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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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Thursday, 05 February 15
ULTRAMAX LEVELS FROM INDIA TO CHINA IN THE MID US$ 5000'S - FEARNLEYS AS
Handy
Despite the overall weak sentiment, there is a scent of optimism in the Atlantic market for ppt dates. Continent is still struggling with o ...
Wednesday, 04 February 15
MARKET INSIGHT - LINOS KOGEVINAS
It has been just about over 2 months since, in a move that surprised many and caused widespread apprehension, OPEC decided to maintain its producti ...
Tuesday, 03 February 15
Q1'15 FOB INDONESIA COAL SWAP CLOSED $ 3.29 HIGHER COMPARED TO Q4'15 DELIVERY PRICE
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 rose week over week and month on month.
The Q1 swap up US$ 0.68 (+1.41%) month o ...
Tuesday, 03 February 15
FOB NEWCASTLE COAL SWAP FOR Q4 DELIVERY CLOSED 5.86% LOWER THAN Q1 PRICE
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2015 delivery rose US$ 0.26 per MT (+0.51%) week over week and declined US$ 0.02 (-0.04%) ...
Monday, 02 February 15
API 4 FOB RICHARDS BAY COAL SWAP ROSE WEEK OVER WEEK
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q1' 2015 declined month over month and day on day.
The Q1 swap has decli ...
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Showing 3216 to 3220 news of total 6871 |
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- Global Green Power PLC Corporation, Philippines
- New Zealand Coal & Carbon
- Timah Investasi Mineral - Indoneisa
- TNB Fuel Sdn Bhd - Malaysia
- Standard Chartered Bank - UAE
- Electricity Generating Authority of Thailand
- IHS Mccloskey Coal Group - USA
- Uttam Galva Steels Limited - India
- Therma Luzon, Inc, Philippines
- Kepco SPC Power Corporation, Philippines
- ASAPP Information Group - India
- GMR Energy Limited - India
- PowerSource Philippines DevCo
- Carbofer General Trading SA - India
- Indogreen Group - Indonesia
- Sical Logistics Limited - India
- Kapuas Tunggal Persada - Indonesia
- Mjunction Services Limited - India
- Chamber of Mines of South Africa
- International Coal Ventures Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Billiton Holdings Pty Ltd - Australia
- Anglo American - United Kingdom
- Miang Besar Coal Terminal - Indonesia
- Minerals Council of Australia
- Ministry of Finance - Indonesia
- PTC India Limited - India
- Gujarat Electricity Regulatory Commission - India
- ICICI Bank Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Trasteel International SA, Italy
- Banpu Public Company Limited - Thailand
- Globalindo Alam Lestari - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Iligan Light & Power Inc, Philippines
- Kartika Selabumi Mining - Indonesia
- Ministry of Mines - Canada
- The Treasury - Australian Government
- Cement Manufacturers Association - India
- Tata Chemicals Ltd - India
- IEA Clean Coal Centre - UK
- AsiaOL BioFuels Corp., Philippines
- Central Electricity Authority - India
- Ambuja Cements Ltd - India
- Star Paper Mills Limited - India
- Jorong Barutama Greston.PT - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Sakthi Sugars Limited - India
- India Bulls Power Limited - India
- Parliament of New Zealand
- Kideco Jaya Agung - Indonesia
- Simpson Spence & Young - Indonesia
- Global Business Power Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- Planning Commission, India
- MS Steel International - UAE
- Semirara Mining and Power Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Bukit Makmur.PT - Indonesia
- GAC Shipping (India) Pvt Ltd
- European Bulk Services B.V. - Netherlands
- Bhushan Steel Limited - India
- Antam Resourcindo - Indonesia
- Thai Mozambique Logistica
- Posco Energy - South Korea
- Larsen & Toubro Limited - India
- Chettinad Cement Corporation Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Latin American Coal - Colombia
- Petron Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Cigading International Bulk Terminal - Indonesia
- Sarangani Energy Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Borneo Indobara - Indonesia
- Merrill Lynch Commodities Europe
- Thiess Contractors Indonesia
- Price Waterhouse Coopers - Russia
- Formosa Plastics Group - Taiwan
- Tamil Nadu electricity Board
- Grasim Industreis Ltd - India
- White Energy Company Limited
- Georgia Ports Authority, United States
- Sinarmas Energy and Mining - Indonesia
- Siam City Cement - Thailand
- Eastern Coal Council - USA
- Dalmia Cement Bharat India
- TeaM Sual Corporation - Philippines
