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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, 18 January 15
INDONESIA TO INDIA SUPRAMAX FREIGHT RATES ARE EXPECTED TO REMAIN WEAK NEXT WEEK
COALspot.com: The BDI was up 4.51 pct week on week on Friday 16, January 2015. The BDI closed at 741 points on this Friday after gaining arou ...
Friday, 16 January 15
U.S. WEEKLY COAL PRODUCTION UP 7.3% W-O-W
COALspot.com – United States the world's one of the largest coal producers, produced approximately 18.9 million short tons (mmst) of coal ...
Thursday, 15 January 15
PANAMAX : MARKET CONTINUE ON LOW PACE - FEARNLEYS
Handy
On a general basis we can say that rates are softening in both hemispheres. Although for some specific trades we can see premiums being ach ...
Thursday, 15 January 15
LOW CASH COSTS, GOOD LIQUIDITY HELP ASIAN OIL COMPANIES IN PRICE ROUT - FITCH
Fitch Ratings says that rated oil and gas production companies in Asia can comfortably operate under low oil prices for some time given their gener ...
Wednesday, 14 January 15
DRY BULK MARKET NOTED ANOTHER WEEKLY DECLINE - INTERMODAL
COALspot.com: The Dry bulk market noted another weekly decline on Friday, with the performance of the Capesize market still weighing down on the re ...
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- International Coal Ventures Pvt Ltd - India
- Marubeni Corporation - India
- Semirara Mining and Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- IEA Clean Coal Centre - UK
- Parry Sugars Refinery, India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Manunggal Multi Energi - Indonesia
- Indonesian Coal Mining Association
- Miang Besar Coal Terminal - Indonesia
- London Commodity Brokers - England
- India Bulls Power Limited - India
- The University of Queensland
- Karaikal Port Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Chettinad Cement Corporation Ltd - India
- Rashtriya Ispat Nigam Limited - India
- VISA Power Limited - India
- Bukit Baiduri Energy - Indonesia
- Straits Asia Resources Limited - Singapore
- GN Power Mariveles Coal Plant, Philippines
- Sarangani Energy Corporation, Philippines
- Independent Power Producers Association of India
- Orica Mining Services - Indonesia
- Deloitte Consulting - India
- Sakthi Sugars Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Semirara Mining Corp, Philippines
- Leighton Contractors Pty Ltd - Australia
- GVK Power & Infra Limited - India
- Power Finance Corporation Ltd., India
- Indian Oil Corporation Limited
- PowerSource Philippines DevCo
- PNOC Exploration Corporation - Philippines
- Mercator Lines Limited - India
- ASAPP Information Group - India
- LBH Netherlands Bv - Netherlands
- Sojitz Corporation - Japan
- Global Green Power PLC Corporation, Philippines
- Merrill Lynch Commodities Europe
- Coal and Oil Company - UAE
- Meenaskhi Energy Private Limited - India
- Uttam Galva Steels Limited - India
- Central Java Power - Indonesia
- Siam City Cement - Thailand
- Energy Development Corp, Philippines
- Kumho Petrochemical, South Korea
- Indika Energy - Indonesia
- Larsen & Toubro Limited - India
- Chamber of Mines of South Africa
- Rio Tinto Coal - Australia
- Wilmar Investment Holdings
- Binh Thuan Hamico - Vietnam
- Krishnapatnam Port Company Ltd. - India
- Medco Energi Mining Internasional
- Jaiprakash Power Ventures ltd
- Aditya Birla Group - India
- CNBM International Corporation - China
- Bayan Resources Tbk. - Indonesia
- PTC India Limited - India
- Kepco SPC Power Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- Makarim & Taira - Indonesia
- Vizag Seaport Private Limited - India
- Economic Council, Georgia
- ICICI Bank Limited - India
- AsiaOL BioFuels Corp., Philippines
- Gujarat Sidhee Cement - India
- Posco Energy - South Korea
- Kobexindo Tractors - Indoneisa
- Energy Link Ltd, New Zealand
- Ministry of Transport, Egypt
- Eastern Coal Council - USA
- Bukit Makmur.PT - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Madhucon Powers Ltd - India
- Indogreen Group - Indonesia
- Indian Energy Exchange, India
- Sindya Power Generating Company Private Ltd
- Baramulti Group, Indonesia
- SMG Consultants - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Savvy Resources Ltd - HongKong
- MS Steel International - UAE
- Price Waterhouse Coopers - Russia
- Jindal Steel & Power Ltd - India
- Attock Cement Pakistan Limited
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Aboitiz Power Corporation - Philippines
- Central Electricity Authority - India
- South Luzon Thermal Energy Corporation
