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Yamal LNG poised to name winning charter bidders
( Lloyd’s List ) RUSSIA’s giant $26.9bn Yamal liquefied natural gas export project is about to name the shipowners that will ship out its cargoes, joining state giant Sovcomflot, the first owner chosen to ship gas from the groundbreaking new plant.
Yamal project leaders Total of France, Russia’s largest independent gas producer Novatek and China National Petroleum are expected to deliver the news this month, perhaps early next week, say industry sources.
The owners and partnerships in the running include Dynagas, which has teamed up with Marubeni, Teekay LNG, and John Fredriksen’s Golar LNG.
China LNG Shipping and China Shipping Development have formed a consortium to bid for a contract and Japan’s Mitsui OSK Lines is also thought to be a partner.
All are eyeing opportunities to ship cargoes from the remote Russian Arctic plant when operations start in 2017-2018.
At this stage, only Russia’s Sovcomflot has been named. It will provide the first LNG carrier for the 16.5m tonnes per year project, which requires 16 high-specification ice-class LNG carriers to ship the gas to international markets.
Asked at a recent gas conference which shipowners were likely to win contracts, Total’s head of LNG Shipping Jacques Besse confirmed only that the first ship operator “would be a Russian”.
Sovcomflot’s vessel will be delivered from South Korea’s Daewoo Shipbuilding & Marine Engineering shipyard in February 2016, said Mr Besse.
Russian bank Vnesheconombank, Sovcomflot and Russian energy company Novatek signed a deal last summer for two such vessels to be built at DSME, Sovcomflot responsible for operating them as a bareboat charterer and technical manager.
The second vessel is also expected to be delivered to Sovcomflot in 2016.
Although DSME beat rivals last July to win ship orders for Yamal, it is thought that Russian yard Zvezda, owned by United Shipbuilding Corp, will build a large portion of the remaining 14 vessels required for the project.
“The whole point here is to keep it Russian as they want to build up their shipyards in the same way that Japan and South Korea did 40 years ago,” Holmwood Consulting managing director Leigh Bolton told Lloyd’s List.
High-spec tonnage
The Yamal project breaks new ground due to the difficulty shipping LNG out of the remote Yamal Peninsula all year round, as it is frozen for much of the time.
That means the project needs high-specification gas ships, at an estimated cost of around $350m each, far more than the average price of $200m for a standard LNG carrier.
Completely new designs are being created for the Yamal vessels, to build 170,000 cu m capacity, tri-fuel ships that are Arc7 ice-class with moderate icebreaking capability to navigate independently to 5.5 knots in 1.5 m thick Arctic ice.
Exports will head west from Sabetta on the Yamal Peninsula, which is being developed for the Yamal LNG project, but which will be frozen for nine months of the year.
It is likely that cargoes will then transfer from the ice-class vessels to other LNG carriers in a European terminal.
Zeebrugge in Belgium or at Dunkirk terminal in France have been named as possible transfer terminals, say analysts.
“There would be no sense in taking an ice-class to Asia or South America on this westerly route,” says Mr Bolton.
At some point, cargoes will head to Asia.
Last October, Novatek agreed terms on supplying China National Petroleum with 3m tonnes of LNG per year from Yamal.
Spain’s Gas Natural Fenosa has agreed to buy 2.5m tonnes per year and Total will take cargoes as part of its portfolio supplies of LNG.
Investment doubts
The challenging nature of the project led some to question whether it would ever achieve the final investment decision, which came through last December.
“Yamal FID was surprising, but it is going ahead — at least the first two trains, with the third following on maybe a bit later when contracted,” South-Court LNG consultant David Ledesma told Lloyd’s List.
However, others have played down the difficulty of the project, pointing to other Russian LNG successes against the odds.
“It’s a challenging environment but not really any worse than Sakhalin Island, which works very well,” says Mr Bolton.
Sakhalin on the country’s far eastern coast is the location of Russia’s 10m tonnes per year LNG export plant.
Strong domestic and international support has made the Yamal project a reality.
Novatek owns 60%, Total 20% and CNPC owns 20% following CNPC buying 20% from Novatek last September.
Domestic support has been crucial, the Kremlin freeing Russian energy companies Novatek and Rosneft to break Gazprom’s monopoly on the country’s gas exports.
A new law to liberalise LNG exports entered into force in Russia last December, removing Gazprom’s monopoly.
The new law was supported by president Vladimir Putin and provides LNG export rights to a new wave of Russian projects, including Yamal.
Rosneft will push forward with its proposed LNG export projects, which include a joint venture with US company ExxonMobil to increase export capacity on Sakhalin island.
