Thursday, 26 July 2012

LNG ship-owners may continue to rake it in

Interesting things are happening in the LNG market, which a wide swathe of analysts expect will continue to do well this year. The plummeting demand from Europe has coincided with the rise in demand for LNG in the East, notably in Japan, what with that country struggling to replace nuclear energy after last years tsunami and the consequent Fukushima nuclear plant shutdown. The situation has become magnified with gas shipped to Europe from Qatar now being shipped back to Japan, going back past the region of its origin further east. Because of this diversion, LNG is travelling an additional distance of close to ten thousand miles. In the process, LNG rates are threatening to increase sharply.

A Bloomberg report quotes investment management and research outfit Sanford C. Bernstein & Co saying that European demand will drop by 20 percent in 2012; the year will simultaneously see a consumption rise in Asia of 11 percent. A survey of analysts by Bloomberg says that tanker rates will rise 54 percent this year. 
Demand, especially from Japan, is expected to be huge. Japanese gas prices are 44% higher than European prices; Japan is operating just two of its 50 nuclear plants at present, and there is a severe shortage of ships to carry gas to the country, says the International Energy Agency.  In addition, said a broker to Bloomberg, the situation seems to be exacerbated by the fact that LNG imported into Europe is under long-term contracts that 'do not often allow a change of destination'.

Shipping costs, struggling at  $36,000 a day two years ago, have already touched $150,000 in June this year, and are on track to average $152,000 this year, the Bloomberg survey said. 

Of course, there are some clouds around the silver lining. First, demand may fall significantly, some experts warn, especially if China slows down due to the European contagion. Then there is the possibility of capacity increase; LNG new builds may spurt as owners try to exploit the market. This is already happening to a small extent; 22 additional LNG carriers are expected to be in the water by next year, and IHS Inc says that outstanding orders at shipyards are equal to 22 percent of existing capacity.

LNG ship-owners are hoping, however, that the increased tonne-mile gas scenario- thanks to diverted gas- will continue for sometime, supporting the market even further. This, coupled with the normal spurt in demand in winter, they think, will keep the LNG market buoyant for quite some time.  

In any case, things look rosy in the short term. With a 15% increase in demand for LNG tankers anticipated this year, LNG ship-owners are in a comfortable place at the moment, in stark contrast to the rest of the industry.

“Re-exports from Europe are propping up this market,” analyst Erik Nikolai Stavseth told Bloomberg. “They double up miles for cargoes.”


Why is energy starved India exporting coal to China and Japan?


Just a few months after the story of the coal mining fraud broke comes another shocker: the Government of India, facing an acute shortage of power, is nevertheless allowing the export of millions of tonnes of precious coal to Japan and China- in a period when its imports have gone up nearly fivefold. Official figures from the Coal Ministry's Coal Controller’s Organisation reveal that more than 20 million tonnes of coal- worth about Rs 4000 crore- has been exported over the last ten years; coal exports jumped  50 percent in 2009-10 and a huge 83 percent  (to 4.4 million tonnes) the following year. 

In March this year, a leaked letter saw the Comptroller and Auditor General of India (CAG) accusing the Central Government of giving away Indian coal blocks to commercial companies (mining rights to deposits) in an irregular and arbitrary manner instead of auctioning them off to the highest bidder- 155 blocks were given away to 100 firms without auction between 2004 and 2009 under the stewardship of the Prime Minister. The CAG said that these were given away cheap, passing "undue benefits" to these companies. The resultant loss in what the media quickly dubbed 'Coalgate' and 'The Mother of All Scams': a staggering US $212 billion, six times the loss in the 2G scam. An emotional Prime Minister Singh- who additionally headed the Energy Coordination Committee that gave away the coal blocks "much below market value," as the CAG said, threatened to resign if any wrongdoing was proved against him.

The huge escalation in exports since 2008 is seen as suspicious by many analysts. Energy starved India (India’s import of coal has zoomed four and a half times since 2002, reaching 90 million tonnes last year) does not permit the export of crude oil and natural gas by companies producing them, they say, underlining that coal exports do not make economic sense. “While a small quantity of coal is exported from Meghalaya to neighbouring countries like Bangladesh, it is definitely surprising that India has exported coal to China. Something does not seem to be right about this statistic,” infrastructure expert Amrit Pandurangi of consultancy firm Deloitte Touche Tohmatsu India told the Business Standard.

Added Director at PriceWaterhouseCoopers Kameswara Rao, “Long-distance transport for export of Indian coal, which is characterised by a high ash content of up to 45 per cent, does not make economic sense. So, it is unlikely that any organised traders are involved in this.” 

Statistics show that more than half the coal exports passed through Panaji in Goa, although sizeable amounts have been exported from small northeastern 'ports' like Borsorah and Dawki in Meghalaya and Panitanki in West Bengal.  Interestingly, government officials have claimed ignorance of coal exports to China and Japan, while agreeing that less than a million tonnes is usually exported to Bangladesh and other neighbouring countries in any given year. One said that the Central Government has no control over the coal from Meghalaya and Nagaland in any case, as they are granted special dispensation under the Constitution.

Indian State owned behemoth Coal India Ltd might have exported a small quantity of coal, one government official told the Business Standard, “But coal having been exported to China is news to me.”


Monday, 23 July 2012

Pirate leaders protected by Somali President and local governments, says UN

Kingpins "Virtually guaranteed 'impunity'"

At least one pirate kingpin seems to be under the protection of Somalia's President , who has issued him a diplomatic passport to save him from arrest; a United Nations investigation says that there are others, and has lambasted the climate of "impunity" that prevails in the country that protects pirate overlords in Somalia and abroad.

