippines
- Formosa Plastics Group - Taiwan
- Power Finance Corporation Ltd., India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Krishnapatnam Port Company Ltd. - India
- AsiaOL BioFuels Corp., Philippines
- Sinarmas Energy and Mining - Indonesia
- San Jose City I Power Corp, Philippines
- TeaM Sual Corporation - Philippines
- IEA Clean Coal Centre - UK
- Petrochimia International Co. Ltd.- Taiwan
- Minerals Council of Australia
- Africa Commodities Group - South Africa
- Australian Coal Association
- Medco Energi Mining Internasional
- Metalloyd Limited - United Kingdom
- Ambuja Cements Ltd - India
- The State Trading Corporation of India Ltd
- Merrill Lynch Commodities Europe
- Indonesian Coal Mining Association
- Rashtriya Ispat Nigam Limited - India
- Iligan Light & Power Inc, Philippines
- Bhushan Steel Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kumho Petrochemical, South Korea
- Bhoruka Overseas - Indonesia
- Orica Mining Services - Indonesia
- Riau Bara Harum - Indonesia
- CNBM International Corporation - China
- Trasteel International SA, Italy
- The University of Queensland
- Antam Resourcindo - Indonesia
- Baramulti Group, Indonesia
- Electricity Authority, New Zealand
- Planning Commission, India
- Petron Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Leighton Contractors Pty Ltd - Australia
- White Energy Company Limited
- Grasim Industreis Ltd - India
- Tata Chemicals Ltd - India
- Mjunction Services Limited - India
- Bhatia International Limited - India
- Standard Chartered Bank - UAE
- LBH Netherlands Bv - Netherlands
- Sojitz Corporation - Japan
- Directorate Of Revenue Intelligence - India
- India Bulls Power Limited - India
- Wilmar Investment Holdings
- Altura Mining Limited, Indonesia
- Straits Asia Resources Limited - Singapore
- ASAPP Information Group - India
- GN Power Mariveles Coal Plant, Philippines
- London Commodity Brokers - England
- Central Java Power - Indonesia
- Karaikal Port Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Pendopo Energi Batubara - Indonesia
- Larsen & Toubro Limited - India
- Global Green Power PLC Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Chettinad Cement Corporation Ltd - India
- Attock Cement Pakistan Limited
- IHS Mccloskey Coal Group - USA
- Asmin Koalindo Tuhup - Indonesia
- Siam City Cement PLC, Thailand
- Bukit Makmur.PT - Indonesia
- International Coal Ventures Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Bangladesh Power Developement Board
- Vedanta Resources Plc - India
- Indogreen Group - Indonesia
- Aboitiz Power Corporation - Philippines
- Indian Oil Corporation Limited
- Ceylon Electricity Board - Sri Lanka
- Indo Tambangraya Megah - Indonesia
- Interocean Group of Companies - India
- Makarim & Taira - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Star Paper Mills Limited - India
- Borneo Indobara - Indonesia
- Eastern Energy - Thailand
- Miang Besar Coal Terminal - Indonesia
- Rio Tinto Coal - Australia
- South Luzon Thermal Energy Corporation
- Toyota Tsusho Corporation, Japan
- Thiess Contractors Indonesia
- PowerSource Philippines DevCo
- Mercuria Energy - Indonesia
- Port Waratah Coal Services - Australia
- Madhucon Powers Ltd - India
- Banpu Public Company Limited - Thailand
- New Zealand Coal & Carbon
- Latin American Coal - Colombia
- Parry Sugars Refinery, India
- Global Business Power Corporation, Philippines
- Economic Council, Georgia
- Renaissance Capital - South Africa
- Coal and Oil Company - UAE
- Mintek Dendrill Indonesia
- Singapore Mercantile Exchange
- SMC Global Power, Philippines
- Indika Energy - Indonesia
- Essar Steel Hazira Ltd - India
- Kepco SPC Power Corporation, Philippines
- Wood Mackenzie - Singapore
- Coastal Gujarat Power Limited - India
- Billiton Holdings Pty Ltd - Australia
