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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, 24 February 15
IHS ENERGY COAL CONFERENCE OF THE AMERICAS
Attend the IHS Energy Coal Conference of the Americas 17-19 March in Cartagena, Colombia and learn about timely concerns in today's coal indust ...
Monday, 23 February 15
Q2' CFR SOUTH CHINA COAL SWAP FOR Q2 ROSE 3.39% M-O-M
COALspot.com: API 8 CFR South China Coal swap for Q2’ 2015 delivery rose US$ 1.90 (+3.39%) per MT month over month and declined US$ 0.08 ...
Monday, 23 February 15
Q2' API 5 FOB NEWCASTLE COAL SWAP CLOSED $1 HIGHER THAN Q3
COALspot.com: API 5 FOB Newcastle Coal swap for Q2’ 2015 delivery rose US$ 3.12 per MT (+6.44%) month over month and fall US$ 0.43 (-0.83%) w ...
Sunday, 22 February 15
THE BALTIC DRY INDEX LOST ALMOST 3.2% OR 17 POINTS WEEK ON WEEK
COALspot.com: The Baltic Dry Index, one of the economic indicators that monitors the health of the world's economy by tracking the price of shi ...
Friday, 20 February 15
GOVT SET TO INCREASE COAL OUTPUT TARGET THIS YEAR - JAKARTA POST
The Energy and Mineral Resources Ministry is planning to increase its coal output target this year as the government seeks to offset the ongoing de ...
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- Pendopo Energi Batubara - Indonesia
- Straits Asia Resources Limited - Singapore
- Price Waterhouse Coopers - Russia
- Indo Tambangraya Megah - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- ICICI Bank Limited - India
- Anglo American - United Kingdom
- Aditya Birla Group - India
- Ind-Barath Power Infra Limited - India
- Iligan Light & Power Inc, Philippines
- Indian Energy Exchange, India
- Malabar Cements Ltd - India
- Siam City Cement PLC, Thailand
- Vedanta Resources Plc - India
- Riau Bara Harum - Indonesia
- Minerals Council of Australia
- Star Paper Mills Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Petrochimia International Co. Ltd.- Taiwan
- Coastal Gujarat Power Limited - India
- CIMB Investment Bank - Malaysia
- Central Electricity Authority - India
- Semirara Mining Corp, Philippines
- Indika Energy - Indonesia
- Tata Chemicals Ltd - India
- Grasim Industreis Ltd - India
- Agrawal Coal Company - India
- Bukit Makmur.PT - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Borneo Indobara - Indonesia
- Carbofer General Trading SA - India
- Indian Oil Corporation Limited
- Essar Steel Hazira Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- The University of Queensland
- Kartika Selabumi Mining - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Gujarat Sidhee Cement - India
- Ministry of Transport, Egypt
- Makarim & Taira - Indonesia
- Medco Energi Mining Internasional
- The State Trading Corporation of India Ltd
- Electricity Generating Authority of Thailand
- Bangladesh Power Developement Board
- Siam City Cement - Thailand
- Heidelberg Cement - Germany
- Leighton Contractors Pty Ltd - Australia
- SMC Global Power, Philippines
- Romanian Commodities Exchange
- Economic Council, Georgia
- India Bulls Power Limited - India
- IEA Clean Coal Centre - UK
- Renaissance Capital - South Africa
- London Commodity Brokers - England
- Ambuja Cements Ltd - India
- Uttam Galva Steels Limited - India
- Eastern Energy - Thailand
- Semirara Mining and Power Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- Madhucon Powers Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Bahari Cakrawala Sebuku - Indonesia
- GMR Energy Limited - India
- Mercuria Energy - Indonesia
- Petron Corporation, Philippines
- Baramulti Group, Indonesia
- Sarangani Energy Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Ceylon Electricity Board - Sri Lanka
- Bhatia International Limited - India
- Directorate General of MIneral and Coal - Indonesia
- ASAPP Information Group - India
- Orica Australia Pty. Ltd.
