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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, 17 February 15
FOB SUB-BIT INDONESIA COAL SWAP UP 8% MONTH OVER MONTH
COALspot.com: Indonesian coal swaps for delivery Q2' 2015 rose week over week and month on month.
The Q2 swap up US$ 3.58 (+8.00%) month o ...
Tuesday, 17 February 15
Q2' FOB RICHARDS BAY COAL SWAP CLOSED AT $63.45; $ 1.85 HIGHER COMPARED TO Q4 CLOSING
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q2' 2015 surge month over month, week on week and day on day.
The Q2 swap has ...
Monday, 16 February 15
COAL MINING SLUMP A BLESSING IN DISGUISE - THE JAKARTA POST
The growth of the coal-mining industry, which has diminished in the last two years, is expected to slump even further this year following weakening ...
Monday, 16 February 15
FOB NEWCASTLE COAL SWAPS SURGE WEEK ON WEEK
COALspot.com: API 5 FOB Newcastle Coal swap for Q2’ 2015 delivery rose US$ 1.31 per MT (+2.59%) week over week and US$ 4.35 (+9.13%) month on ...
Monday, 16 February 15
Q2' 15 - CFR SOUTH CHINA COAL SWAP ROSE 5.22% M-O-M
COALspot.com: API 8 CFR South China Coal swap for Q2’ 2015 delivery rose US$ 2.88 (+5.22%) per MT month over month and US$ 1.08 (+1.90% ...
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Showing 3191 to 3195 news of total 6871 |
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- London Commodity Brokers - England
- Electricity Authority, New Zealand
- Altura Mining Limited, Indonesia
- Tata Chemicals Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Renaissance Capital - South Africa
- GAC Shipping (India) Pvt Ltd
- Oldendorff Carriers - Singapore
- Dalmia Cement Bharat India
- Karaikal Port Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- Cement Manufacturers Association - India
- Bhushan Steel Limited - India
- Bhatia International Limited - India
- Interocean Group of Companies - India
- Standard Chartered Bank - UAE
- Mintek Dendrill Indonesia
- Star Paper Mills Limited - India
- ASAPP Information Group - India
- Electricity Generating Authority of Thailand
- Agrawal Coal Company - India
- GVK Power & Infra Limited - India
- Bulk Trading Sa - Switzerland
- Formosa Plastics Group - Taiwan
- Videocon Industries ltd - India
- Bangladesh Power Developement Board
- Economic Council, Georgia
- Miang Besar Coal Terminal - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Sakthi Sugars Limited - India
- Therma Luzon, Inc, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Indika Energy - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Attock Cement Pakistan Limited
- McConnell Dowell - Australia
- Bayan Resources Tbk. - Indonesia
- GMR Energy Limited - India
- Directorate Of Revenue Intelligence - India
- Banpu Public Company Limited - Thailand
- Goldman Sachs - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Trasteel International SA, Italy
- Iligan Light & Power Inc, Philippines
- Sarangani Energy Corporation, Philippines
- PTC India Limited - India
- Wilmar Investment Holdings
- Central Electricity Authority - India
- Ambuja Cements Ltd - India
- OPG Power Generation Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Mercuria Energy - Indonesia
- Global Business Power Corporation, Philippines
- Chamber of Mines of South Africa
- Sindya Power Generating Company Private Ltd
- Straits Asia Resources Limited - Singapore
- Makarim & Taira - Indonesia
- Krishnapatnam Port Company Ltd. - India
- MS Steel International - UAE
- Grasim Industreis Ltd - India
- IEA Clean Coal Centre - UK
- Medco Energi Mining Internasional
- Posco Energy - South Korea
- PNOC Exploration Corporation - Philippines
- Bukit Baiduri Energy - Indonesia
- Price Waterhouse Coopers - Russia
- Sical Logistics Limited - India
- New Zealand Coal & Carbon
- Sree Jayajothi Cements Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Lanco Infratech Ltd - India
- Madhucon Powers Ltd - India
- Barasentosa Lestari - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Metalloyd Limited - United Kingdom
- Tamil Nadu electricity Board
- Siam City Cement PLC, Thailand
- Indonesian Coal Mining Association
- Maharashtra Electricity Regulatory Commission - India
- European Bulk Services B.V. - Netherlands
- Baramulti Group, Indonesia
- SMG Consultants - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Coalindo Energy - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Orica Mining Services - Indonesia
- Intertek Mineral Services - Indonesia
- Global Coal Blending Company Limited - Australia
