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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, 20 February 15
U.S. PRODUCED AROUND 19.2 MILLION SHORT TONS OF COAL WEEK ON WEEK
COALspot.com – United States the world's one of the largest coal producers, produced approximately 19.2 million short tons (mmst) of coal ...
Thursday, 19 February 15
PANAMAX: NOPAC AND AUSSIE ROUNDS ARE DONE IN LOW/MID $ 4000; TRIPS VIA INDONESIA TO INDIA CLOSER TO THE $5000 MARK - FEARNLEYS
Handy
The handy and supra market has not seen any firming rates in front of the Chinese New Year and still suffering on low activity in both hemi ...
Wednesday, 18 February 15
DRY BULK SHIPPING TO RECOVER IN LATE 2015 - DREWRY MARITIME RESEARCH
Strong trade growth, moderating fleet development and deployment of new fuel efficient vessels are expected to lead to a recovery in dry bulk shipp ...
Tuesday, 17 February 15
WHO PAYS THE SUEZ CANAL FEES? - INCE & CO
KNOWLEDGE TO ELEVATE
This was an appeal from an arbitration award on a point of construction in relation to the wording of an addendum to a ch ...
Tuesday, 17 February 15
BUOYANT WAVES IN RECENT YEARS: GLOBAL SHIP INVESTMENT SINCE THE CRASH - HELLENIC SHIPPING NEWS
Anxiety about fleet expansion is a recurring feature of world shipping markets. Within the global maritime community, worries about the vast amount ...
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- Riau Bara Harum - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Economic Council, Georgia
- Semirara Mining and Power Corporation, Philippines
- MS Steel International - UAE
- Indian Energy Exchange, India
- LBH Netherlands Bv - Netherlands
- Toyota Tsusho Corporation, Japan
- Dalmia Cement Bharat India
- San Jose City I Power Corp, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Meralco Power Generation, Philippines
- Australian Commodity Traders Exchange
- Latin American Coal - Colombia
- Electricity Authority, New Zealand
- Merrill Lynch Commodities Europe
- Attock Cement Pakistan Limited
- Bahari Cakrawala Sebuku - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Commonwealth Bank - Australia
- South Luzon Thermal Energy Corporation
- Antam Resourcindo - Indonesia
- Gujarat Sidhee Cement - India
- IHS Mccloskey Coal Group - USA
- VISA Power Limited - India
- Orica Mining Services - Indonesia
- Coal and Oil Company - UAE
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Oldendorff Carriers - Singapore
- Sarangani Energy Corporation, Philippines
- Grasim Industreis Ltd - India
- Videocon Industries ltd - India
- Coalindo Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Africa Commodities Group - South Africa
- Baramulti Group, Indonesia
- Bayan Resources Tbk. - Indonesia
- Savvy Resources Ltd - HongKong
- CIMB Investment Bank - Malaysia
- New Zealand Coal & Carbon
- Central Electricity Authority - India
- Rashtriya Ispat Nigam Limited - India
- Chettinad Cement Corporation Ltd - India
- Karaikal Port Pvt Ltd - India
- Mintek Dendrill Indonesia
- Vedanta Resources Plc - India
- Ministry of Finance - Indonesia
- Semirara Mining Corp, Philippines
- Jindal Steel & Power Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Kaltim Prima Coal - Indonesia
- Vizag Seaport Private Limited - India
- The State Trading Corporation of India Ltd
- Tamil Nadu electricity Board
- Petrochimia International Co. Ltd.- Taiwan
- Kohat Cement Company Ltd. - Pakistan
- Meenaskhi Energy Private Limited - India
- Banpu Public Company Limited - Thailand
- OPG Power Generation Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- SN Aboitiz Power Inc, Philippines
- Mercuria Energy - Indonesia
- Marubeni Corporation - India
- Indo Tambangraya Megah - Indonesia
- Mjunction Services Limited - India
- Xindia Steels Limited - India
- Ministry of Mines - Canada
- Globalindo Alam Lestari - Indonesia
- Sojitz Corporation - Japan
- Carbofer General Trading SA - India
- Bhoruka Overseas - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Leighton Contractors Pty Ltd - Australia
- Ministry of Transport, Egypt
- Aboitiz Power Corporation - Philippines
- GAC Shipping (India) Pvt Ltd
- Kalimantan Lumbung Energi - Indonesia
- Siam City Cement PLC, Thailand
- PTC India Limited - India
- Edison Trading Spa - Italy
- Parliament of New Zealand
- Renaissance Capital - South Africa
- Goldman Sachs - Singapore
- Standard Chartered Bank - UAE
- Sakthi Sugars Limited - India
- Port Waratah Coal Services - Australia
- Sical Logistics Limited - India
- Bukit Makmur.PT - Indonesia
- Samtan Co., Ltd - South Korea
