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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, 13 January 15
Q2 CFR SOUTH CHINA COAL SWAP DECLINED 8.66% M-O-M
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery declined by US$ 3.48 (-5.73%) month over month and US$ 2.35 (-3.94%) week ...
Tuesday, 13 January 15
Q1' 2015 RICHARDS BAY COAL SWAP SLIGHTLY HIGHER THAN Q2 & Q4 2015 SWAPS
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q1' 2015 lost month on month and week over week.
The Q1 swap has lost US$ 7.21 ...
Monday, 12 January 15
COAL: LOW PRICES ARE EXPECTED TO DRIVE A SUPPLY-DRIVEN RECOVERY IN THE MEDIUM TERM - SGX
COALspot.com: Thermal coal prices dropped to six-year lows in 2014 driven by persistent oversupply, SGX says in its “ Commodities 2014 - A ye ...
Monday, 12 January 15
FREIGHT MARKET: 2015 FLEET SUPPLY GROWTH IS EXPECTED TO REMAIN SLIGHTLY AHEAD OF CARGO GROWTH - SGX
COALspot.com: The dry bulk freight market was forced to digest a number of negatives in 2014 leading the Baltic Dry Index to fall 66% through the y ...
Monday, 12 January 15
SHIPPING - CHALLENGES AND RESOLUTIONS - EVA TZIMA
Last year has without a doubt been another challenging one both for both our industry and our country. As Greece is currently dominated by election ...
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Showing 3261 to 3265 news of total 6871 |
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- Kaltim Prima Coal - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Agrawal Coal Company - India
- Videocon Industries ltd - India
- LBH Netherlands Bv - Netherlands
- Central Java Power - Indonesia
- Karaikal Port Pvt Ltd - India
- Electricity Authority, New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- Dalmia Cement Bharat India
- Vedanta Resources Plc - India
- Xindia Steels Limited - India
- GAC Shipping (India) Pvt Ltd
- ICICI Bank Limited - India
- Manunggal Multi Energi - Indonesia
- Uttam Galva Steels Limited - India
- Siam City Cement PLC, Thailand
- Binh Thuan Hamico - Vietnam
- The State Trading Corporation of India Ltd
- Renaissance Capital - South Africa
- Altura Mining Limited, Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Malabar Cements Ltd - India
- Bhushan Steel Limited - India
- Commonwealth Bank - Australia
- Mercator Lines Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Ambuja Cements Ltd - India
- IEA Clean Coal Centre - UK
- Tata Chemicals Ltd - India
- ASAPP Information Group - India
- Gujarat Mineral Development Corp Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Barasentosa Lestari - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Independent Power Producers Association of India
- Semirara Mining Corp, Philippines
- Parry Sugars Refinery, India
- Energy Link Ltd, New Zealand
- Wood Mackenzie - Singapore
- Mintek Dendrill Indonesia
- Star Paper Mills Limited - India
- PowerSource Philippines DevCo
- Ceylon Electricity Board - Sri Lanka
- CNBM International Corporation - China
- Ministry of Finance - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Directorate Of Revenue Intelligence - India
- Maharashtra Electricity Regulatory Commission - India
- TeaM Sual Corporation - Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Posco Energy - South Korea
- Planning Commission, India
- Metalloyd Limited - United Kingdom
- AsiaOL BioFuels Corp., Philippines
- Economic Council, Georgia
- Marubeni Corporation - India
- GMR Energy Limited - India
- Krishnapatnam Port Company Ltd. - India
- SN Aboitiz Power Inc, Philippines
- SMG Consultants - Indonesia
- Indian Oil Corporation Limited
- OPG Power Generation Pvt Ltd - India
- Bhatia International Limited - India
- Africa Commodities Group - South Africa
- McConnell Dowell - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Power Finance Corporation Ltd., India
- Sarangani Energy Corporation, Philippines
- Sical Logistics Limited - India
- Bayan Resources Tbk. - Indonesia
- Meenaskhi Energy Private Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Ind-Barath Power Infra Limited - India
- Samtan Co., Ltd - South Korea
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- GVK Power & Infra Limited - India
- South Luzon Thermal Energy Corporation
- Toyota Tsusho Corporation, Japan
- Aboitiz Power Corporation - Philippines
- Wilmar Investment Holdings
- Jaiprakash Power Ventures ltd
- Indika Energy - Indonesia
- Kumho Petrochemical, South Korea
- Coastal Gujarat Power Limited - India
- Rio Tinto Coal - Australia
- Price Waterhouse Coopers - Russia
