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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, 20 January 15
INDONESIAN COAL OUTPUT SEEN RISING, DESPITE FALL IN ITS PRICE
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 declined month on month and week over week, but Indonesian Coal Output Seen Rising. T ...
Tuesday, 20 January 15
NEWCASTLE COAL SWAP FOR Q1' 2015 DELIVERY DECLINED 2.83% M-O-M
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2015 delivery declined US$ 1.45 per MT (-2.83%) month over month and US$ 0.50 (-0.99%) we ...
Monday, 19 January 15
HBA FALL TO FRESH LOWS; COAL OVERSUPPLY WILL CONTINUE TO PUSH PRICE DOWN
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia revised down Indonesian coal bench mark price this month to US$ 63.84. T ...
Monday, 19 January 15
CFR SOUTH CHINA COAL SWAPS REMAIN WEAK
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery declined US$ 3.37 (-5.63%) per MT month over month and US$ 0.74 (-1.29%) ...
Monday, 19 January 15
FOB RICHARDS BAY COAL SWAP FOR Q4 DELIVERY CLOSED 4% LOWER THAN Q1 DELIVERY PRICE
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q1' 2015 declined month over month and week over week.
The Q1 swap has f ...
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Showing 3246 to 3250 news of total 6871 |
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- Metalloyd Limited - United Kingdom
- White Energy Company Limited
- Africa Commodities Group - South Africa
- Star Paper Mills Limited - India
- European Bulk Services B.V. - Netherlands
- Goldman Sachs - Singapore
- Cigading International Bulk Terminal - Indonesia
- OPG Power Generation Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Global Business Power Corporation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Siam City Cement - Thailand
- Indonesian Coal Mining Association
- Karaikal Port Pvt Ltd - India
- Sojitz Corporation - Japan
- Riau Bara Harum - Indonesia
- Semirara Mining Corp, Philippines
- Xindia Steels Limited - India
- Borneo Indobara - Indonesia
- India Bulls Power Limited - India
- Romanian Commodities Exchange
- Essar Steel Hazira Ltd - India
- Indian Energy Exchange, India
- Bukit Asam (Persero) Tbk - Indonesia
- Eastern Coal Council - USA
- Medco Energi Mining Internasional
- Therma Luzon, Inc, Philippines
- Aditya Birla Group - India
- Toyota Tsusho Corporation, Japan
- Kalimantan Lumbung Energi - Indonesia
- New Zealand Coal & Carbon
- Bahari Cakrawala Sebuku - Indonesia
- ICICI Bank Limited - India
- Kobexindo Tractors - Indoneisa
- Ind-Barath Power Infra Limited - India
- SN Aboitiz Power Inc, Philippines
- Vedanta Resources Plc - India
- Formosa Plastics Group - Taiwan
- Asmin Koalindo Tuhup - Indonesia
- Sindya Power Generating Company Private Ltd
- South Luzon Thermal Energy Corporation
- Bayan Resources Tbk. - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Larsen & Toubro Limited - India
- Lanco Infratech Ltd - India
- Vizag Seaport Private Limited - India
- IHS Mccloskey Coal Group - USA
- Mintek Dendrill Indonesia
- Global Green Power PLC Corporation, Philippines
- Wood Mackenzie - Singapore
- Chettinad Cement Corporation Ltd - India
- Energy Link Ltd, New Zealand
- Madhucon Powers Ltd - India
- Bharathi Cement Corporation - India
- Parry Sugars Refinery, India
- Intertek Mineral Services - Indonesia
- Timah Investasi Mineral - Indoneisa
- Cement Manufacturers Association - India
- The Treasury - Australian Government
- The University of Queensland
- Central Java Power - Indonesia
- Wilmar Investment Holdings
- Gujarat Electricity Regulatory Commission - India
- Ministry of Finance - Indonesia
- Electricity Authority, New Zealand
- Alfred C Toepfer International GmbH - Germany
- Holcim Trading Pte Ltd - Singapore
- Global Coal Blending Company Limited - Australia
- Kaltim Prima Coal - Indonesia
- Petron Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- VISA Power Limited - India
- Aboitiz Power Corporation - Philippines
- Indian Oil Corporation Limited
- Minerals Council of Australia
- GAC Shipping (India) Pvt Ltd
- Directorate Of Revenue Intelligence - India
- Price Waterhouse Coopers - Russia
- Uttam Galva Steels Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Merrill Lynch Commodities Europe
- ASAPP Information Group - India
- Samtan Co., Ltd - South Korea
- Coastal Gujarat Power Limited - India
- Interocean Group of Companies - India
- PetroVietnam Power Coal Import and Supply Company
- Ceylon Electricity Board - Sri Lanka
- Kohat Cement Company Ltd. - Pakistan
