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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, 04 November 14
FOB NEWCASTLE COAL SWAPS GAINED WEEK OVER WEEK
COALspot.com: API 5 FOB Newcastle Coal swap for Q4’ 2014 delivery decreased US$ 1.09 (-1.99%) month over month and increased US$ 0.31 (+0.58% ...
Monday, 03 November 14
ADARO PRODUCED 41.90MT OF COAL FOR FIRST 9 MONTHS OF 2014
COALspot.com: Adaro’s coal production in the third quarter reached 14.03 Mt, a 2% increase compared to the same period of last year. Accordin ...
Monday, 03 November 14
CFR SOUTH CHINA COAL SWAP FOR Q4' 2014 DELIVERY LOST 2.80% MONTH OVER MONTH
COALspot.com: API 8 CFR South China Coal swap for Q4’ 2014 delivery has decreased US$ 1.86 (-2.80%) month over month and increased US$ 0.37 ( ...
Monday, 03 November 14
INDONESIAN'S COAL EXPORTS JUMP IN SEPTEMBER
COALspot.com: Indonesia, one of the world's largest coal producers and the global leading multi grade coal exporter shipped around $1.50 ...
Sunday, 02 November 14
CAPE INDEX WAS UP 46.65% WEEK ON WEEK
COALspot.com: The BDI and Cape index continued the strong upward trend this week. The BDI was up 19.80 pct and Cape index was up by 46.65 per ...
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- Anglo American - United Kingdom
- Straits Asia Resources Limited - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sree Jayajothi Cements Limited - India
- Wilmar Investment Holdings
- Krishnapatnam Port Company Ltd. - India
- CNBM International Corporation - China
- Kumho Petrochemical, South Korea
- Thai Mozambique Logistica
- Salva Resources Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Iligan Light & Power Inc, Philippines
- Ministry of Mines - Canada
- Sakthi Sugars Limited - India
- Bayan Resources Tbk. - Indonesia
- Directorate Of Revenue Intelligence - India
- Price Waterhouse Coopers - Russia
- Parry Sugars Refinery, India
- ICICI Bank Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Petron Corporation, Philippines
- ASAPP Information Group - India
- LBH Netherlands Bv - Netherlands
- Australian Coal Association
- Metalloyd Limited - United Kingdom
- Star Paper Mills Limited - India
- Kaltim Prima Coal - Indonesia
- The Treasury - Australian Government
- Pipit Mutiara Jaya. PT, Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bahari Cakrawala Sebuku - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Lanco Infratech Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Tamil Nadu electricity Board
- Heidelberg Cement - Germany
- Merrill Lynch Commodities Europe
- Simpson Spence & Young - Indonesia
- Standard Chartered Bank - UAE
- Vedanta Resources Plc - India
- India Bulls Power Limited - India
- Global Coal Blending Company Limited - Australia
- Therma Luzon, Inc, Philippines
- Romanian Commodities Exchange
- Indogreen Group - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Kideco Jaya Agung - Indonesia
- Indian Oil Corporation Limited
- Orica Mining Services - Indonesia
- Electricity Generating Authority of Thailand
- SMC Global Power, Philippines
- Global Green Power PLC Corporation, Philippines
- Riau Bara Harum - Indonesia
- IEA Clean Coal Centre - UK
- Attock Cement Pakistan Limited
- Mintek Dendrill Indonesia
- Coal and Oil Company - UAE
- Chettinad Cement Corporation Ltd - India
- Indonesian Coal Mining Association
- Mjunction Services Limited - India
- Sojitz Corporation - Japan
- Trasteel International SA, Italy
- Cigading International Bulk Terminal - Indonesia
- Cement Manufacturers Association - India
- Bulk Trading Sa - Switzerland
- Videocon Industries ltd - India
- Holcim Trading Pte Ltd - Singapore
- Energy Development Corp, Philippines
- Economic Council, Georgia
- Pendopo Energi Batubara - Indonesia
- Coalindo Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- McConnell Dowell - Australia
- Port Waratah Coal Services - Australia
- Bukit Makmur.PT - Indonesia
- PTC India Limited - India
- Sarangani Energy Corporation, Philippines
- Mercuria Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- Electricity Authority, New Zealand
- Chamber of Mines of South Africa
- Eastern Coal Council - USA
- Bukit Baiduri Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Ministry of Finance - Indonesia
- Indian Energy Exchange, India
- OPG Power Generation Pvt Ltd - India
- Parliament of New Zealand
- Independent Power Producers Association of India
- Toyota Tsusho Corporation, Japan
- Wood Mackenzie - Singapore
- Ambuja Cements Ltd - India
