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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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Monday, 09 February 15
Q2' CFR SOUTH CHINA COAL SWAP DECLINED 3.28% TO $ 56.92 W-O-W
COALspot.com: API 8 CFR South China Coal swap for Q2’ 2015 delivery declined US$ 1.93 (-3.28%) per MT month over month and US$ 0.10 (-0 ...
Sunday, 08 February 15
BDI FELL CONTINUOUSLY HIT A THREE DECADES LOW
COALspot.com: This week Baltic Exchange Dry Freight Index (BDI) fell continuously hit a three decades low.
The BDI continuously fell and was d ...
Friday, 06 February 15
WEEKLY U.S. COAL PRODUCTION UP AN ESTIMATED 1.1% FROM LAST WEEK - EIA
COALspot.com – United States the world's one of the largest coal producers, produced approximately 20.1 million short tons (mmst) of coal ...
Friday, 06 February 15
SHIP DAMAGED BY FIRE CAUSED BY PIRATES FOUND TO BE CONSTRUCTIVE TOTAL LOSS - TAYLOR WESSING
KNOWLEDGE TO ELEVATE
The High Court was asked to determine a number of preliminary issues, including whether a vessel was a constructive total ...
Thursday, 05 February 15
BDI HAS NOW FALLEN A LEVEL CLOSE TO THE INDEX'S HISTORIC LOW - INTERMODAL
They say a picture is worth a thousand words and in this instance just one look at the tables above is enough to understand the great pressure the ...
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Showing 3211 to 3215 news of total 6871 |
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- Petron Corporation, Philippines
- Toyota Tsusho Corporation, Japan
- Bukit Makmur.PT - Indonesia
- Power Finance Corporation Ltd., India
- Siam City Cement PLC, Thailand
- Essar Steel Hazira Ltd - India
- TeaM Sual Corporation - Philippines
- Sojitz Corporation - Japan
- Ind-Barath Power Infra Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Price Waterhouse Coopers - Russia
- Uttam Galva Steels Limited - India
- Parliament of New Zealand
- LBH Netherlands Bv - Netherlands
- Energy Development Corp, Philippines
- SN Aboitiz Power Inc, Philippines
- Kepco SPC Power Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Star Paper Mills Limited - India
- Parry Sugars Refinery, India
- Madhucon Powers Ltd - India
- The State Trading Corporation of India Ltd
- Krishnapatnam Port Company Ltd. - India
- Miang Besar Coal Terminal - Indonesia
- Maheswari Brothers Coal Limited - India
- CIMB Investment Bank - Malaysia
- Sinarmas Energy and Mining - Indonesia
- The University of Queensland
- Cigading International Bulk Terminal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Bukit Baiduri Energy - Indonesia
- Posco Energy - South Korea
- Singapore Mercantile Exchange
- European Bulk Services B.V. - Netherlands
- Metalloyd Limited - United Kingdom
- Jaiprakash Power Ventures ltd
- McConnell Dowell - Australia
- Goldman Sachs - Singapore
- Marubeni Corporation - India
- Semirara Mining and Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Renaissance Capital - South Africa
- Chamber of Mines of South Africa
- Standard Chartered Bank - UAE
- Agrawal Coal Company - India
- Salva Resources Pvt Ltd - India
- Thai Mozambique Logistica
- Kaltim Prima Coal - Indonesia
- Eastern Energy - Thailand
- Malabar Cements Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- OPG Power Generation Pvt Ltd - India
- Carbofer General Trading SA - India
- ASAPP Information Group - India
- Bhushan Steel Limited - India
- PTC India Limited - India
- Mercator Lines Limited - India
- Medco Energi Mining Internasional
- Australian Commodity Traders Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- Indika Energy - Indonesia
- Sarangani Energy Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Energy Link Ltd, New Zealand
- Coal and Oil Company - UAE
- Aditya Birla Group - India
- Indogreen Group - Indonesia
- Port Waratah Coal Services - Australia
- Makarim & Taira - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Sakthi Sugars Limited - India
- Orica Mining Services - Indonesia
- PowerSource Philippines DevCo
- Petrochimia International Co. Ltd.- Taiwan
- GMR Energy Limited - India
- Simpson Spence & Young - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Videocon Industries ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Ministry of Transport, Egypt
- Bhatia International Limited - India
- Ceylon Electricity Board - Sri Lanka
- London Commodity Brokers - England
- Karbindo Abesyapradhi - Indoneisa
- Australian Coal Association
- Indian Oil Corporation Limited
- Ministry of Mines - Canada
- Riau Bara Harum - Indonesia