- San Jose City I Power Corp, Philippines
- Power Finance Corporation Ltd., India
- Semirara Mining and Power Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Central Electricity Authority - India
- Mercuria Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- Baramulti Group, Indonesia
- Chamber of Mines of South Africa
- GVK Power & Infra Limited - India
- Eastern Energy - Thailand
- Miang Besar Coal Terminal - Indonesia
- Kartika Selabumi Mining - Indonesia
- Jaiprakash Power Ventures ltd
- Kideco Jaya Agung - Indonesia
- Antam Resourcindo - Indonesia
- SMC Global Power, Philippines
- Bangladesh Power Developement Board
- Jindal Steel & Power Ltd - India
- Standard Chartered Bank - UAE
- Bhatia International Limited - India
- Deloitte Consulting - India
- TNB Fuel Sdn Bhd - Malaysia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- PTC India Limited - India
- Parliament of New Zealand
- Bhushan Steel Limited - India
- Indika Energy - Indonesia
- Billiton Holdings Pty Ltd - Australia
- GMR Energy Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Meralco Power Generation, Philippines
- Malabar Cements Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Sakthi Sugars Limited - India
- London Commodity Brokers - England
- Latin American Coal - Colombia
- Ministry of Mines - Canada
- Independent Power Producers Association of India
- Mercator Lines Limited - India
- Kepco SPC Power Corporation, Philippines
- Maheswari Brothers Coal Limited - India
- CIMB Investment Bank - Malaysia
- Petrochimia International Co. Ltd.- Taiwan
- Bhoruka Overseas - Indonesia
- CNBM International Corporation - China
- Mjunction Services Limited - India
- Georgia Ports Authority, United States
- Sinarmas Energy and Mining - Indonesia
- Rio Tinto Coal - Australia
- Australian Commodity Traders Exchange
- Globalindo Alam Lestari - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Attock Cement Pakistan Limited
- Planning Commission, India
- Gujarat Sidhee Cement - India
- Bukit Makmur.PT - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Trasteel International SA, Italy
- Economic Council, Georgia
- Electricity Generating Authority of Thailand
- Commonwealth Bank - Australia
- Makarim & Taira - Indonesia
- Salva Resources Pvt Ltd - India
- Anglo American - United Kingdom
- Australian Coal Association
- Bukit Baiduri Energy - Indonesia
- PowerSource Philippines DevCo
- Port Waratah Coal Services - Australia
- Neyveli Lignite Corporation Ltd, - India
- Siam City Cement PLC, Thailand
- The State Trading Corporation of India Ltd
- Manunggal Multi Energi - Indonesia
- Barasentosa Lestari - Indonesia
- Videocon Industries ltd - India
- Edison Trading Spa - Italy
- Thai Mozambique Logistica
- Binh Thuan Hamico - Vietnam
- Agrawal Coal Company - India
- Ambuja Cements Ltd - India
- Oldendorff Carriers - Singapore
- Straits Asia Resources Limited - Singapore
- Iligan Light & Power Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Energy Development Corp, Philippines
- Orica Australia Pty. Ltd.
- Dalmia Cement Bharat India
- Singapore Mercantile Exchange
- Sical Logistics Limited - India
- Banpu Public Company Limited - Thailand
- McConnell Dowell - Australia
- GN Power Mariveles Coal Plant, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ministry of Transport, Egypt
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Heidelberg Cement - Germany
- IEA Clean Coal Centre - UK
- Savvy Resources Ltd - HongKong
- Leighton Contractors Pty Ltd - Australia
- Simpson Spence & Young - Indonesia
- Thiess Contractors Indonesia
- Indogreen Group - Indonesia
- Altura Mining Limited, Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Coal and Oil Company - UAE
- TeaM Sual Corporation - Philippines
- Renaissance Capital - South Africa
- Marubeni Corporation - India
- Gujarat Mineral Development Corp Ltd - India
- Tamil Nadu electricity Board
- SMG Consultants - Indonesia
- Indo Tambangraya Megah - Indonesia
- Sarangani Energy Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- MS Steel International - UAE
- Kapuas Tunggal Persada - Indonesia
- Coalindo Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- Posco Energy - South Korea
- Orica Mining Services - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Tata Chemicals Ltd - India
- Bulk Trading Sa - Switzerland
- Pendopo Energi Batubara - Indonesia
- Grasim Industreis Ltd - India
- Meenaskhi Energy Private Limited - India
- Carbofer General Trading SA - India
- PNOC Exploration Corporation - Philippines
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