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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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Wednesday, 21 January 15
SHIFT IN INTERNATIONAL COAL TRADE TO THE PACIFIC BASIN WILL CONTINUE - IMF
COALspot.com: The shift in international coal trade to the Pacific Basin will continue, IMF said in its latest Medium-Term Coal Market Report.
...
Wednesday, 21 January 15
MARKET INSIGHT - VASSILIS LOGOTHETIS, INTERMODAL
The World Bank has lowered its forecast for global growth in 2015 to 3% down from its previous level of 3.4% amid rising concerns over the economic ...
Wednesday, 21 January 15
THERMAL COAL PRICE OUTLOOK DEPENDENT ON INDIAN IMPORT DEMAND - MATTHEW BOYLE, CRU
COALspot.com: Supply and demand side developments in India will be an important determinant of future market dynamics and prices for thermal coal a ...
Wednesday, 21 January 15
PORT OF NEWCASTLE COAL EXPORTS JUMP 16.19% ON MONTH TO 15.80 MIL MT IN DECEMBER' 14
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port, has shipped $1.136 billi ...
Tuesday, 20 January 15
INDIA TO SURPASS THE UNITED STATES AND BECOME THE SECOND-LARGEST COAL CONSUMER IN THE WORLD BY 2019 - IMF
COALspot.com: In 2013, coal added more primary energy than any other fuel and was the fastest-growing fossil fuel, enhancing its position as the se ...
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- Karbindo Abesyapradhi - Indoneisa
- Savvy Resources Ltd - HongKong
- Cement Manufacturers Association - India
- Vedanta Resources Plc - India
- Electricity Generating Authority of Thailand
- Chettinad Cement Corporation Ltd - India
- Maheswari Brothers Coal Limited - India
- Global Green Power PLC Corporation, Philippines
- Economic Council, Georgia
- Tamil Nadu electricity Board
- Iligan Light & Power Inc, Philippines
- South Luzon Thermal Energy Corporation
- Star Paper Mills Limited - India
- Globalindo Alam Lestari - Indonesia
- Georgia Ports Authority, United States
- Sarangani Energy Corporation, Philippines
- Goldman Sachs - Singapore
- SMC Global Power, Philippines
- TeaM Sual Corporation - Philippines
- Sakthi Sugars Limited - India
- Sojitz Corporation - Japan
- Grasim Industreis Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Larsen & Toubro Limited - India
- Ministry of Mines - Canada
- Ambuja Cements Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Binh Thuan Hamico - Vietnam
- Kapuas Tunggal Persada - Indonesia
- Mercuria Energy - Indonesia
- PTC India Limited - India
- Singapore Mercantile Exchange
- Renaissance Capital - South Africa
- Krishnapatnam Port Company Ltd. - India
- Thai Mozambique Logistica
- Videocon Industries ltd - India
- Ministry of Finance - Indonesia
- Latin American Coal - Colombia
- Gujarat Sidhee Cement - India
- Kideco Jaya Agung - Indonesia
- Borneo Indobara - Indonesia
- Oldendorff Carriers - Singapore
- Mintek Dendrill Indonesia
- Kartika Selabumi Mining - Indonesia
- Vizag Seaport Private Limited - India
- San Jose City I Power Corp, Philippines
- Aboitiz Power Corporation - Philippines
- Samtan Co., Ltd - South Korea
- Straits Asia Resources Limited - Singapore
- Indonesian Coal Mining Association
- Chamber of Mines of South Africa
- Formosa Plastics Group - Taiwan
- Orica Australia Pty. Ltd.