- Kartika Selabumi Mining - Indonesia
- Interocean Group of Companies - India
- Thiess Contractors Indonesia
- Bharathi Cement Corporation - India
- Kohat Cement Company Ltd. - Pakistan
- The State Trading Corporation of India Ltd
- Altura Mining Limited, Indonesia
- Vedanta Resources Plc - India
- New Zealand Coal & Carbon
- Tamil Nadu electricity Board
- Ministry of Mines - Canada
- Renaissance Capital - South Africa
- CIMB Investment Bank - Malaysia
- Borneo Indobara - Indonesia
- Antam Resourcindo - Indonesia
- IHS Mccloskey Coal Group - USA
- Mjunction Services Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- White Energy Company Limited
- Ind-Barath Power Infra Limited - India
- Bhoruka Overseas - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Essar Steel Hazira Ltd - India
- Pendopo Energi Batubara - Indonesia
- Ambuja Cements Ltd - India
- Electricity Generating Authority of Thailand
- Riau Bara Harum - Indonesia
- Africa Commodities Group - South Africa
- Parliament of New Zealand
- San Jose City I Power Corp, Philippines
- Cigading International Bulk Terminal - Indonesia
- Xindia Steels Limited - India
- Coalindo Energy - Indonesia
- Port Waratah Coal Services - Australia
- Bhatia International Limited - India
- Grasim Industreis Ltd - India
- Therma Luzon, Inc, Philippines
- Malabar Cements Ltd - India
- Global Coal Blending Company Limited - Australia
- Maharashtra Electricity Regulatory Commission - India
- Australian Coal Association
- Bukit Asam (Persero) Tbk - Indonesia
- Simpson Spence & Young - Indonesia
- Eastern Energy - Thailand
- GMR Energy Limited - India
- Goldman Sachs - Singapore
- Minerals Council of Australia
- Global Business Power Corporation, Philippines
- Georgia Ports Authority, United States
- Samtan Co., Ltd - South Korea
- Orica Australia Pty. Ltd.
- Sree Jayajothi Cements Limited - India
- OPG Power Generation Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Ministry of Finance - Indonesia
- Intertek Mineral Services - Indonesia
- Maheswari Brothers Coal Limited - India
- Standard Chartered Bank - UAE
- Banpu Public Company Limited - Thailand
- European Bulk Services B.V. - Netherlands
- Holcim Trading Pte Ltd - Singapore
- Videocon Industries ltd - India
- Anglo American - United Kingdom
- Petron Corporation, Philippines
- Dalmia Cement Bharat India
- Salva Resources Pvt Ltd - India
- Siam City Cement PLC, Thailand
- Toyota Tsusho Corporation, Japan
- The Treasury - Australian Government
- Neyveli Lignite Corporation Ltd, - India
- PetroVietnam Power Coal Import and Supply Company
- Wood Mackenzie - Singapore
- Mintek Dendrill Indonesia
- Cement Manufacturers Association - India
- Ceylon Electricity Board - Sri Lanka
- Metalloyd Limited - United Kingdom
- Indo Tambangraya Megah - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- SN Aboitiz Power Inc, Philippines
- Commonwealth Bank - Australia
- Coastal Gujarat Power Limited - India
- McConnell Dowell - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Bangladesh Power Developement Board
- Romanian Commodities Exchange
- Kapuas Tunggal Persada - Indonesia
- Heidelberg Cement - Germany
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Australian Commodity Traders Exchange
- Meralco Power Generation, Philippines
- Singapore Mercantile Exchange
- Timah Investasi Mineral - Indoneisa
- Alfred C Toepfer International GmbH - Germany
- Star Paper Mills Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Bhushan Steel Limited - India
- Electricity Authority, New Zealand
- Globalindo Alam Lestari - Indonesia
- Agrawal Coal Company - India
- Sical Logistics Limited - India
- Oldendorff Carriers - Singapore
- Barasentosa Lestari - Indonesia
- Tata Chemicals Ltd - India
- Latin American Coal - Colombia
- Trasteel International SA, Italy
- Edison Trading Spa - Italy
- Kalimantan Lumbung Energi - Indonesia
- Planning Commission, India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Mercuria Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Karbindo Abesyapradhi - Indoneisa
- Directorate General of MIneral and Coal - Indonesia
- SMC Global Power, Philippines
- Directorate Of Revenue Intelligence - India
- Carbofer General Trading SA - India
- GAC Shipping (India) Pvt Ltd
- Thai Mozambique Logistica
- Gujarat Electricity Regulatory Commission - India
- Lanco Infratech Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Iligan Light & Power Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Gujarat Mineral Development Corp Ltd - India
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