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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, 27 January 15
Q1 FOB INDONESIA COAL SWAP CLOSED AT $ 47.87 FOR WEEK ENDING JAN. 23
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 gain week over week and declined month on month.
The Q1 swap has decline US$ 0.9 ...
Tuesday, 27 January 15
Q2 FOB NEWCASTLE COAL SWAP UP 4.5% W-O-W
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2015 delivery declined US$ 0.28 per MT (-0.54%) month over month and increased US$ 1.23 ( ...
Monday, 26 January 15
OVERSUPPLY, AMPLE STOCKPILES, AND LACKLUSTER UNDERLYING STEEL DEMAND KEPT COKING COAL PRICES LOW IN 2014
COALspot.com: Coking coal prices (FOB & CFR) fell 15% and 18% respectively during the year, amidst persistent oversupply, ample inventory and s ...
Monday, 26 January 15
FOB RICHARDS BAY Q2 COAL SWAP CLOSED LOWER THAN Q1 CLOSING
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 fell ...
Monday, 26 January 15
API 8 CFR SOUTH CHINA COAL SWAP CONTINUE TO SLIDE M-O-M; ROSE W-O-W
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery declined US$ 0.79 (-1.33%) per MT month over month and gained US$ 2.10&nb ...
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Showing 3231 to 3235 news of total 6871 |
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- Thiess Contractors Indonesia
- Jorong Barutama Greston.PT - Indonesia
- San Jose City I Power Corp, Philippines
- Malabar Cements Ltd - India
- Vizag Seaport Private Limited - India
- Eastern Coal Council - USA
- Port Waratah Coal Services - Australia
- Cigading International Bulk Terminal - Indonesia
- IEA Clean Coal Centre - UK
- Kapuas Tunggal Persada - Indonesia
- GMR Energy Limited - India
- Bukit Baiduri Energy - Indonesia
- Aboitiz Power Corporation - Philippines
- Savvy Resources Ltd - HongKong
- India Bulls Power Limited - India
- Xindia Steels Limited - India
- Straits Asia Resources Limited - Singapore
- Mintek Dendrill Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Cement Manufacturers Association - India
- Bhushan Steel Limited - India
- Star Paper Mills Limited - India
- Heidelberg Cement - Germany
- Romanian Commodities Exchange
- Eastern Energy - Thailand
- Sakthi Sugars Limited - India
- Sindya Power Generating Company Private Ltd
- Thai Mozambique Logistica
- Asmin Koalindo Tuhup - Indonesia
- International Coal Ventures Pvt Ltd - India
- Orica Mining Services - Indonesia
- Global Coal Blending Company Limited - Australia
- Energy Development Corp, Philippines
- Africa Commodities Group - South Africa
- Agrawal Coal Company - India
- Mjunction Services Limited - India
- Planning Commission, India
- Bulk Trading Sa - Switzerland
- PNOC Exploration Corporation - Philippines
- Alfred C Toepfer International GmbH - Germany
- Commonwealth Bank - Australia
- Aditya Birla Group - India
- Indogreen Group - Indonesia
- Salva Resources Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- Tamil Nadu electricity Board
- Lanco Infratech Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Pipit Mutiara Jaya. PT, Indonesia
- Mercuria Energy - Indonesia
- Coastal Gujarat Power Limited - India
- Indo Tambangraya Megah - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Goldman Sachs - Singapore
- Australian Commodity Traders Exchange
- Altura Mining Limited, Indonesia
- Gujarat Sidhee Cement - India
- New Zealand Coal & Carbon
- Riau Bara Harum - Indonesia
- Grasim Industreis Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- PowerSource Philippines DevCo
- Wood Mackenzie - Singapore
- Borneo Indobara - Indonesia
- Indonesian Coal Mining Association
- Energy Link Ltd, New Zealand
- Petrochimia International Co. Ltd.- Taiwan
- Ambuja Cements Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Renaissance Capital - South Africa
- Trasteel International SA, Italy
- Bahari Cakrawala Sebuku - Indonesia
- CIMB Investment Bank - Malaysia
- Attock Cement Pakistan Limited
- Siam City Cement PLC, Thailand
- Chamber of Mines of South Africa
- Therma Luzon, Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Ministry of Transport, Egypt
- Sical Logistics Limited - India
- AsiaOL BioFuels Corp., Philippines
- Global Business Power Corporation, Philippines
- Posco Energy - South Korea
- Timah Investasi Mineral - Indoneisa
- Vedanta Resources Plc - India
- Power Finance Corporation Ltd., India
- LBH Netherlands Bv - Netherlands
- The University of Queensland
- Jindal Steel & Power Ltd - India
- Karaikal Port Pvt Ltd - India
- Uttam Galva Steels Limited - India
- Independent Power Producers Association of India