Reporting to the UN Security Council, the Monitoring Group on Somalia said that "senior pirate leaders were benefitting from high level protection from Somali authorities and were not being sufficiently targeted for arrest or sanction by international authorities," according to Reuters. The UN report quotes the case of Mohamed Abdi Hassan "Afweyne", a notorious pirate boss, who presented a diplomatic passport to suspicious Malaysian authorities in April; the document had been issued "with the authorisation of Somali President Sheikh Sharif Sheikh Ahmed," and stated, somewhat disingenuously, that Afweyne was involved in counter-piracy operations. 

In a remarkable counter-offensive, President Ahmed claimed that the UN Monitoring Group report was one sided, and Afweyne's diplomatic passport was just "one of several inducements" offered to the pirate kingpin in return for stopping piracy and disbanding his group of criminals. Ahmed told the UN in a letter that its report "seems hell bent on soiling the good names of private members of the Somali people by throwing at them unsubstantiated allegations".

The protection of pirate bosses is apparently not restricted to President Ahmed's administration.  The Monitoring Group also criticised the Puntland government for failing to arrest powerful pirate leaders and instead concentrating on the arrest of low-level pirates.  In connected developments, a spotlight was thrown on semi autonomous Puntland's much hyped anti piracy force- the Puntland Marine Police Force (PMPF) - that was shut down after its Middle Eastern sponsors pulled the plug on finances. Hundreds of trained and armed soldiers were left stranded with no cash for food, salaries or anything else. Millions of dollars worth of equipment, aircraft, vehicles, arms and ammunition seems to have been 'abandoned' in Puntland in the process; analysts wonder where it will end up.

The UN has wanted to shut down the PMPF for quite some time, because of suspicion of Puntland President Farole's involvement with piracy. The true motives of its sponsors, connected foreign mercenaries- and their backers, who many say are in the West- were also viewed with great suspicion, analysts say. Meanwhile, piracy has almost halved off Somalia in the last year, thanks to more and more shipowners- and insurers- insisted on armed guards aboard vessels transiting the region.

The U.N. report said pirates are exploring "new types of criminal activity" in Somalia, like the kidnapping of tourists and foreign aid workers, besides "selling services as counter-piracy experts and consultants" in ransom negotiations. "This evolution of the piracy business model is being driven largely by members of the Somali diaspora, whose foreign language skills and bank accounts are all valuable assets," the report said, referring to a British businessman of Somali origin who is part of a piracy ring but who also runs a counter-piracy business.

"As a result, the international community is investing enormous resources to pursue and punish those at the bottom of the piracy pyramid ... while virtually guaranteeing impunity for those at the top of the piracy pyramid who bear the greatest responsibility and profit the most," the report said.

Monday, 16 July 2012

Chief Officer awarded $ 590,000 by Miami court

..Claimed overwork led to heart condition

A court in Miami has ruled against Maersk, awarding a former employee seaman almost six hundred thousand dollars after he took the company to court claiming that he had suffered heart damage after working sixteen hours a day as Chief Officer on one of their vessels. The seaman, William Skye, claimed that this condition forced him to retire early at the age of 54 on medical grounds. The ruling has sent a mini shockwave across Western shipping circles, who fear that similar legal action could be pursued in their countries by seamen who are invariably overworked in defiance of the STCW convention- something that is an open secret in the industry.

Referring to British law, Liz Buchan from Watson Farley & Williams told Lloyd’s List, “An employer has an obligation to provide a safe system of work and there may also be breaches of the working-time regulations. However, it’s unlikely that the damages award would be so high (in the UK), as US judgements often involve an element of punitive damages, which are rare here.”

In the Miami case, 57-year-old William Skye alleged negligence under the US Jones Act, saying that he typically slept less than six sleep a day because of two four-hour watches, in addition to 28 additional duties associated with his role on board the 'Sealand Pride'. Skye claimed, further, that he was "required" to violate the work/rest hour STCW regulations. 

The result of his 16 hour workdays aboard the 'Sealand Pride', Skye said, was Left Ventricular Hypertrophy, a cardiac disease the significantly increases chances of a heart attack; a psychiatrist also diagnosed 'adjustment disorder'. Both the cardiologist and the psychiatrist connected his condition to working conditions aboard the Sealand Pride and recommended that he retire early.

During trial, Skye's legal team put forward testimony from two former Maersk employees, a Chief Officer and a fleet manager. The Chief Officer said that it was impossible to do his job without a significant amount of exhausting overtime. The Fleet manager testified that Maersk did not "affirmatively do anything" to check that its crewmembers were able to complete their job duties and comply with the STCW laws. Another Captain who had sailed with Skye said that he was a competent officer who had complained to him that STCW compliance was difficult. Other evidence showed that Maersk budgeted 185% of the Chief Mate's base salary as overtime- the highest for any officer on board. 

At the end of the trial, the Florida jury found that Maersk did not violate any STCW laws, but was negligent, and this negligence was the legal cause of Skye's medical condition. After two days of deliberation, it awarded Skye $2.36 million dollars, reducing the amount to $590,000 because of comparative negligence- the jury found Maersk 25% negligent and William Skye 75% comparatively negligent.

Maersk's lawyers had argued that Skye had "discretion over his working hours" and a former Captain testified that Skye "had failed to delegate duties properly." They also said that Skye's health did not prevent him from working as a Chief Officer, that the condition was old and that he had planned to retire in 2008 anyway, before finding out about his heart condition. 

Tellingly, Skye was a licensed attorney who went to law school in the 1980's and even practiced law briefly before returning to sailing.