- Cement Manufacturers Association - India
- Medco Energi Mining Internasional
- The Treasury - Australian Government
- Coalindo Energy - Indonesia
- Coal and Oil Company - UAE
- Interocean Group of Companies - India
- Mercuria Energy - Indonesia
- Singapore Mercantile Exchange
- Tamil Nadu electricity Board
- Eastern Energy - Thailand
- Therma Luzon, Inc, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Bulk Trading Sa - Switzerland
- Eastern Coal Council - USA
- Antam Resourcindo - Indonesia
- White Energy Company Limited
- Iligan Light & Power Inc, Philippines
- Attock Cement Pakistan Limited
- Ministry of Mines - Canada
- The University of Queensland
- Kideco Jaya Agung - Indonesia
- Banpu Public Company Limited - Thailand
- Savvy Resources Ltd - HongKong
- Sinarmas Energy and Mining - Indonesia
- Madhucon Powers Ltd - India
- Romanian Commodities Exchange
- PTC India Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Larsen & Toubro Limited - India
- Indo Tambangraya Megah - Indonesia
- Port Waratah Coal Services - Australia
- Anglo American - United Kingdom
- Riau Bara Harum - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Leighton Contractors Pty Ltd - Australia
- Salva Resources Pvt Ltd - India
- Bukit Baiduri Energy - Indonesia
- Gujarat Sidhee Cement - India
- Siam City Cement - Thailand
- Holcim Trading Pte Ltd - Singapore
- Global Coal Blending Company Limited - Australia
- Bhoruka Overseas - Indonesia
- International Coal Ventures Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Kepco SPC Power Corporation, Philippines
- Orica Australia Pty. Ltd.
- San Jose City I Power Corp, Philippines
- Carbofer General Trading SA - India
- Globalindo Alam Lestari - Indonesia
- Oldendorff Carriers - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Kartika Selabumi Mining - Indonesia
- Makarim & Taira - Indonesia
- Meralco Power Generation, Philippines
- Formosa Plastics Group - Taiwan
- Deloitte Consulting - India
- Global Green Power PLC Corporation, Philippines
- Indian Energy Exchange, India
- Straits Asia Resources Limited - Singapore
- Georgia Ports Authority, United States
- Gujarat Electricity Regulatory Commission - India
- Australian Commodity Traders Exchange
- Maheswari Brothers Coal Limited - India
- Minerals Council of Australia
- London Commodity Brokers - England
- Bangladesh Power Developement Board
- Semirara Mining and Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Baramulti Group, Indonesia
- Timah Investasi Mineral - Indoneisa
- Electricity Generating Authority of Thailand
- Grasim Industreis Ltd - India
- PNOC Exploration Corporation - Philippines
- Sakthi Sugars Limited - India
- Central Electricity Authority - India
- Pendopo Energi Batubara - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Standard Chartered Bank - UAE
- Billiton Holdings Pty Ltd - Australia
- Thiess Contractors Indonesia
- Vizag Seaport Private Limited - India
- Borneo Indobara - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sindya Power Generating Company Private Ltd
- Kobexindo Tractors - Indoneisa
- Chamber of Mines of South Africa
- New Zealand Coal & Carbon
- Merrill Lynch Commodities Europe
- Indonesian Coal Mining Association
- Essar Steel Hazira Ltd - India
- Parliament of New Zealand
- Simpson Spence & Young - Indonesia
- India Bulls Power Limited - India
- Aditya Birla Group - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- European Bulk Services B.V. - Netherlands
- Lanco Infratech Ltd - India
- Goldman Sachs - Singapore
- Mjunction Services Limited - India
- Bukit Makmur.PT - Indonesia
- CIMB Investment Bank - Malaysia
- Ministry of Transport, Egypt
- Australian Coal Association
- MS Steel International - UAE
- Edison Trading Spa - Italy
- Latin American Coal - Colombia
- Thai Mozambique Logistica
- Asmin Koalindo Tuhup - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Jindal Steel & Power Ltd - India
- Global Business Power Corporation, Philippines
- Orica Mining Services - Indonesia
- Heidelberg Cement - Germany
- Intertek Mineral Services - Indonesia
- Energy Development Corp, Philippines
- Sojitz Corporation - Japan
- Cigading International Bulk Terminal - Indonesia
- SMC Global Power, Philippines
- Indogreen Group - Indonesia
- Trasteel International SA, Italy
- Petron Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- IHS Mccloskey Coal Group - USA
- VISA Power Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Bharathi Cement Corporation - India
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