There are also plans to send Russian LNG from Vladivostok in Russia’s far east and Novatek recently announced it will build a new 11m tonnes per year LNG plant on Gydan peninsular on the Siberian coast, ready around 2025.
Analysts say Russia’s expansion of its LNG export capacity is partly in response to export growth seen across the world, with Australia gunning to top Qatar’s 77m tonnes per year export capacity, and the US pushing ahead with its plans for around 20 export terminals, requiring 60-90 new ships to carry the cargoes, depending on who you talk to.
Whoever is chosen in the coming weeks to ship cargoes from Yamal when operations start in around three years, it is clear that LNG shipping is about to enter a new era as Russia starts to exert more influence on the global supply picture and creates new cargo-carrying opportunities for the industry.
IMO subcommittee debates the Polar Code
THE newly formed subcommittee focusing on the human element at sea is meeting at the International Maritime Organization this week.
Its tasks include resolving the ongoing problems with the Polar Code, reviewing maritime distress systems and developing what will eventually become the gas-as-fuel code for vessels running off low-flashpoint fuels such as natural gas and methanol.
The subcommittee on human element, training and watchkeeping was formed last year as the IMO continues to streamline its work.
Discussions on how the IMO should turn its five-year old guidelines on polar operations into a mandatory piece of legislation have continued since 2010.
The initial 2012 deadline was extended to 2014 when it emerged that agreement was going to be difficult.
Member states disagree on key issues such as standards of vessels and qualifications of crew, which are less contentious than the non-mandatory guidelines, but would become problematic should they become mandatory.
Some issues relate to crewing levels and skill sets required on vessels operating in polar regions.
These issues could not be resolved during a working group that met during the ship design subcommittee three weeks ago and have been passed to this week’s HTW for discussion.
There is a high level of interest in the polar regions, particularly the Arctic, many experts predicting increased mineral activity, more tourism and more vessels sailing the northern sea route between Asia and Europe.
Critics have voiced concern about bridge teams’ ability to understand the risks of operating in or near ice if they have no prior experience.
That has led to calls to make it a mandatory requirement to have qualified ice pilots on board or to have officers with polar certificates in a similar way that those on board tankers need dangerous cargo certificates or that those deployed on offshore vessels require dynamic positioning certificates.
IMO secretary-general Koji Sekimizu wants the mandatory polar code to be completed this year, to come into force in 2016.
Experts taking part in the IMO talks said the secretary-general’s wishes were not impossible but that a lot of work was needed to reach the compromise needed to deliver success.
CSAV and Hapag-Lloyd discuss a marriage of convenience
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(Containerisation International) COMPANIA Sud Americana de Vapores ranks among the world’s oldest shipping lines, able to trace its history as far back as 1872 following the amalgamation of two local lines.
Its local Chilean rival CCNI only dates back to 1930.
Inevitably, CSAV has been through many turbulent times. In its early years, it operated along the Chilean coast linking to the US and Panama. Principal cargoes were fruit and minerals from the abundant natural resources of Chile.
Its main competitor was the UK line Pacific Steam Navigation, which from the 1840s operated numerous services along the Chilean coast through to Panama, initially with sole rights granted by the Chilean government.
Failing to meet operational targets, this monopoly was broken, leading to the development of local operators.
The First World War offered CSAV the opportunity to break PSNC’s hold on the South American west coast as the latter’s vessels were diverted to war work.
The Panama Canal opened in 1914, eliminating the hazardous passage around Cape Horn and giving access to the US east coast but also to competition, particularly from Grace Line.
The Great Depression in the 1930s reduced demand for the key nitrate and copper cargoes, led to financial problems and severely damaged the national economy.
However, CSAV survived and embraced containerisation.
More recently, after graduating to the ranks of the world’s top lines with services to the US, South America, Europe, Asia and Oceania, it has undergone an enforced slimming-down and is now engaged in talks with Hapag-Lloyd regarding some form of association, mostly likely a merger of its container activities with those of the German line.
From a position among the top 10 global carriers in 2009-2010, CSAV, including CSAV Norasia, has fallen to 19th, according to Lloyd’s List Intelligence.
It now deploys a container fleet of 55 vessels with a low average age, of which around 20% are owned. Total capacity comes to around 279,000 teu in service and 71,600 teu on order.
The extent of its global reach has been reduced, although it still serves most of the major global economies and maintains a high profile where it operates.
With its bias towards north-south trades, it offers the benefit of diversification to a mainly east-west carrier.