- Coastal Gujarat Power Limited - India
- Bharathi Cement Corporation - India
- Africa Commodities Group - South Africa
- White Energy Company Limited
- Eastern Coal Council - USA
- International Coal Ventures Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Interocean Group of Companies - India
- Siam City Cement - Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Barasentosa Lestari - Indonesia
- Samtan Co., Ltd - South Korea
- Asmin Koalindo Tuhup - Indonesia
- Global Green Power PLC Corporation, Philippines
- Commonwealth Bank - Australia
- Holcim Trading Pte Ltd - Singapore
- Leighton Contractors Pty Ltd - Australia
- Rio Tinto Coal - Australia
- Tata Chemicals Ltd - India
- Wilmar Investment Holdings
- Georgia Ports Authority, United States
- Central Java Power - Indonesia
- IEA Clean Coal Centre - UK
- Mercuria Energy - Indonesia
- Attock Cement Pakistan Limited
- Jorong Barutama Greston.PT - Indonesia
- Bulk Trading Sa - Switzerland
- TNB Fuel Sdn Bhd - Malaysia
- Borneo Indobara - Indonesia
- Aboitiz Power Corporation - Philippines
- Electricity Authority, New Zealand
- Economic Council, Georgia
- Pendopo Energi Batubara - Indonesia
- Xindia Steels Limited - India
- Binh Thuan Hamico - Vietnam
- Chettinad Cement Corporation Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Savvy Resources Ltd - HongKong
- Wood Mackenzie - Singapore
- Ministry of Finance - Indonesia
- Tamil Nadu electricity Board
- Vijayanagar Sugar Pvt Ltd - India
- Mjunction Services Limited - India
- Minerals Council of Australia
- Manunggal Multi Energi - Indonesia
- Kobexindo Tractors - Indoneisa
- Planning Commission, India
- Thiess Contractors Indonesia
- PetroVietnam Power Coal Import and Supply Company
- SMG Consultants - Indonesia
- Directorate Of Revenue Intelligence - India
- Global Business Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Coalindo Energy - Indonesia
- Bangladesh Power Developement Board
- Independent Power Producers Association of India
- Cement Manufacturers Association - India
- Vizag Seaport Private Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Sindya Power Generating Company Private Ltd
- ICICI Bank Limited - India
- Timah Investasi Mineral - Indoneisa
- Bhoruka Overseas - Indonesia
- Altura Mining Limited, Indonesia
- Therma Luzon, Inc, Philippines
- Sree Jayajothi Cements Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Vedanta Resources Plc - India
- Indo Tambangraya Megah - Indonesia
- Baramulti Group, Indonesia
- Banpu Public Company Limited - Thailand
- Kohat Cement Company Ltd. - Pakistan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- IHS Mccloskey Coal Group - USA
- Bank of Tokyo Mitsubishi UFJ Ltd
- The Treasury - Australian Government
- Deloitte Consulting - India
- Latin American Coal - Colombia
- MS Steel International - UAE
- Sical Logistics Limited - India
- VISA Power Limited - India
- Meralco Power Generation, Philippines
- Kartika Selabumi Mining - Indonesia
- Indian Energy Exchange, India
- SMC Global Power, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Billiton Holdings Pty Ltd - Australia
- Indonesian Coal Mining Association
- Global Coal Blending Company Limited - Australia
- South Luzon Thermal Energy Corporation
- CNBM International Corporation - China
- Kumho Petrochemical, South Korea
- Heidelberg Cement - Germany
- Central Electricity Authority - India
- Meenaskhi Energy Private Limited - India
- Straits Asia Resources Limited - Singapore
- Ambuja Cements Ltd - India
- Antam Resourcindo - Indonesia
- Anglo American - United Kingdom
- Iligan Light & Power Inc, Philippines
- San Jose City I Power Corp, Philippines
- Romanian Commodities Exchange
- PNOC Exploration Corporation - Philippines
- GAC Shipping (India) Pvt Ltd
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- India Bulls Power Limited - India
- Intertek Mineral Services - Indonesia
- Lanco Infratech Ltd - India
- Formosa Plastics Group - Taiwan
- New Zealand Coal & Carbon
- Mintek Dendrill Indonesia
- Electricity Generating Authority of Thailand
- Edison Trading Spa - Italy
- Larsen & Toubro Limited - India
- Merrill Lynch Commodities Europe
- Dalmia Cement Bharat India
- Oldendorff Carriers - Singapore
- Neyveli Lignite Corporation Ltd, - India
- AsiaOL BioFuels Corp., Philippines
- GVK Power & Infra Limited - India
- Jindal Steel & Power Ltd - India
- Semirara Mining Corp, Philippines
- Gujarat Sidhee Cement - India
- Trasteel International SA, Italy
- Grasim Industreis Ltd - India
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