- Sindya Power Generating Company Private Ltd
- Neyveli Lignite Corporation Ltd, - India
- OPG Power Generation Pvt Ltd - India
- Romanian Commodities Exchange
- Ministry of Transport, Egypt
- Semirara Mining Corp, Philippines
- Alfred C Toepfer International GmbH - Germany
- Binh Thuan Hamico - Vietnam
- Siam City Cement - Thailand
- Gujarat Electricity Regulatory Commission - India
- Australian Commodity Traders Exchange
- Kartika Selabumi Mining - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Jaiprakash Power Ventures ltd
- Posco Energy - South Korea
- Oldendorff Carriers - Singapore
- Offshore Bulk Terminal Pte Ltd, Singapore
- Videocon Industries ltd - India
- Heidelberg Cement - Germany
- GMR Energy Limited - India
- Sical Logistics Limited - India
- Salva Resources Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Vizag Seaport Private Limited - India
- Therma Luzon, Inc, Philippines
- Timah Investasi Mineral - Indoneisa
- Barasentosa Lestari - Indonesia
- Sarangani Energy Corporation, Philippines
- Goldman Sachs - Singapore
- Sree Jayajothi Cements Limited - India
- SMG Consultants - Indonesia
- Savvy Resources Ltd - HongKong
- Coalindo Energy - Indonesia
- GVK Power & Infra Limited - India
- Georgia Ports Authority, United States
- Marubeni Corporation - India
- European Bulk Services B.V. - Netherlands
- Commonwealth Bank - Australia
- PetroVietnam Power Coal Import and Supply Company
- Bulk Trading Sa - Switzerland
- Anglo American - United Kingdom
- Karbindo Abesyapradhi - Indoneisa
- Semirara Mining and Power Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- Tamil Nadu electricity Board
- Maheswari Brothers Coal Limited - India
- Malabar Cements Ltd - India
- Indian Energy Exchange, India
- Sakthi Sugars Limited - India
- Kobexindo Tractors - Indoneisa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- Lanco Infratech Ltd - India
- Bayan Resources Tbk. - Indonesia
- Meenaskhi Energy Private Limited - India
- The Treasury - Australian Government
- Bank of Tokyo Mitsubishi UFJ Ltd
- Xindia Steels Limited - India
- SN Aboitiz Power Inc, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Directorate General of MIneral and Coal - Indonesia
- Meralco Power Generation, Philippines
- Cement Manufacturers Association - India
- Jindal Steel & Power Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Manunggal Multi Energi - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- MS Steel International - UAE
- Bahari Cakrawala Sebuku - Indonesia
- McConnell Dowell - Australia
- Bukit Baiduri Energy - Indonesia
- Price Waterhouse Coopers - Russia
- Aditya Birla Group - India
- Kaltim Prima Coal - Indonesia
- Ind-Barath Power Infra Limited - India
- Ministry of Mines - Canada
- Kohat Cement Company Ltd. - Pakistan
- Kalimantan Lumbung Energi - Indonesia
- Independent Power Producers Association of India
- Orica Australia Pty. Ltd.
- VISA Power Limited - India
- Globalindo Alam Lestari - Indonesia
- Agrawal Coal Company - India
- Energy Link Ltd, New Zealand
- Kideco Jaya Agung - Indonesia
- Deloitte Consulting - India
- Holcim Trading Pte Ltd - Singapore
- Carbofer General Trading SA - India
- PTC India Limited - India
- Central Electricity Authority - India
- ICICI Bank Limited - India
- Bharathi Cement Corporation - India
- Parliament of New Zealand
- Mercator Lines Limited - India
- Dalmia Cement Bharat India
- Thai Mozambique Logistica
- Eastern Coal Council - USA
- Intertek Mineral Services - Indonesia
- Samtan Co., Ltd - South Korea
- Ministry of Finance - Indonesia
- CIMB Investment Bank - Malaysia
- Chamber of Mines of South Africa
- Global Coal Blending Company Limited - Australia
- Edison Trading Spa - Italy
- Uttam Galva Steels Limited - India
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