- Salva Resources Pvt Ltd - India
- Sakthi Sugars Limited - India
- Australian Coal Association
- Toyota Tsusho Corporation, Japan
- IHS Mccloskey Coal Group - USA
- Coal and Oil Company - UAE
- Mjunction Services Limited - India
- Kumho Petrochemical, South Korea
- McConnell Dowell - Australia
- Attock Cement Pakistan Limited
- Kalimantan Lumbung Energi - Indonesia
- Lanco Infratech Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Bank of Tokyo Mitsubishi UFJ Ltd
- GVK Power & Infra Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- SMG Consultants - Indonesia
- Jindal Steel & Power Ltd - India
- New Zealand Coal & Carbon
- Bukit Baiduri Energy - Indonesia
- Xindia Steels Limited - India
- Energy Link Ltd, New Zealand
- Africa Commodities Group - South Africa
- Karaikal Port Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Standard Chartered Bank - UAE
- Aboitiz Power Corporation - Philippines
- Independent Power Producers Association of India
- Cement Manufacturers Association - India
- Thiess Contractors Indonesia
- Merrill Lynch Commodities Europe
- Mintek Dendrill Indonesia
- Bulk Trading Sa - Switzerland
- MS Steel International - UAE
- TNB Fuel Sdn Bhd - Malaysia
- Ministry of Mines - Canada
- Metalloyd Limited - United Kingdom
- Posco Energy - South Korea
- Commonwealth Bank - Australia
- Manunggal Multi Energi - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Miang Besar Coal Terminal - Indonesia
- Oldendorff Carriers - Singapore
- CNBM International Corporation - China
- International Coal Ventures Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indonesian Coal Mining Association
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kideco Jaya Agung - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Tamil Nadu electricity Board
- Holcim Trading Pte Ltd - Singapore
- Marubeni Corporation - India
- Cigading International Bulk Terminal - Indonesia
- AsiaOL BioFuels Corp., Philippines
- OPG Power Generation Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- Kaltim Prima Coal - Indonesia
- Globalindo Alam Lestari - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Sical Logistics Limited - India
- PTC India Limited - India
- Videocon Industries ltd - India
- Directorate Of Revenue Intelligence - India
- Central Java Power - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Wilmar Investment Holdings
- Parry Sugars Refinery, India
- Meralco Power Generation, Philippines
- Rio Tinto Coal - Australia
- Planning Commission, India
- The Treasury - Australian Government
- Rashtriya Ispat Nigam Limited - India
- Indogreen Group - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Orica Mining Services - Indonesia
- Coalindo Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- Formosa Plastics Group - Taiwan
- SN Aboitiz Power Inc, Philippines
- Antam Resourcindo - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Gujarat Mineral Development Corp Ltd - India
- Kobexindo Tractors - Indoneisa
- Banpu Public Company Limited - Thailand
- European Bulk Services B.V. - Netherlands
- Jorong Barutama Greston.PT - Indonesia
- White Energy Company Limited
- San Jose City I Power Corp, Philippines
- Electricity Authority, New Zealand
- Intertek Mineral Services - Indonesia
- Sojitz Corporation - Japan
- Gujarat Electricity Regulatory Commission - India
- Eastern Coal Council - USA
- Energy Development Corp, Philippines
- Bayan Resources Tbk. - Indonesia
- Samtan Co., Ltd - South Korea
- Thai Mozambique Logistica
- Meenaskhi Energy Private Limited - India
- Barasentosa Lestari - Indonesia
- Timah Investasi Mineral - Indoneisa
- Sree Jayajothi Cements Limited - India
- Bhoruka Overseas - Indonesia
- Vizag Seaport Private Limited - India
- Neyveli Lignite Corporation Ltd, - India
- GAC Shipping (India) Pvt Ltd
- Parliament of New Zealand
- Larsen & Toubro Limited - India
- Global Business Power Corporation, Philippines
- Port Waratah Coal Services - Australia
- TeaM Sual Corporation - Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Trasteel International SA, Italy
- Kapuas Tunggal Persada - Indonesia
- Latin American Coal - Colombia
- Global Coal Blending Company Limited - Australia
- Wood Mackenzie - Singapore
- Australian Commodity Traders Exchange
- Interocean Group of Companies - India
- Altura Mining Limited, Indonesia
- Jaiprakash Power Ventures ltd
- Therma Luzon, Inc, Philippines
- Chamber of Mines of South Africa
- Georgia Ports Authority, United States
- Power Finance Corporation Ltd., India
- Savvy Resources Ltd - HongKong
- Deloitte Consulting - India
- Singapore Mercantile Exchange
- LBH Netherlands Bv - Netherlands
- Bharathi Cement Corporation - India
- VISA Power Limited - India
- PowerSource Philippines DevCo
- Edison Trading Spa - Italy
- Ministry of Finance - Indonesia
- Maheswari Brothers Coal Limited - India
- Goldman Sachs - Singapore
- Global Green Power PLC Corporation, Philippines
- Mercator Lines Limited - India
- Kepco SPC Power Corporation, Philippines
- Dalmia Cement Bharat India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Asmin Koalindo Tuhup - Indonesia
- Bhushan Steel Limited - India
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