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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, 02 February 15
INDONESIA'S ADARO ENERGY PRODUCED 56.21 MILLION TONNES OF COAL IN 2014; UP 8% Y-O-Y
COALspot.com: PT. Adaro Energy, Indonesia’s largest coal producer, has increased coal production by 8% to 56.21 million tonnes (Mt) from both ...
Monday, 02 February 15
API 8 CFR SOUTH CHINA COAL SWAP PICKS UP W-O-W
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery declined US$ 0.81 (-1.36%) per MT month over month and gained US$ 0.18&nb ...
Monday, 02 February 15
SOUTH KOREA'S KOMIPO INVITES BIDS FOR 280K MT OF SUB-BITUMINOUS COAL
COALspot.com: South Korean state-owned utility Korea Midland Power (KOMIPO) issued an new tender to buy total 280,000 MT of Sub-bituminous coal coa ...
Sunday, 01 February 15
INDONESIA-TO-INDIA COAL FREIGHT RATES REMAIN WEAK NEXT WEEK
COALspot.com: The BDI continued its fall reached lowest levels since 1986 this week.
The BDI declined 15.55 pct to 608 points on Friday 30, Ja ...
Friday, 30 January 15
U.S. YEAR-TO-DATE COAL PRODUCTION REACHED 65.7 MMST
COALspot.com – United States the world's one of the largest coal producers, produced approximately 19.9 million short tons (mmst) of coal ...
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- Australian Commodity Traders Exchange
- Jaiprakash Power Ventures ltd
- Kideco Jaya Agung - Indonesia
- Kartika Selabumi Mining - Indonesia
- CNBM International Corporation - China
- Baramulti Group, Indonesia
- Indo Tambangraya Megah - Indonesia
- South Luzon Thermal Energy Corporation
- Petron Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Directorate General of MIneral and Coal - Indonesia
- Tata Chemicals Ltd - India
- Binh Thuan Hamico - Vietnam
- PTC India Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Anglo American - United Kingdom
- SMC Global Power, Philippines
- Bulk Trading Sa - Switzerland
- Power Finance Corporation Ltd., India
- Deloitte Consulting - India
- Vijayanagar Sugar Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Planning Commission, India
- Ceylon Electricity Board - Sri Lanka
- Orica Mining Services - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Semirara Mining and Power Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- GMR Energy Limited - India
- AsiaOL BioFuels Corp., Philippines
- Electricity Generating Authority of Thailand
- Bahari Cakrawala Sebuku - Indonesia
- PNOC Exploration Corporation - Philippines
- Chamber of Mines of South Africa
- Krishnapatnam Port Company Ltd. - India
- Renaissance Capital - South Africa
- Coal and Oil Company - UAE
- Indian Oil Corporation Limited
- Riau Bara Harum - Indonesia
- Thiess Contractors Indonesia
- Price Waterhouse Coopers - Russia
- Aditya Birla Group - India
- Ministry of Finance - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Borneo Indobara - Indonesia
- Energy Development Corp, Philippines
- Uttam Galva Steels Limited - India
- Meralco Power Generation, Philippines
- Ministry of Transport, Egypt
- Therma Luzon, Inc, Philippines
- Barasentosa Lestari - Indonesia
- Posco Energy - South Korea
- Indogreen Group - Indonesia
- Vizag Seaport Private Limited - India
- Thai Mozambique Logistica
- Globalindo Alam Lestari - Indonesia
- Mercuria Energy - Indonesia
- Mercator Lines Limited - India
- Lanco Infratech Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Bhushan Steel Limited - India
- Siam City Cement - Thailand
- Formosa Plastics Group - Taiwan
- Attock Cement Pakistan Limited
- Central Java Power - Indonesia
- Agrawal Coal Company - India
- Sical Logistics Limited - India
- Oldendorff Carriers - Singapore
- New Zealand Coal & Carbon
- Sarangani Energy Corporation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Parry Sugars Refinery, India
- Straits Asia Resources Limited - Singapore
- Gujarat Electricity Regulatory Commission - India
- Ministry of Mines - Canada
- ICICI Bank Limited - India
- Malabar Cements Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Rio Tinto Coal - Australia
- LBH Netherlands Bv - Netherlands
- VISA Power Limited - India
- Timah Investasi Mineral - Indoneisa
- CIMB Investment Bank - Malaysia
- Kaltim Prima Coal - Indonesia
- International Coal Ventures Pvt Ltd - India
- Eastern Coal Council - USA
- Kumho Petrochemical, South Korea
- Metalloyd Limited - United Kingdom
- Mintek Dendrill Indonesia
- Singapore Mercantile Exchange
