The Covid-19 coronavirus collapse of crude oil demand coupled with the plunge in the price of crude has seen traders turn to on-the-water storage to take advantage of the price contango. But there are hidden dangers for operators whose tankers are used for storage
The near global Covid-19 coronavirus lockdown is closing factories, reducing commuter miles and reversing expectations of economic growth and crude oil demand. Some estimates place the drop of crude oil demand as high as 10% from an approximate global demand of 100M b/d.
The current crisis has seen some estimates as low as a 20M b/d drop on an immediate basis, with the 2020 average as high as 4.5M b/d, a 4.5% drop in demand. Crude oil and products output is not dropping as fast while the Saudi Arabian price cut has opened a window of contango. According to Vortexa, a provider of real-time analytics of oil cargo data, the six-month Brent crude oil price spread was trading at roughly US$10/bbl with VLCC time charter rates at around US$65,000/day. At these levels a trader can store oil on a VLCC for six months and lock in a profit of US$4/bbl today. On a VLCC, this amounts to a potential gain of US$8M.
On the oil products storage side, Vortexa notes that two tankers have arrived off Malta intending to commence storage duties. The 2017-built, 74,400 dwt LR1 tanker Pacific Debbie has been floating offshore Malta as of 1 April, having updated its declaration from Isle of Grain — a major UK inlet for jet fuel — on 21 March. It loaded cargo from Sikka, India in early March 2020. The 2018-built, 75,000 dwt LR1 tanker Cielo Rosso is also laden with jet fuel and arrived offshore Malta on 21 March 2020 having loaded in Singapore in late February.
Storage duties allow the tanker operator to lock into revenue but the activity has hidden profit-sapping dangers – fouling of seachests and pipe work exposed to raw seawater. This is especially prevalent in the warm waters of the Mediterranean Sea and the favoured deepwater storage anchorages off Singapore and Malaysia.
“This is going to have a very detrimental impact on the condition of their hulls, seachests and raw seawater cooling systems. Without regular use, the antifouling systems that usually protect these vessels, like anti-fouling paints and impressed-current systems, will not function and the vessels will become infested with unwanted marine growth very quickly. In warm waters this can happen within a matter of weeks,” warned Sonihull’s chief executive officer Darren Rowlands. Sonihull is a Coventry-based company behind an ultrasound anti-fouling system. Sonihull’s technology harnesses the power of ultrasound to prevent algae, weeds and molluscs form colonising man-made surfaces submerged in seawater.
“There is no welding or cutting required during installation and whole systems can be fitted in under a day. This really sets us apart from other systems during these times of social distancing,” added Rowlands. “Our technicians can be in and out very quickly, the job can be done at anchor or even when the vessel is operating if necessary.”
According to Sonihull, with its systems fitted, weeds mussels and barnacles will not be able to thrive and operators will be able to respond quickly to changes in vessel demand without worrying about performance, speed, fuel-consumption or engine failure due to blocked cooling pipework. Of course, tankers being used for storage suffer fouling on the hull, too. A careful choice of hull coating is essential to limit fouling, and coupled with minimising pipework antifouling mitigation, it could be vital to taking advantage of the impact of storage on tanker supply. The more tankers that go into storage duties, the fewer available on the open market. Being able to quickly reactivate a tanker after a few months storage could make a difference when trying to take advantage on the peaks in the spot market.
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