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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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Sunday, 25 January 15
PANAMAX FREIGHT RATES STILL FALLING
COALspot.com: The BDI was slightly down this week to 720 points. The BDI lost 2.83 pct week on week.
The cape index continued its upward trend ...
Friday, 23 January 15
U.S. WEEKLY COAL PRODUCTION FOR WEEK ENDING JAN. 17 UP 2.5%
COALspot.com – United States the world's one of the largest coal producers, produced approximately 19.4 million short tons (mmst) of coal ...
Thursday, 22 January 15
PANAMAX: A SOFTER TONE AND OVERALL A SLUGGISH MARKET - FEARNLEYS
Handy
The handy and supra market has experienced yet another week with slow activity and softening rates in both hemispheres, broker Fearnleys AS ...
Thursday, 22 January 15
BUMI RESOURCES POSTS NET INCOME OF $13.3 MILLION 9M-2014
COALspot.com: Bumi Resources, Indonesia’s largest coal miner, reported today that, the company has recorded a net income of $13.3 million for ...
Wednesday, 21 January 15
PANAMAX MARKET MOVED SIDEWAYS OVERALL LAST WEEK - INTERMODAL
COALspot.com: The positive sentiment in which the week prior ended carried on through-out last week as well, the end of which marked the first posi ...
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- Malabar Cements Ltd - India
- Carbofer General Trading SA - India
- Lanco Infratech Ltd - India
- Bhushan Steel Limited - India
- Coalindo Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- Gujarat Mineral Development Corp Ltd - India
- Altura Mining Limited, Indonesia
- Miang Besar Coal Terminal - Indonesia
- Bukit Makmur.PT - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Sical Logistics Limited - India
- Binh Thuan Hamico - Vietnam
- Medco Energi Mining Internasional
- Intertek Mineral Services - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Orica Mining Services - Indonesia
- Antam Resourcindo - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- ICICI Bank Limited - India
- Indonesian Coal Mining Association
- Heidelberg Cement - Germany
- AsiaOL BioFuels Corp., Philippines
- Star Paper Mills Limited - India
- TeaM Sual Corporation - Philippines
- Global Green Power PLC Corporation, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Eastern Energy - Thailand
- Larsen & Toubro Limited - India
- New Zealand Coal & Carbon
- Ministry of Transport, Egypt
- Parliament of New Zealand
- Central Java Power - Indonesia
- Sindya Power Generating Company Private Ltd
- Chettinad Cement Corporation Ltd - India
- Bulk Trading Sa - Switzerland
- Parry Sugars Refinery, India
- Asmin Koalindo Tuhup - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- The University of Queensland
- The State Trading Corporation of India Ltd
- Attock Cement Pakistan Limited
- Kapuas Tunggal Persada - Indonesia
- Meralco Power Generation, Philippines
- Mercuria Energy - Indonesia
- Metalloyd Limited - United Kingdom
- Borneo Indobara - Indonesia
- Aboitiz Power Corporation - Philippines
- Coal and Oil Company - UAE
- Edison Trading Spa - Italy
- Banpu Public Company Limited - Thailand
- Kartika Selabumi Mining - Indonesia
- Jaiprakash Power Ventures ltd
- Wood Mackenzie - Singapore
- Electricity Authority, New Zealand
- Singapore Mercantile Exchange
- Xindia Steels Limited - India
- Interocean Group of Companies - India
- SMG Consultants - Indonesia
- Georgia Ports Authority, United States
- Deloitte Consulting - India
- Renaissance Capital - South Africa
- Energy Link Ltd, New Zealand
- Indo Tambangraya Megah - Indonesia
- Tata Chemicals Ltd - India
- Therma Luzon, Inc, Philippines
- Economic Council, Georgia
- Port Waratah Coal Services - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Standard Chartered Bank - UAE
- Sakthi Sugars Limited - India
- Globalindo Alam Lestari - Indonesia
- The Treasury - Australian Government
- Videocon Industries ltd - India
- PTC India Limited - India
- Coastal Gujarat Power Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Agrawal Coal Company - India
- Siam City Cement PLC, Thailand
- India Bulls Power Limited - India
- Alfred C Toepfer International GmbH - Germany
- Ceylon Electricity Board - Sri Lanka
- Australian Commodity Traders Exchange
- Dalmia Cement Bharat India
- Kohat Cement Company Ltd. - Pakistan
- Romanian Commodities Exchange
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kideco Jaya Agung - Indonesia