- Sakthi Sugars Limited - India
- Vedanta Resources Plc - India
- Bangladesh Power Developement Board
- Larsen & Toubro Limited - India
- Sojitz Corporation - Japan
- GVK Power & Infra Limited - India
- Maheswari Brothers Coal Limited - India
- Grasim Industreis Ltd - India
- Wilmar Investment Holdings
- SN Aboitiz Power Inc, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Iligan Light & Power Inc, Philippines
- Goldman Sachs - Singapore
- Merrill Lynch Commodities Europe
- Madhucon Powers Ltd - India
- McConnell Dowell - Australia
- Rashtriya Ispat Nigam Limited - India
- The State Trading Corporation of India Ltd
- Tamil Nadu electricity Board
- Coalindo Energy - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Georgia Ports Authority, United States
- Jindal Steel & Power Ltd - India
- Videocon Industries ltd - India
- Leighton Contractors Pty Ltd - Australia
- Neyveli Lignite Corporation Ltd, - India
- Bhatia International Limited - India
- Central Electricity Authority - India
- Kapuas Tunggal Persada - Indonesia
- Makarim & Taira - Indonesia
- India Bulls Power Limited - India
- Edison Trading Spa - Italy
- Karaikal Port Pvt Ltd - India
- Eastern Energy - Thailand
- Aboitiz Power Corporation - Philippines
- London Commodity Brokers - England
- Toyota Tsusho Corporation, Japan
- Indonesian Coal Mining Association
- Indian Energy Exchange, India
- Bhoruka Overseas - Indonesia
- European Bulk Services B.V. - Netherlands
- Minerals Council of Australia
- OPG Power Generation Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- White Energy Company Limited
- Indika Energy - Indonesia
- Ind-Barath Power Infra Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Altura Mining Limited, Indonesia
- Ambuja Cements Ltd - India
- Savvy Resources Ltd - HongKong
- Directorate Of Revenue Intelligence - India
- Global Green Power PLC Corporation, Philippines
- Antam Resourcindo - Indonesia
- Marubeni Corporation - India
- Kobexindo Tractors - Indoneisa
- Semirara Mining Corp, Philippines
- GN Power Mariveles Coal Plant, Philippines
- PowerSource Philippines DevCo
- Medco Energi Mining Internasional
- Miang Besar Coal Terminal - Indonesia
- Star Paper Mills Limited - India
- Cement Manufacturers Association - India
- Bukit Makmur.PT - Indonesia
- Australian Coal Association
- Latin American Coal - Colombia
- Independent Power Producers Association of India
- Bharathi Cement Corporation - India
- Meenaskhi Energy Private Limited - India
- Gujarat Sidhee Cement - India
- Commonwealth Bank - Australia
- Manunggal Multi Energi - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- SMG Consultants - Indonesia
- IEA Clean Coal Centre - UK
- Simpson Spence & Young - Indonesia
- Banpu Public Company Limited - Thailand
- Wood Mackenzie - Singapore
- The University of Queensland
- Cigading International Bulk Terminal - Indonesia
- TeaM Sual Corporation - Philippines
- Essar Steel Hazira Ltd - India
- Electricity Authority, New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Chettinad Cement Corporation Ltd - India
- Billiton Holdings Pty Ltd - Australia
- San Jose City I Power Corp, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Siam City Cement PLC, Thailand
- Salva Resources Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Trasteel International SA, Italy
- Global Business Power Corporation, Philippines
- Mjunction Services Limited - India
- Bukit Baiduri Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Pendopo Energi Batubara - Indonesia
- Bayan Resources Tbk. - Indonesia
- Xindia Steels Limited - India
- Romanian Commodities Exchange
- Parliament of New Zealand
- Heidelberg Cement - Germany
- Sree Jayajothi Cements Limited - India
- ASAPP Information Group - India
- Sindya Power Generating Company Private Ltd
- Jorong Barutama Greston.PT - Indonesia
- Port Waratah Coal Services - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Energy Link Ltd, New Zealand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Economic Council, Georgia
- GAC Shipping (India) Pvt Ltd
- Coastal Gujarat Power Limited - India
- Africa Commodities Group - South Africa
- Interocean Group of Companies - India
- MS Steel International - UAE
- Dalmia Cement Bharat India
- Orica Australia Pty. Ltd.
- The Treasury - Australian Government
- Samtan Co., Ltd - South Korea
- Carbofer General Trading SA - India
- Standard Chartered Bank - UAE
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