Over the last 10-15 years, CSAV has been something of a commercial football being kicked around between different family companies that dominate much of Chile’s commercial life.
The present majority shareholders belong to the Luksic dynasty, Chile’s richest family, rated perhaps the 30th richest in the world with a net worth of some $18bn.
The family fortune was made when, in the 1980s, they invested in the Antofagasta Railway company turning it into the London-listed copper mining giant valued at around $15bn, of which the family control 65%.
Other Luksic investments include 59% of Banco de Chile and interests in brewing and packaging through the conglomerate Quinenco.
A smaller holding in CSAV of some 10% is held by interests associated with the Claro family through Marinsa.
The timing of the Luksic investment in CSAV in 2011 looked then to be something of a gamble.
There appeared to be some recovery in global container shipping, and their reading of the situation must have been that the bottom of the cycle had been reached.
Commentators at the time suggested the move was ill-timed, and so it proved. Quinenco, a Chilean-quoted Luksic company, saw its share price slump after taking its holding in CSAV, and CSAV itself has fallen consistently ever since and is now valued at around $650m.
There have been stock issues to which Luksic’s contribution has exceeded $1bn but CSAV’s performance has shown that this was less an investment, more the throwing of a lifebelt to the sinking line.
The effect of the share price falls on the prospects of striking a deal with Hapag-Lloyd must make the valuation and allocation of value between the two parties something of a dilemma.
CSAV’s share price has fallen steadily after a brief rally in early December 2013 at the time of the first announcements regarding the Hapag-Lloyd development, so the uncertainties in the concept will have grown.
A brief look at CSAV’s figures reveals the amounts of the various capital injections made and the dramatic reduction in activity since the peak year of 2010.
Additionally, the negative working capital position and negative reserves demonstrate the struggle that the line has had to survive and shows how critical the need for additional capital has been.
Annualised 2013 revenues are now around 40% less than the peak in 2010, and since 2010 there have been accumulated losses approaching an astonishing $1.7bn.
Along with other carriers, CSAV will have welcomed even the limited effect of reductions in bunker prices in 2013.
There has been negative working capital since 2011 and capital increases total nearly $1.5bn since 2010 despite there being, unsurprisingly, little movement in underlying assets.
CSAV has undoubtedly been on the brink of bankruptcy, so the arrival of a powerful prospective partner has not come a moment too late.
Despite its fabulous wealth, the Luksic family will still have been stung by the extent of the additional funding it has had to provide.
According to the documents filed by CSAV regarding the position with Hapag-Lloyd, CSAV will commit its container operations to a merged organisation in return for 30% of the equity, will be its largest shareholder and, with the participation of Kuhne Maritime and the City of Hamburg, will hold a total 75.5% of the new entity.
There will be an initial capital raising of ?370m ($506m), to which CSAV must subscribe ?259m within 100 days of conclusion of the transaction, giving CSAV a 34% share.
A further ?370m will be raised within one year as part of a listing of Hapag-Lloyd, a declared aim of Tui, holder of 22% of the company.
Separately, CSAV has to raise $200m to complete the financing of its new 9,300 teu vessels.
Post-merger revenues are expected to reach $12bn and the combined fleet will total some 200 vessels of which CSAV will provide around 25% giving them, in fourth position, a global share of some 5.6%, capacity of around 1m teu and annual liftings of some 7.5m teu. This is still far short of the top three.
Annual savings through the combination are expected to reach $300m.
The commercial imperative for CSAV is easy to see; some form of reorganisation had to be made to ensure survival.
For Hapag-Lloyd the value is less clear but size enables a better competitive position vis-à-vis the P3 vessel-sharing agreement proposal between Maersk, Mediterranean Shipping Co and CMA CGM, and additional trades and stronger positions on existing ones should bring revenue benefits.
Given the failure of the earlier talks with compatriot Hamburg Süd, the CSAV proposal meets the declared objective of Hapag-Lloyd’s management to seek out a merger in an overprovided market place, but is CSAV the ideal partner?
Perhaps it is easier to see when looking at the other lines of sufficient size to make a difference that there are few other prospects.
Too big a partner could threaten the existence of a Hamburg-based line, in just the same way as any Far East connection would also threaten the fundamental objective of European base for Hapag-Lloyd, which must be a primary objective of the present major shareholders.
This pretty much left only CSAV, despite its parlous financial situation.
There should be service duplications to eliminate and undoubtedly staff reductions, but where will they bite?
There is the interesting precedent in that the 1970s merger between NordDeutscher Lloyd and Hapag led to joint head offices in Bremen and Hamburg before the latter eventually prevailed.