- Larsen & Toubro Limited - India
- Georgia Ports Authority, United States
- Sojitz Corporation - Japan
- OPG Power Generation Pvt Ltd - India
- VISA Power Limited - India
- ICICI Bank Limited - India
- Merrill Lynch Commodities Europe
- Bhoruka Overseas - Indonesia
- Singapore Mercantile Exchange
- TeaM Sual Corporation - Philippines
- ASAPP Information Group - India
- Rio Tinto Coal - Australia
- Kepco SPC Power Corporation, Philippines
- Standard Chartered Bank - UAE
- Global Green Power PLC Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Indika Energy - Indonesia
- Ind-Barath Power Infra Limited - India
- Miang Besar Coal Terminal - Indonesia
- London Commodity Brokers - England
- Directorate Of Revenue Intelligence - India
- Meralco Power Generation, Philippines
- Formosa Plastics Group - Taiwan
- Dalmia Cement Bharat India
- Vijayanagar Sugar Pvt Ltd - India
- Indian Oil Corporation Limited
- Samtan Co., Ltd - South Korea
- Edison Trading Spa - Italy
- Wilmar Investment Holdings
- Electricity Generating Authority of Thailand
- Price Waterhouse Coopers - Russia
- Gujarat Electricity Regulatory Commission - India
- Kartika Selabumi Mining - Indonesia
- MS Steel International - UAE
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- The Treasury - Australian Government
- Latin American Coal - Colombia
- Indian Energy Exchange, India
- Kaltim Prima Coal - Indonesia
- Madhucon Powers Ltd - India
- Bayan Resources Tbk. - Indonesia
- Mercator Lines Limited - India
- PTC India Limited - India
- Siam City Cement - Thailand
- Ministry of Mines - Canada
- Meenaskhi Energy Private Limited - India
- Gujarat Mineral Development Corp Ltd - India
- SN Aboitiz Power Inc, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Marubeni Corporation - India
- GN Power Mariveles Coal Plant, Philippines
- Minerals Council of Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Semirara Mining and Power Corporation, Philippines
- Bangladesh Power Developement Board
- Jaiprakash Power Ventures ltd
- Central Electricity Authority - India
- Bukit Asam (Persero) Tbk - Indonesia
- GVK Power & Infra Limited - India
- Sarangani Energy Corporation, Philippines
- Anglo American - United Kingdom
- Kumho Petrochemical, South Korea
- Australian Coal Association
- Videocon Industries ltd - India
- Bharathi Cement Corporation - India
- Bhatia International Limited - India
- Coalindo Energy - Indonesia
- Coal and Oil Company - UAE
- Essar Steel Hazira Ltd - India
- Petron Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Carbofer General Trading SA - India
- Leighton Contractors Pty Ltd - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Baramulti Group, Indonesia
- Makarim & Taira - Indonesia
- SMC Global Power, Philippines
- Orica Australia Pty. Ltd.
- GAC Shipping (India) Pvt Ltd
- Iligan Light & Power Inc, Philippines
- McConnell Dowell - Australia
- Oldendorff Carriers - Singapore
- IHS Mccloskey Coal Group - USA
- Interocean Group of Companies - India
- Pendopo Energi Batubara - Indonesia
- Parry Sugars Refinery, India
- Metalloyd Limited - United Kingdom
- Maharashtra Electricity Regulatory Commission - India
- South Luzon Thermal Energy Corporation
- Semirara Mining Corp, Philippines
- Globalindo Alam Lestari - Indonesia
- Banpu Public Company Limited - Thailand
- Kobexindo Tractors - Indoneisa
- Tata Chemicals Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- The State Trading Corporation of India Ltd
- Holcim Trading Pte Ltd - Singapore
- SMG Consultants - Indonesia
- European Bulk Services B.V. - Netherlands
- Manunggal Multi Energi - Indonesia
- CNBM International Corporation - China
- Krishnapatnam Port Company Ltd. - India
- Bukit Makmur.PT - Indonesia
- Electricity Authority, New Zealand
- TNB Fuel Sdn Bhd - Malaysia
- Medco Energi Mining Internasional
- Antam Resourcindo - Indonesia
- Sree Jayajothi Cements Limited - India
- Maheswari Brothers Coal Limited - India
- Central Java Power - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Chettinad Cement Corporation Ltd - India
- Kideco Jaya Agung - Indonesia
- White Energy Company Limited
- Intertek Mineral Services - Indonesia
- Toyota Tsusho Corporation, Japan
- Parliament of New Zealand
- Karbindo Abesyapradhi - Indoneisa
- Kalimantan Lumbung Energi - Indonesia
- Economic Council, Georgia
- Ministry of Finance - Indonesia
- Deloitte Consulting - India
- Rashtriya Ispat Nigam Limited - India
- Sinarmas Energy and Mining - Indonesia
- Simpson Spence & Young - Indonesia
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