Oil market turbulence pivots focus on floating storage technical needs

In International Shipping News 12/05/2020

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egative oil prices and off-the-scale volatility in crude markets are positive for floating storage, as the next chapter of the Covid-19 pandemic energy crisis plays out on the world’s fleet of tankers.

Beyond the turbulence, record-breaking volumes of oil and refined products being stored on tankers at sea are presenting owners and operators not only with sky-high earnings but numerous technical and practical considerations.

The vessel’s flag state, age, size, cargo being stored, as well as the storage duration and location, whether surveys are due and when all need to be explored.

Most shoreside tanks in key hubs of Singapore, northwest Europe and the US Gulf are already full or leased, as global crude demand collapses by a third, or some 30 million barrels per day (bpd). Volumes deployed to floating storage as the surplus overwhelms commercial storage is estimated to exceed 400 million bbls (barrels) by the end of June, based on assessments from shipbrokers. That’s enough to meet all of the US oil needs for 20 days. Drawdowns aren’t expected until late 2020 at the earliest as and when the oil market rebalances.

There are now 163 million bbls of crude in floating storage based on Lloyd’s List Intelligence data, the most in records going back to 2009. Between 40 million bbls and 65 million barrels of clean products such as gasoline, jet fuel, diesel and gasoil are being stored on tankers, according to research provided from two shipbrokers.

That encompasses 500 tankers worldwide, from very large crude carriers through to smaller, medium-range and handysize ships. More than 110 vessels are the smaller tankers never before designated for this purpose and at anchor in locations where floating storage isn’t regularly seen.

The data captures these smaller tankers because of changed methodology that defines floating storage as vessels at anchor for seven days or longer, rather than the normal 20-day period. This change was made to include unsold or surplus cargoes on tankers awaiting discharge at ports. These tankers are expected to end up in floating storage because the delays reflect difficulties securing land-based storage.

As much as eight percent of the clean tanker fleet is currently being used for floating storage based on this methodology. An estimated 10 percent of all clean product loadings and eight percent of crude loadings over April will end up in floating storage, reports from energy commodities analysts conclude.

Technically, permanent or semi-permanent floating storage tankers are defined as ‘moored oil storage units’ or ‘moored oil storage tankers’, using their own anchor and operated at a fixed location. Survey frequency is considered on a case-by-case basis. The Lloyd’s Machinery Certificate (LMC) that encompasses propelling and essential auxiliary machinery covered in special surveys is withdrawn for storage units and can be maintained or suspended for moored oil storage tankers.

Most of the older tankers used for floating storage, particularly off Malaysia and Singapore, supplement tank farms and are defined as moored oil storage tankers. They are frequently linked to oil traders and mainly conduct ship-to-ship transfers to other bunker units or smaller tankers. Numbers in Singapore rose over the last quarter of 2019, as oil traders and shipowners sought to secure extra supplies with floating storage of IMO 2020-compliant low-sulphur marine fuels.

Tankers used for storing crude and products on a shorter-term basis gain little from changing their Class status to a moored oil tanker, based on recommendations from LR. Unless floating storage is a longer-term option, repurposing is generally unnecessary unless docking, intermediate, renewal and special surveys undertaken by classification societies need to be accommodated in which case this needs to be discussed at the earliest opportunity with Class.

Even if class and statutory requirements remain unchanged, operators are still encouraged to discuss their vessel’s floating storage deployment with LR, as well as flag states, to check for any new requirements or changed inspection regimes.

“We need to understand where owners intend to park this piece of floating steelwork and for how long,” said Tony Field, Vice President of Marine and Offshore, Middle East & Africa. “We partner with our clients assisting them to look at the risks, then manage or mitigate them and reach the most effective solutions.”

If the owners do wish to change the Class status to a Moored Oil Tanker/Unit then the survey regime can potentially be reduced, provided the flag state agrees. Any reduction is based on best practice, the age of the ship and considered on a case-by-case basis. The tanker’s survey history and the sea conditions where it will be anchored at a fixed location are also taken into account.

Typically, an intermediate survey could be reduced in scope, and the renewal special survey fully maintained even if dry-docking can be waived and an in-water survey accepted by Class and Flag in lieu.

Remote surveys, which are typically used for postponement surveys, minor damages and potentially some outstanding issues after a physical survey, are proving to be a useful alternative if access to the ship is difficult while travel restrictions remain in place in some countries during this pandemic.

Who pays for hull or propeller cleaning and how it will be monitored – especially if storage wasn’t envisaged at the time of signing the original contract – will depend on the charter party. Hull fouling is expected if vessels are stationary for any period of time and can lead to increased fuel consumption, so whether responsibilities and liabilities lie with the owner or charter need to be agreed.