- Australian Commodity Traders Exchange
- Indian Oil Corporation Limited
- Vijayanagar Sugar Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Gujarat Sidhee Cement - India
- Deloitte Consulting - India
- Kobexindo Tractors - Indoneisa
- Agrawal Coal Company - India
- Coal and Oil Company - UAE
- Central Java Power - Indonesia
- Bhatia International Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Oldendorff Carriers - Singapore
- PNOC Exploration Corporation - Philippines
- Ceylon Electricity Board - Sri Lanka
- Ind-Barath Power Infra Limited - India
- Intertek Mineral Services - Indonesia
- Aditya Birla Group - India
- Jindal Steel & Power Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Australian Coal Association
- Coastal Gujarat Power Limited - India
- Metalloyd Limited - United Kingdom
- The University of Queensland
- Bukit Baiduri Energy - Indonesia
- Malabar Cements Ltd - India
- Rio Tinto Coal - Australia
- Parry Sugars Refinery, India
- Toyota Tsusho Corporation, Japan
- SN Aboitiz Power Inc, Philippines
- Economic Council, Georgia
- Port Waratah Coal Services - Australia
- Lanco Infratech Ltd - India
- South Luzon Thermal Energy Corporation
- GVK Power & Infra Limited - India
- Edison Trading Spa - Italy
- Attock Cement Pakistan Limited
- Maharashtra Electricity Regulatory Commission - India
- Videocon Industries ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Semirara Mining Corp, Philippines
- Energy Development Corp, Philippines
- Directorate Of Revenue Intelligence - India
- Romanian Commodities Exchange
- Xindia Steels Limited - India
- Siam City Cement PLC, Thailand
- Karaikal Port Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Power Finance Corporation Ltd., India
- Pipit Mutiara Jaya. PT, Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Maheswari Brothers Coal Limited - India
- Mintek Dendrill Indonesia
- Independent Power Producers Association of India
- Mercator Lines Limited - India
- Bangladesh Power Developement Board
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Holcim Trading Pte Ltd - Singapore
- VISA Power Limited - India
- Coalindo Energy - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Ministry of Transport, Egypt
- Salva Resources Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Singapore Mercantile Exchange
- Renaissance Capital - South Africa
- Vizag Seaport Private Limited - India
- Interocean Group of Companies - India
- San Jose City I Power Corp, Philippines
- Vedanta Resources Plc - India
- Riau Bara Harum - Indonesia
- Sindya Power Generating Company Private Ltd
- Jaiprakash Power Ventures ltd
- CIMB Investment Bank - Malaysia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SMC Global Power, Philippines
- CNBM International Corporation - China
- Alfred C Toepfer International GmbH - Germany
- Wilmar Investment Holdings
- Global Coal Blending Company Limited - Australia
- Medco Energi Mining Internasional
- Karbindo Abesyapradhi - Indoneisa
- Kumho Petrochemical, South Korea
- Heidelberg Cement - Germany
- LBH Netherlands Bv - Netherlands
- Offshore Bulk Terminal Pte Ltd, Singapore
- Baramulti Group, Indonesia
- Aboitiz Power Corporation - Philippines
- London Commodity Brokers - England
- Meenaskhi Energy Private Limited - India
- Mercuria Energy - Indonesia
- Savvy Resources Ltd - HongKong
- Orica Australia Pty. Ltd.
- Madhucon Powers Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Makarim & Taira - Indonesia
- Binh Thuan Hamico - Vietnam
- Meralco Power Generation, Philippines
- Indo Tambangraya Megah - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Pendopo Energi Batubara - Indonesia
- The State Trading Corporation of India Ltd
- Indika Energy - Indonesia
- Indonesian Coal Mining Association
- Rashtriya Ispat Nigam Limited - India
- Energy Link Ltd, New Zealand
- McConnell Dowell - Australia
- SMG Consultants - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Straits Asia Resources Limited - Singapore
- Kaltim Prima Coal - Indonesia
- Eastern Energy - Thailand
- Marubeni Corporation - India
- Indian Energy Exchange, India
- Orica Mining Services - Indonesia
- Barasentosa Lestari - Indonesia
- Sojitz Corporation - Japan
- Bharathi Cement Corporation - India
- Altura Mining Limited, Indonesia
- Africa Commodities Group - South Africa
- Samtan Co., Ltd - South Korea
- Goldman Sachs - Singapore
- Manunggal Multi Energi - Indonesia
- Wood Mackenzie - Singapore
- Commonwealth Bank - Australia
- Electricity Authority, New Zealand
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