This will not be repeated, but cost levels in Chile must compare favourably with those of Hamburg, which could lead to some functions being based in Valparaiso.
Mergers seldom bring the benefits proclaimed by the participants so there will be an enormous task ahead to at least realise some of the more obvious.
Failure to secure this deal, after false starts with NOL in 2008 and then Hamburg Süd, will throw into question the independent future of Hapag-Lloyd and the perhaps even the survival of CSAV; the coming months of due diligence will be critical and the outcome will be eagerly watched by financiers, commentators and competitors alike.
Dry bulk recovery returns Thoresen Shipping to profit
( LL ) THORESEN Shipping, part of Bangkok-listed conglomerate Thoresen Thai Agencies, has reversed its losses with a Baht117m ($3.6m) first-quarter net profit, buoyed by dry bulk market recovery since the second half of last year.
Revenue increased 19% to Baht1.4bn for the three months to December 31, 2013, the first quarter of its 2014 financial year, on the back of increased vessel hires and time charter earnings and reduced operational expenses.
The company’s fleet fetched an average time charter equivalent of $10,446 per day in September-December, up 39% from the year-ago level.
Singapore-based Thoresen Shipping attributed the strong performance to “soaring trade”, underpinned by Chinese iron ore and grain imports, and anticipating slower fleet growth and higher global tonne-mile demand.
The company has laid out a plan to acquire 11 more secondhand vessels, pending the outcome of its $181m fundraising plan announced in November and due to be completed in March.
Its latest purchase is nine-year-old supramax carrier Thor Mercury from D’Amico Dry for $20m, with and it signed a memorandum of agreement for another secondhand bulker of a similar size late last month, although it gave no further details.
Parent company TTA, which also operates in offshore, coal mining and infrastructure, reported a Baht250m total net profit in its strongest quarter in five years.
Chemoil annual profits fall by a third
( LL ) BUNKER supplier Chemoil has posted a 42% drop in fourth-quarter profit to $79.7m and a 32% drop in full-year profits to $101.9m for 2013.
This compares to profits of $133.7m for the fourth quarter of 2012 and $153.2m for the full year.
Chemoil, a subsidiary of commodity giant Glencore, said its full-year profit before tax stood at $41.3m and that “a favourable opinion by the US tax authorities on the appropriate tax treatment of bio-fuels excise tax credits allowed us to recognise a tax benefit of $60.6m)”. This contributed to the $104m after-tax figure.
Chemoil, like others in the bunker-fuel supply business, has been affected by a drop in bunker demand due to slow steaming and shipping companies’ energy-saving measures.
Revenues for the bunker supplier fell 5% in 2013 on-year to $13bn, as small reductions in volumes traded and average sales per metric tonne pinched the top line.
The company said, however, that it was extracting more value according to a metric known as gross contribution per metric tonne.
This figure increased 10% for the fourth quarter to $7.00 and by 22% for the year to $8.20.
Felixstowe receives permission to extend berths
( LL ) THE Port of Felixstowe has received permission to extend berths eight and nine to handle two of the largest containerships at the same time.
The Hutchison Ports UK facility received consent from the Marine Management Organisation to extend the berths by 190 m.
The port said that work would begin “as soon as possible” and the berths would be ready to begin operations next year.
Hutchison Ports UK chief executive Clemence Cheng said: “We opened berths eight and nine in November 2011 and this new extension will allow us to offer more berth windows and greater flexibility to our customers.
“This is an important investment as it will increase our ability to berth a greater number of the very largest container vessels in the future.
“This latest phase of development is designed not only for the latest generation of container vessels, but for those that will follow them in future.”
Berths eight and nine added around 1m teu of capacity to the UK’s busiest box port.
When planning permission to build the berths was first submitted in 2003, 18,000 teu vessels were not being planned for.
The application for a harbour revision order said: “The number of these larger vessels deployed on the key shipping routes calling at the Port of Felixstowe has increased.
“Consequently the port is experiencing a significant shift in the profile of ships that its customers are seeking to service at Felixstowe and this trend is set to continue.
“Berths eight and nine were constructed to provide a two-berth container handling facility. However, it has become apparent that, in order to maintain the capability of the berths to handle two of the largest containerships due to operate in the market from 2013/2014, each of approximately 400 m in length, simultaneously, berth nine needs to be extended by some 190 m.”
It is estimated that work will take around 11 months to complete. The project, which requires a new quay wall and dredging, was approved by the local council last year.
The port will boast a design depth of up to 18 m alongside, and cranes able to span 25 containers across a vessel.