Degradation of refined products stored on tankers is a well-documented issue that needs monitoring and specialised quality management to ensure best practice, said Douglas Raitt, LR’s Singapore-based Advisory Services Manager.

“There’s a need to spread the message that this is not a simple, straightforward matter of storing products for six to seven weeks and then sell it and hope the product quality remains the same,” said Raitt.

“With lighter products such as naphtha and gasoline you may find that over time the composition changes, with evaporation of the lighter ends. For jet fuels and distillates oxidation stability could impact product quality and suitability for eventual end use. Bacterial growth is also a real threat to clean products. Tanks need to be regularly drained of water condensation to prevent ingress, with regular testing as necessary and dependent on ambient storage temperatures and storage conditions to check for bacterial growth. How long the product is stored, different tank coatings and their condition can also impact product degradation and cargo values.”

“With regards to VLSFOs it should be noted that these may be prone to instability over time so a regular health check through testing is required if fuel is to be stored onboard for longer periods of time.”

Unlike 2014 and 2015, when floating storage was last at significant levels, most tankers aren’t being used for contango plays. When the spot price is higher than the future price oil traders can buy oil on the physical market, take out a futures contract and store and later sell the oil at a profit.

Although anecdotal research suggests that a number of crude and product tankers are being used for this purpose, most storage is enforced as a result of the demand collapse and surplus now flooding the market. Discharge delays and bottlenecks at the port of Singapore were running to three weeks, rather than the normal three days at the end of April.

Based on latest forecasts between 30 and 114 Aframax tankers alone will be needed to accommodate accelerating clean floating storage demand until early June, an extraordinary number that will further push rates to fresh records if realised. The largest product tankers are securing spot charter rates that equate to earnings above $170,000 daily, nearly three times levels seen at the beginning of April, before the size and scale of the surplus emerged. Meanwhile VLCCs are averaging $150,000 daily, well above breakeven levels of around $25,000 daily for a modern ship of this size.

Source: Lloyd’s Register

Sailing schedules fall victim to COVID-19

In International Shipping News 12/05/2020

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he practice of cancelling sailings on an industrial scale has been, since February, the strategy put in place by the carriers to address the huge volume drop across major container trades globally, since the outbreak of COVID-19.

The cancelled sailing tracker, part of the Drewry Coronavirus Hub, provides weekly insights for shippers, freight forwarders and NVOCC helping them to face the daily operational challenges, generated by the uncertainty of the sailing schedules & the continuous decrease of the capacity deployed on the major container shipping routes.

Source: Drewry

The highest sailing cancellation since the COVID-19 outbreak was in February, registering a spike of 105 cancellations across Transpacific and Asia-North Europe & Mediterranean trades; the lowest was in March, with only 33 cancellations, representing a drop of 69% from the previous month.

The total sailings withdrawn on the Transpacific, Transatlantic & Asia-North Europe/Mediterranean trades in May 2020 is 82 out of 457 scheduled sailings for this period (18%).

Source: Drewry Cancelled Sailings Tracker

The Alliance has the highest number of cancelled sailings during this period (34%), followed by 2M (30%) & Ocean Alliance (21%). The Transpacific Trade is the most affected by the reduction of capacity, with 45 blank sailings, which represents 55% of the total blank sailings in May, followed by Asia-North Europe & Mediterranean trade (34%), and Europe & Mediterranean-North America trade (11%).

Overall the number of cancellations has decreased between April and May by 12%, apart from the Transpacific trade, where we see an increase of cancelled sailings of 32%.

Source: Drewry Cancelled Sailings Tracker

Drewry believes that carriers will continue their practice of large-scale cancellations of sailings for months and suggests to shippers and forwarders that they not only check carefully the situation before booking but also extend their lead times in case of operational delays.

Source: Drewry

Cargo ship sailors press-ganged into keeping the world’s trade afloat

In International Shipping News 12/05/2020

Thomas Stapley-Bunten was due to finish his contract aboard the Al Shamal, a huge cargo ship carrying liquid natural gas, early last month. The ship docked at the LNG terminal in Fos Cavaou, southern France, as planned, but by then the world was in coronavirus lockdown. He couldn’t disembark, and international flights were grounded, preventing him from getting home to Newcastle, UK.

So the 27-year-old former Royal Navy warfare officer has been stuck onboard as the Al Shamal criss-crosses the ocean from Qatar to Turkey and France and back. The 34-man crew, from the Philippines, India, Russia and Ireland, have had their pay increased by 50%, but they just want to go home.