- Kartika Selabumi Mining - Indonesia
- TeaM Sual Corporation - Philippines
- Carbofer General Trading SA - India
- Bhatia International Limited - India
- Kobexindo Tractors - Indoneisa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Tata Chemicals Ltd - India
- Maheswari Brothers Coal Limited - India
- London Commodity Brokers - England
- Georgia Ports Authority, United States
- SN Aboitiz Power Inc, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- San Jose City I Power Corp, Philippines
- Goldman Sachs - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Singapore Mercantile Exchange
- Jaiprakash Power Ventures ltd
- Siam City Cement - Thailand
- GMR Energy Limited - India
- Semirara Mining and Power Corporation, Philippines
- New Zealand Coal & Carbon
- Eastern Energy - Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Essar Steel Hazira Ltd - India
- Intertek Mineral Services - Indonesia
- Sinarmas Energy and Mining - Indonesia
- PNOC Exploration Corporation - Philippines
- Renaissance Capital - South Africa
- Billiton Holdings Pty Ltd - Australia
- Edison Trading Spa - Italy
- Samtan Co., Ltd - South Korea
- Directorate General of MIneral and Coal - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Marubeni Corporation - India
- Rio Tinto Coal - Australia
- PetroVietnam Power Coal Import and Supply Company
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Uttam Galva Steels Limited - India
- Antam Resourcindo - Indonesia
- Ind-Barath Power Infra Limited - India
- White Energy Company Limited
- Latin American Coal - Colombia
- Vijayanagar Sugar Pvt Ltd - India
- PowerSource Philippines DevCo
- Alfred C Toepfer International GmbH - Germany
- Meralco Power Generation, Philippines
- Borneo Indobara - Indonesia
- Central Electricity Authority - India
- South Luzon Thermal Energy Corporation
- Siam City Cement PLC, Thailand
- Altura Mining Limited, Indonesia
- Africa Commodities Group - South Africa
- MS Steel International - UAE
- Oldendorff Carriers - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- CIMB Investment Bank - Malaysia
- Vizag Seaport Private Limited - India
- Gujarat Sidhee Cement - India
- Petrochimia International Co. Ltd.- Taiwan
- Xindia Steels Limited - India
- Sical Logistics Limited - India
- Binh Thuan Hamico - Vietnam
- Thiess Contractors Indonesia
- Leighton Contractors Pty Ltd - Australia
- Indo Tambangraya Megah - Indonesia
- Posco Energy - South Korea
- Global Business Power Corporation, Philippines
- Bhushan Steel Limited - India
- Baramulti Group, Indonesia
- Savvy Resources Ltd - HongKong
- SMG Consultants - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Globalindo Alam Lestari - Indonesia
- Meenaskhi Energy Private Limited - India
- Bharathi Cement Corporation - India
- The State Trading Corporation of India Ltd
- Semirara Mining Corp, Philippines
- Bhoruka Overseas - Indonesia
- Karaikal Port Pvt Ltd - India
- Deloitte Consulting - India
- Ceylon Electricity Board - Sri Lanka
- Banpu Public Company Limited - Thailand
- Interocean Group of Companies - India
- Rashtriya Ispat Nigam Limited - India
- Aditya Birla Group - India
- Kapuas Tunggal Persada - Indonesia
- Mercator Lines Limited - India
- Indika Energy - Indonesia
- GVK Power & Infra Limited - India
- Power Finance Corporation Ltd., India
- Gujarat Mineral Development Corp Ltd - India
- Orica Australia Pty. Ltd.
- Jindal Steel & Power Ltd - India
- Grasim Industreis Ltd - India
- Commonwealth Bank - Australia
- Makarim & Taira - Indonesia
- Agrawal Coal Company - India
- Planning Commission, India
- Larsen & Toubro Limited - India
- Formosa Plastics Group - Taiwan
- Madhucon Powers Ltd - India
- Dalmia Cement Bharat India
- VISA Power Limited - India
- Minerals Council of Australia
- The University of Queensland
- Ministry of Transport, Egypt
- Manunggal Multi Energi - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Kohat Cement Company Ltd. - Pakistan
- IHS Mccloskey Coal Group - USA
- Kalimantan Lumbung Energi - Indonesia
- Bangladesh Power Developement Board
- European Bulk Services B.V. - Netherlands
- Sindya Power Generating Company Private Ltd
- Energy Link Ltd, New Zealand
- Malabar Cements Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Medco Energi Mining Internasional
- Central Java Power - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Australian Commodity Traders Exchange
- GAC Shipping (India) Pvt Ltd
- Coastal Gujarat Power Limited - India
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