- Coalindo Energy - Indonesia
- Indian Oil Corporation Limited
- Xindia Steels Limited - India
- Port Waratah Coal Services - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kohat Cement Company Ltd. - Pakistan
- Karaikal Port Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Mercator Lines Limited - India
- SMG Consultants - Indonesia
- Indian Energy Exchange, India
- Central Java Power - Indonesia
- Sical Logistics Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- International Coal Ventures Pvt Ltd - India
- Attock Cement Pakistan Limited
- Bank of Tokyo Mitsubishi UFJ Ltd
- Coastal Gujarat Power Limited - India
- Global Coal Blending Company Limited - Australia
- Toyota Tsusho Corporation, Japan
- Meenaskhi Energy Private Limited - India
- Indika Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Bukit Asam (Persero) Tbk - Indonesia
- MS Steel International - UAE
- New Zealand Coal & Carbon
- Kalimantan Lumbung Energi - Indonesia
- Romanian Commodities Exchange
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- GVK Power & Infra Limited - India
- Edison Trading Spa - Italy
- Timah Investasi Mineral - Indoneisa
- Energy Link Ltd, New Zealand
- Rio Tinto Coal - Australia
- White Energy Company Limited
- Simpson Spence & Young - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SN Aboitiz Power Inc, Philippines
- Madhucon Powers Ltd - India
- The State Trading Corporation of India Ltd
- Kaltim Prima Coal - Indonesia
- GMR Energy Limited - India
- Planning Commission, India
- Rashtriya Ispat Nigam Limited - India
- Dalmia Cement Bharat India
- Parliament of New Zealand
- Jindal Steel & Power Ltd - India
- The University of Queensland
- Kumho Petrochemical, South Korea
- Gujarat Electricity Regulatory Commission - India
- Ministry of Transport, Egypt
- Eastern Coal Council - USA
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- London Commodity Brokers - England
- Electricity Authority, New Zealand
- Bukit Baiduri Energy - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Altura Mining Limited, Indonesia
- Power Finance Corporation Ltd., India
- Australian Commodity Traders Exchange
- Minerals Council of Australia
- Riau Bara Harum - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Trasteel International SA, Italy
- Antam Resourcindo - Indonesia
- Bhoruka Overseas - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Bhushan Steel Limited - India
- Central Electricity Authority - India
- PowerSource Philippines DevCo
- Indogreen Group - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Bangladesh Power Developement Board
- Jaiprakash Power Ventures ltd
- Petron Corporation, Philippines
- Wilmar Investment Holdings
- Jorong Barutama Greston.PT - Indonesia
- CNBM International Corporation - China
- Wood Mackenzie - Singapore
- Standard Chartered Bank - UAE
- Bulk Trading Sa - Switzerland
- Salva Resources Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Coal and Oil Company - UAE
- IHS Mccloskey Coal Group - USA
- Sree Jayajothi Cements Limited - India
- Africa Commodities Group - South Africa
- The Treasury - Australian Government
- ICICI Bank Limited - India
- Metalloyd Limited - United Kingdom
- Essar Steel Hazira Ltd - India
- VISA Power Limited - India
- European Bulk Services B.V. - Netherlands
- Bharathi Cement Corporation - India
- PetroVietnam Power Coal Import and Supply Company
- India Bulls Power Limited - India
- Medco Energi Mining Internasional
- Commonwealth Bank - Australia
- Neyveli Lignite Corporation Ltd, - India
- Bhatia International Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- PNOC Exploration Corporation - Philippines
- Pendopo Energi Batubara - Indonesia
- Deloitte Consulting - India
- GN Power Mariveles Coal Plant, Philippines
- Carbofer General Trading SA - India
- Energy Development Corp, Philippines
- CIMB Investment Bank - Malaysia
- Merrill Lynch Commodities Europe
- ASAPP Information Group - India
- McConnell Dowell - Australia
- Leighton Contractors Pty Ltd - Australia
- GAC Shipping (India) Pvt Ltd
- Mjunction Services Limited - India
- Barasentosa Lestari - Indonesia
- Makarim & Taira - Indonesia
- Anglo American - United Kingdom
- Manunggal Multi Energi - Indonesia
- Intertek Mineral Services - Indonesia
- Siam City Cement PLC, Thailand
- LBH Netherlands Bv - Netherlands
- Posco Energy - South Korea
- Australian Coal Association
- Directorate Of Revenue Intelligence - India
- Sinarmas Energy and Mining - Indonesia
- Baramulti Group, Indonesia
- Agrawal Coal Company - India
- Vijayanagar Sugar Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kepco SPC Power Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Orica Mining Services - Indonesia
- Tata Chemicals Ltd - India
- Sindya Power Generating Company Private Ltd
- Aditya Birla Group - India
- Lanco Infratech Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Semirara Mining Corp, Philippines
- Therma Luzon, Inc, Philippines
- Independent Power Producers Association of India
- Semirara Mining and Power Corporation, Philippines
- Marubeni Corporation - India
- Bukit Makmur.PT - Indonesia
- Thiess Contractors Indonesia
- Bayan Resources Tbk. - Indonesia
- Meralco Power Generation, Philippines
- Malabar Cements Ltd - India
- Indo Tambangraya Megah - Indonesia
- IEA Clean Coal Centre - UK
- Interocean Group of Companies - India
- OPG Power Generation Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Uttam Galva Steels Limited - India
- Eastern Energy - Thailand
- Global Business Power Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Parry Sugars Refinery, India
- Price Waterhouse Coopers - Russia
- Heidelberg Cement - Germany
- Asmin Koalindo Tuhup - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Siam City Cement - Thailand
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