- CIMB Investment Bank - Malaysia
- VISA Power Limited - India
- Vedanta Resources Plc - India
- Indian Oil Corporation Limited
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Globalindo Alam Lestari - Indonesia
- Kepco SPC Power Corporation, Philippines
- Thiess Contractors Indonesia
- Mercator Lines Limited - India
- Meenaskhi Energy Private Limited - India
- Sojitz Corporation - Japan
- Rashtriya Ispat Nigam Limited - India
- Savvy Resources Ltd - HongKong
- Jindal Steel & Power Ltd - India
- Minerals Council of Australia
- Sinarmas Energy and Mining - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Port Waratah Coal Services - Australia
- Kohat Cement Company Ltd. - Pakistan
- South Luzon Thermal Energy Corporation
- Semirara Mining and Power Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Deloitte Consulting - India
- Eastern Energy - Thailand
- Eastern Coal Council - USA
- CNBM International Corporation - China
- Kobexindo Tractors - Indoneisa
- Bharathi Cement Corporation - India
- Bahari Cakrawala Sebuku - Indonesia
- Energy Development Corp, Philippines
- Parliament of New Zealand
- Manunggal Multi Energi - Indonesia
- Malabar Cements Ltd - India
- Coastal Gujarat Power Limited - India
- Pendopo Energi Batubara - Indonesia
- SN Aboitiz Power Inc, Philippines
- Latin American Coal - Colombia
- Global Green Power PLC Corporation, Philippines
- Singapore Mercantile Exchange
- Binh Thuan Hamico - Vietnam
- TeaM Sual Corporation - Philippines
- Power Finance Corporation Ltd., India
- Jaiprakash Power Ventures ltd
- Billiton Holdings Pty Ltd - Australia
- San Jose City I Power Corp, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Georgia Ports Authority, United States
- Bank of Tokyo Mitsubishi UFJ Ltd
- Aditya Birla Group - India
- Aboitiz Power Corporation - Philippines
- Independent Power Producers Association of India
- Maheswari Brothers Coal Limited - India
- Borneo Indobara - Indonesia
- White Energy Company Limited
- Semirara Mining Corp, Philippines
- Coal and Oil Company - UAE
- LBH Netherlands Bv - Netherlands
- Indo Tambangraya Megah - Indonesia
- Uttam Galva Steels Limited - India
- Gujarat Electricity Regulatory Commission - India
- Vizag Seaport Private Limited - India
- Samtan Co., Ltd - South Korea
- Essar Steel Hazira Ltd - India
- Ministry of Transport, Egypt
- Offshore Bulk Terminal Pte Ltd, Singapore
- Gujarat Sidhee Cement - India
- Carbofer General Trading SA - India
- Chettinad Cement Corporation Ltd - India
- Antam Resourcindo - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Toyota Tsusho Corporation, Japan
- India Bulls Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Mjunction Services Limited - India
- Romanian Commodities Exchange
- Siam City Cement - Thailand
- International Coal Ventures Pvt Ltd - India
- Indogreen Group - Indonesia
- Parry Sugars Refinery, India
- Holcim Trading Pte Ltd - Singapore
- Thai Mozambique Logistica
- Commonwealth Bank - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Salva Resources Pvt Ltd - India
- Meralco Power Generation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Kideco Jaya Agung - Indonesia
- Africa Commodities Group - South Africa
- Australian Commodity Traders Exchange
- Australian Coal Association
- Riau Bara Harum - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- SMC Global Power, Philippines
- The State Trading Corporation of India Ltd
- Central Java Power - Indonesia
- Wood Mackenzie - Singapore
- Xindia Steels Limited - India
- PowerSource Philippines DevCo
- Karbindo Abesyapradhi - Indoneisa
- Planning Commission, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bhoruka Overseas - Indonesia
- Energy Link Ltd, New Zealand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kaltim Prima Coal - Indonesia
- The University of Queensland
- Ministry of Mines - Canada
- Indian Energy Exchange, India
- Gujarat Mineral Development Corp Ltd - India
- Marubeni Corporation - India
- The Treasury - Australian Government
- Larsen & Toubro Limited - India
- Rio Tinto Coal - Australia
- Heidelberg Cement - Germany
- Anglo American - United Kingdom
- ICICI Bank Limited - India
- Petron Corporation, Philippines
- Edison Trading Spa - Italy
- Kumho Petrochemical, South Korea
- Orica Australia Pty. Ltd.
- Merrill Lynch Commodities Europe
- Ceylon Electricity Board - Sri Lanka
- Asmin Koalindo Tuhup - Indonesia
- Ministry of Finance - Indonesia
- Kartika Selabumi Mining - Indonesia
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