- Siam City Cement - Thailand
- Global Green Power PLC Corporation, Philippines
- Coastal Gujarat Power Limited - India
- Energy Link Ltd, New Zealand
- The University of Queensland
- Trasteel International SA, Italy
- Mercator Lines Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Bukit Baiduri Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- Gujarat Mineral Development Corp Ltd - India
- Kideco Jaya Agung - Indonesia
- Power Finance Corporation Ltd., India
- Price Waterhouse Coopers - Russia
- Kartika Selabumi Mining - Indonesia
- Interocean Group of Companies - India
- Makarim & Taira - Indonesia
- Kumho Petrochemical, South Korea
- India Bulls Power Limited - India
- Gujarat Electricity Regulatory Commission - India
- Posco Energy - South Korea
- Bulk Trading Sa - Switzerland
- Metalloyd Limited - United Kingdom
- Maheswari Brothers Coal Limited - India
- White Energy Company Limited
- Kobexindo Tractors - Indoneisa
- Lanco Infratech Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Anglo American - United Kingdom
- Pendopo Energi Batubara - Indonesia
- Romanian Commodities Exchange
- Maharashtra Electricity Regulatory Commission - India
- Ind-Barath Power Infra Limited - India
- Electricity Generating Authority of Thailand
- Uttam Galva Steels Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Eastern Energy - Thailand
- Bharathi Cement Corporation - India
- Chamber of Mines of South Africa
- Borneo Indobara - Indonesia
- Aditya Birla Group - India
- Thai Mozambique Logistica
- London Commodity Brokers - England
- European Bulk Services B.V. - Netherlands
- The Treasury - Australian Government
- Salva Resources Pvt Ltd - India
- Bhatia International Limited - India
- Straits Asia Resources Limited - Singapore
- Iligan Light & Power Inc, Philippines
- Holcim Trading Pte Ltd - Singapore
- GMR Energy Limited - India
- CNBM International Corporation - China
- Directorate Of Revenue Intelligence - India
- Indian Oil Corporation Limited
- Planning Commission, India
- AsiaOL BioFuels Corp., Philippines
- Central Java Power - Indonesia
- Timah Investasi Mineral - Indoneisa
- Heidelberg Cement - Germany
- Pipit Mutiara Jaya. PT, Indonesia
- Singapore Mercantile Exchange
- Energy Development Corp, Philippines
- Tata Chemicals Ltd - India
- PowerSource Philippines DevCo
- GN Power Mariveles Coal Plant, Philippines
- Krishnapatnam Port Company Ltd. - India
- ICICI Bank Limited - India
- ASAPP Information Group - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- SMG Consultants - Indonesia
- Intertek Mineral Services - Indonesia
- Bhushan Steel Limited - India
- Indika Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Bangladesh Power Developement Board
- Global Business Power Corporation, Philippines
- Parry Sugars Refinery, India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Therma Luzon, Inc, Philippines
- Madhucon Powers Ltd - India
- Simpson Spence & Young - Indonesia
- Minerals Council of Australia
- Indogreen Group - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Independent Power Producers Association of India
- TNB Fuel Sdn Bhd - Malaysia
- Formosa Plastics Group - Taiwan
- Ambuja Cements Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Altura Mining Limited, Indonesia
- Agrawal Coal Company - India
- Deloitte Consulting - India
- Jaiprakash Power Ventures ltd
- Global Coal Blending Company Limited - Australia
- Binh Thuan Hamico - Vietnam
- Sree Jayajothi Cements Limited - India
- Cement Manufacturers Association - India
- Thiess Contractors Indonesia
- Rio Tinto Coal - Australia
- Orica Australia Pty. Ltd.
- International Coal Ventures Pvt Ltd - India
- Eastern Coal Council - USA
- Indonesian Coal Mining Association
- Georgia Ports Authority, United States
- IEA Clean Coal Centre - UK
- Australian Coal Association
- Jorong Barutama Greston.PT - Indonesia
- Essar Steel Hazira Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Larsen & Toubro Limited - India
- McConnell Dowell - Australia
- Petron Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Star Paper Mills Limited - India
- GVK Power & Infra Limited - India
- Ceylon Electricity Board - Sri Lanka
- Sindya Power Generating Company Private Ltd
- Barasentosa Lestari - Indonesia
- Wood Mackenzie - Singapore
- Malabar Cements Ltd - India
- Medco Energi Mining Internasional
- Wilmar Investment Holdings
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kepco SPC Power Corporation, Philippines
- SMC Global Power, Philippines
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