- Sarangani Energy Corporation, Philippines
- Bhatia International Limited - India
- Bharathi Cement Corporation - India
- Indian Energy Exchange, India
- Latin American Coal - Colombia
- Savvy Resources Ltd - HongKong
- SN Aboitiz Power Inc, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Eastern Coal Council - USA
- Semirara Mining and Power Corporation, Philippines
- Goldman Sachs - Singapore
- Minerals Council of Australia
- Kumho Petrochemical, South Korea
- Sree Jayajothi Cements Limited - India
- Energy Development Corp, Philippines
- CIMB Investment Bank - Malaysia
- Anglo American - United Kingdom
- Ministry of Finance - Indonesia
- Simpson Spence & Young - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Grasim Industreis Ltd - India
- Indian Oil Corporation Limited
- Leighton Contractors Pty Ltd - Australia
- Toyota Tsusho Corporation, Japan
- Makarim & Taira - Indonesia
- Bayan Resources Tbk. - Indonesia
- Thiess Contractors Indonesia
- Kepco SPC Power Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- PowerSource Philippines DevCo
- Aditya Birla Group - India
- Indogreen Group - Indonesia
- GMR Energy Limited - India
- Ambuja Cements Ltd - India
- Riau Bara Harum - Indonesia
- PNOC Exploration Corporation - Philippines
- Oldendorff Carriers - Singapore
- Jindal Steel & Power Ltd - India
- Central Electricity Authority - India
- Ind-Barath Power Infra Limited - India
- Salva Resources Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- Posco Energy - South Korea
- Cigading International Bulk Terminal - Indonesia
- Ministry of Mines - Canada
- European Bulk Services B.V. - Netherlands
- Siam City Cement - Thailand
- MS Steel International - UAE
- San Jose City I Power Corp, Philippines
- Straits Asia Resources Limited - Singapore
- SMC Global Power, Philippines
- Billiton Holdings Pty Ltd - Australia
- Mjunction Services Limited - India
- Australian Coal Association
- Vedanta Resources Plc - India
- Tamil Nadu electricity Board
- Barasentosa Lestari - Indonesia
- Trasteel International SA, Italy
- Manunggal Multi Energi - Indonesia
- GAC Shipping (India) Pvt Ltd
- Semirara Mining Corp, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Vizag Seaport Private Limited - India
- Marubeni Corporation - India
- GN Power Mariveles Coal Plant, Philippines
- Mercator Lines Limited - India
- Kaltim Prima Coal - Indonesia
- Gujarat Sidhee Cement - India
- Vijayanagar Sugar Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- International Coal Ventures Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- London Commodity Brokers - England
- Petron Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- White Energy Company Limited
- Bukit Asam (Persero) Tbk - Indonesia
- Formosa Plastics Group - Taiwan
- Africa Commodities Group - South Africa
- IHS Mccloskey Coal Group - USA
- IEA Clean Coal Centre - UK
- Kobexindo Tractors - Indoneisa
- Sojitz Corporation - Japan
- Maharashtra Electricity Regulatory Commission - India
- Cement Manufacturers Association - India
- Maheswari Brothers Coal Limited - India
- Commonwealth Bank - Australia
- GVK Power & Infra Limited - India
- CNBM International Corporation - China
- Pendopo Energi Batubara - Indonesia
- Price Waterhouse Coopers - Russia
- Independent Power Producers Association of India
- Rio Tinto Coal - Australia
- Karaikal Port Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- South Luzon Thermal Energy Corporation
- Electricity Generating Authority of Thailand
- Madhucon Powers Ltd - India
- Baramulti Group, Indonesia
- Global Coal Blending Company Limited - Australia
- Rashtriya Ispat Nigam Limited - India
- Indika Energy - Indonesia
- Bukit Baiduri Energy - Indonesia
- Uttam Galva Steels Limited - India
- Samtan Co., Ltd - South Korea
- Wilmar Investment Holdings
- Merrill Lynch Commodities Europe
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Orica Australia Pty. Ltd.
- Bangladesh Power Developement Board
- Chamber of Mines of South Africa
- Mintek Dendrill Indonesia
- ASAPP Information Group - India
- Global Business Power Corporation, Philippines
- VISA Power Limited - India
- Essar Steel Hazira Ltd - India
- Planning Commission, India
- Thai Mozambique Logistica
- McConnell Dowell - Australia
- Iligan Light & Power Inc, Philippines
- Holcim Trading Pte Ltd - Singapore
- Timah Investasi Mineral - Indoneisa
- Power Finance Corporation Ltd., India
- Bank of Tokyo Mitsubishi UFJ Ltd
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