Long Beach hires headhunters to find Lytle’s replacement
( LL ) A FIRM of headhunters has been appointed to find a replacement for Christopher Lytle who handed in his notice as executive director of the port of Long Beach last May.
Since then, the second largest container port in the US has been run by an acting executive director.
The Board of Harbor Commissioners has finally approved a contract with Baltimore-based Boyden Global Executive Search to find candidates for the job of executive director, overseeing day-to-day operations, modernisation projects and long-range strategic planning.
Al Moro, formerly the harbour department’s chief engineer, has been filling in since last July when Mr Lytle left to run the smaller port of Oakland.
Mr Lytle had only been in the job for about 18 months and is thought to have had differences with the mayor of Long Beach over commercial matters.
The executive director works closely with and under the direction of the Board of Harbor Commissioners to put forward proposed policies, rules, ordinances, or measures for the port.
Separately, the port of Los Angeles announced a 2.5% rise in container traffic in January compared with a year earlier.
The increase was due in part to shippers moving cargo in advance of Chinese new year, which this year fell on January 31, earlier than usual.
Container imports increased 6.7 %, from 337,428 teu in January 2013 to 360,037 teu last month,
Exports were up 1.7 %, from 159,257 teu a year ago to 161,938 teu in January this year.
Combined, total loaded imports and exports for January increased 5.1 %, from 496,686 teu to 521,975 teu. However, empties decreased 5.1 % over the year.
Although Los Angeles is the larger of the two ports in terms of container throughput, Long Beach has been closing the gap over the past year, largely as a result of customers switching terminals and not due to any underlying growth.
Owners earmark a large number of boxships for demolition
( LL ) A LARGE number of containerships are being touted for demolition, raising questions about the capacity of key markets in the Indian subcontinent to absorb so much tonnage over a short period of time.
US-based cash buyer GMS said more than 20 panamax containerships were being offered for scrap, with “more in the pipeline” as owners sought to renew their fleets with modern fuel-efficient vessels.
Brokers reported at least six boxships sold over the past week, including some at rates edging close to the $500 per ldt mark.
There was also talk of a seven-ship en bloc deal that, if confirmed, would represent a record single scrap sale in terms of both tonnage and value.
The sheer number of boxships being offered to cash buyers and yards means rates could slip in the coming weeks.
“A drip-fed supply of vessels would certainly be preferred to the tsunami that is currently enveloping — and some would say killing — the market,” said GMS in its latest market report.
“Several cash buyers that hold the inventory will now be competing amongst themselves to ensure that none of the vessels are sold cheaply, thereby devaluing their own particular purchases.”
GMS said the yards in India and Bangladesh with capacity and available credit to take on vessels of this size were fast filling up.
“Much of the January heat is therefore disappearing from the market, leaving a potential black hole for those cash buyers caught with an array of overpriced and oversized containers,” it added.
The stricken chemical tanker ‘Maritime Maisie’ could break up at sea
( LL ) UK-BASED class society Lloyd’s Register has warned that Maritime Maisie is in danger of breaking in two if a place of refuge is not offered soon.
The class society has been helping the managers of the 44,404 dwt chemical tanker, which suffered an explosion 51 days ago, after it was involved in a collision off South Korea. Since the incident, the loaded tanker has been under tow and in limbo.
Coastal states, including South Korea and Japan, have refused its appeals for a place of refuge.
Data from Lloyd's List Intelligence shows the tanker to be floating between the port of Busan and Japan’s Tsushima Island.
Maritime Maisie is the latest casualty to highlight weaknesses in the rules on offering places of refuge.
Maritime Maisie has been enrolled with LR’s ship-emergency response service since 2007 and the society has been estimating the vessel’s damage strength.
SERC is a service that LR offers to owners on the offchance of a casualty in which the structural integrity of a vessel will need to be continually assessed.
LR says the collision and fire will have severely weakened the ship’s structural strength and that prolonged exposure to sea swells higher than 4 m would only make matters worse.
“Following new data and images from the ship, there is a growing concern for the structural integrity of the tanker, thus, the call for the port of refuge is most critical,” the class society warned.
Continued exposure to seas will weaken the ship’s structure so that at some point it is likely to fail, LR said, and the vessel needs to enter port to offload its cargo.
The class society also said it would be concerned if the ship was towed for a lengthy period in open sea or remained in its location for a long time.
LR believes that if the hull breaks in two, the two halves will remain afloat and upright.
The vessel was carrying 30,000 tonnes of kerosene at the time of the collision, but an estimated 4,000 tonnes has either been burned or has leaked out of the vessel.
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