“We are still loading, sailing and discharging our cargo. But in the back of our minds, we are starting to realise: we are trapped. People are essentially prisoners,” he said. “There is no way to get off the ship.”

Stapley-Bunten is one of 150,000 seafarers stranded at sea on their vessels, forced to work beyond their contracts indefinitely, often seven days a week. Many have families and don’t know when they will see them again. They have been given no choice but to keep going, from port to port, unloading at docks that are open for cargo but closed to the seafarers who deliver it.

Cargo ships are responsible for delivering as much as 90% per cent of the global trade in goods, and the world’s 1.2 million seafarers are a resilient workforce, operating in often dangerous conditions, seven days a week. Britain, Spain and the Netherlands have designated them key workers during the health crisis. But they are being stretched to the limit: working beyond their contracts, exhausted, under stress, and invisible to the governments that rely on the goods they carry.

The International Transport Workers’ Federation (ITF) has received multiple reports of crew members with life-threatening conditions who have been refused emergency treatment at ports, despite the illnesses being unrelated to Covid-19. Unions and shipping and maritime organisations warn of a health and safety crisis. They are lobbying governments to lift restrictions to allow crew members home, but so far with little success.

Many governments are making huge efforts to ensure cargo continues to be delivered safely. But there is no similar effort to help seafarers. The European commission has issued guidelines to facilitate the safe movement of seafarers and shipping companies, suggesting key ports – including Singapore, Rotterdam, Gibraltar and Hong Kong – where crew changes could take place safely. But unions have said port states and governments are not responding.

“Governments are managing to get their citizens home from abroad, passengers from cruise liners, yet there are 150,000 seafarers still out there, working to keep global supply chains open, who can’t get home,” Mark Dickinson, general secretary for Nautilus International, the maritime union, said.

“The EU, the International Transport Workers’ Federation, the International Labour Organization, are saying please get these seafarers home, but individual governments are not pulling their weight. It is becoming a health and safety crisis and it’s getting worse by the day.”

Kees Wiersum, captain of a Dutch-flagged specialised cargo ship currently sailing off the coast of Madagascar, said he is concerned about “fatigue and depression” among his 21-man, mainly Filipino, crew.

“They are in contact with their families, but if something happens, they can’t do anything,” said Wiersum. “We are trying to keep their spirits up, but they will tell you their families need them home. Some of them are expecting babies and they can’t get home for the births.”

Even if they were repatriated to the Philippines, one of the largest suppliers of seafarers in the world, they would face the additional obstacle of overcrowded quarantine facilities in Manila.

“Our minister of transport calls us heroes. He said we are vital for the economy,” said Wiersum, 61, a Dutchman who has spent 43 years at sea. “But we are treated like pariahs, like criminals. We can’t go ashore for a walk or a beer, or even for medical help. In Holland, they have repatriated holidaymakers all over the world. But they forgot about us.”

One of the most pressing problems is that seafarers are not being afforded the usual rights to get medical treatment at ports. Fabrizio Barcellona, from the seafarer section of the ITF, said he was receiving 10–15 reports of medical emergencies a day, and those are “just the ones we know about”.

The strain of being forced to work long beyond the end of your contract also increases the risk of accidents, seafarers say. Andrewi Kogankov, 47, from St Petersburg, Russia, has been captain aboard the Spetses Lady oil tanker since November. His contract ran out in March, but the planned crew change in Qatar was cancelled due to the lockdown, forcing him to continue sailing. His contract has now been extended for two months.

“We are feeling exhausted,” Kogankov said. “We are working 24/7, we have a tough schedule, handling dangerous cargo. You have to be careful, you have to concentrate. When you are six, seven months on board, thinking about your family, you can lose your concentration.”

This week the International Maritime Organization warned its 174 member states that trade and global supply chains would “come to a halt” unless crews on ships can be replaced. If the 150,000 seafarers estimated to be working beyond their contracts are not relieved of their duties in two weeks, they will be in breach of maritime regulations.

Several groups – including the ITF, International Chamber of Shipping and the International Air Transport Association – have proposed a 12-step protocol to allow seafarers to join or leave ships at a series of “repatriation hubs”, from where they could fly home.

Stephen Cotton, general secretary of the ITF, said: “Our message for governments is clear: you cannot continue with a mentality of out of sight, out of mind, and we strongly urge governments to act now before we suffer more serious human or environmental consequences.”

Guy Platten, general secretary of the International Chamber of Shipping, described the plight of seafarers as a “ticking timebomb”.

“We could start to see disruption to trade, and more importantly we risk accidents and mental health issues. Putting this off is no longer an option.”

Source: The Guardian