LNG Ship Chartering – The Basics PDF

LNG Ship Chartering – The Basics This report and/or presentation is based on our knowledge of relevant market conditions. Our estimates are made on the basis of this knowledge, but other circumstances, or new circumstances, as well as general uncertainty could cause the market to develop differentl...

LNG Ship Chartering – The Basics This report and/or presentation is based on our knowledge of relevant market conditions. Our estimates are made on the basis of this knowledge, but other circumstances, or new circumstances, as well as general uncertainty could cause the market to develop differently. We take general reservation for misprints. MB Shipbrokers is not responsible or liable for any damages or losses resulting or arising directly or indirectly from your use of the report. © All rights reserved. No part of this publication may be reproduced in any material form (including photocopying or storing it in any medium by electronic means) without the written permission of the copyright owner. Likewise, any quoting is prohibited without the written permission of the copyright owner.  © 2024 MB Shipbrokers K/S. All rights reserv ed. Types of Charters 1/2 Voyage Charter Time Charter Contract of Affreightment (COA) Rarely, if ever, used in LNG Standard LNG Terms Rarely if ever used in LNG ‒ The basic hiring of a vessel and its crew ‒ A time charter refers to the hiring of a ‒ This is not strictly a charter contract but is for a voyage between the port of loading vessel for a specific period of time. Here, somewhat similar to a voyage charter. and the port of discharge is known as a the owner still manages the ship, but the ‒ Under this type of contract, the owner voyage charter. In this type of contract, charterer selects the ports, decides the agrees to transport the goods for the the ship owner is paid by the charterer routing, and has full operational control of charterer on a specified route and for a either on a per-ton basis, or as a lump the vessel for the duration of the contract. specific period of time. sum. ‒ Charterer pays the fuel costs, port ‒ More than one ship can be used and, in ‒ Port costs, with the exception of charges, cargo handling costs, contrast to a true charter, there is no stevedoring, fuel costs, and the crew costs commissions, and a daily hire fee. laytime period and no demurrage is are paid by the owner, and payment for payable. the use of the vessel is known as freight. ‒ Under the terms of a voyage charter, a specific time is agreed for the loading and unloading of the cargo. This is known as laytime, which, if exceeded, obliges the charterer to pay demurrage. ‒ Conversely, if laytime is saved, the owner may have to pay despatch to the charterer. Page 2  © 2024 MB Shipbrokers K/S. All rights reserv ed. Types of Charters 2/2 Bare boat charter Used mainly in financing arrangements ‒ A bareboat charter is a lease for a fixed period of time, which involves: ‒ The lessor receiving a regular payment for hire , without the responsibility for the ship’s goods or transactions. ‒ The lessee having full control of the vessel, including the right to appoint a master and crew. ‒ The Barecon/89 is the standard form of ship charter. Page 3  © 2024 MB Shipbrokers K/S. All rights reserv ed. The Simplified Process Standard for all commercial negotiations Initial Soft offer/indicatio Counter Counter Firm Offer agreements n Vessel placed Subjects are Agree main ‘on Counter Counter worked terms subs’/Recap through Shared Time Charter Subjects Vessel is clean Party contract lifted/Board fixed is negotiated approvals Page 4  © 2024 MB Shipbrokers K/S. All rights reserv ed. Indications/KTS Initial & Non Binding Discussions Some TCPs, such as ShellLNGTime 2 contain a Main Terms sheet as Part I ‒ Starting point of any commercial deal ‒ Can be shared by either party ‒ Often drafted by the broker ‒ Key items must be included, though details will vary (these are usually referred to as the ‘main terms’: ‒ Charter ‒ Owner ‒ Vessel ‒ Delivery ‒ Laycan ‒ Duration ‒ Rate ‒ (Brokerage) ‒ Indications have no validity and nonbinding ‒ They can be free text or set out formally ‒ Marked up and exchanged (countering) can be once, can be many times. It is important to keep track of the changes. Page 5  © 2024 MB Shipbrokers K/S. All rights reserv ed. Page 6  © 2024 MB Shipbrokers K/S. All rights reserv ed. Breaking down the indication Admin details – sometimes ‘full style’ will be used (ie company name and address) Form B - Derived from the From A/Form B Combination of the original ShellLNGTime Charter Party Details the important vessel specs When/Where/How long/How much? LayCan – Laytime & Cancelation date Delivery Condition refers to the state of the tanks Rate – typically in USD but watch out for other currencies! Acronyms – learn the key ones Where redelivered Heel retention – commercial arrangements for retaining some cargo Ballast Bonus/Positioning fees – cost position & reposition the vessel for this or next employment Can be lump sum or calculated Gas up and Cool Down options – if required Page 7  © 2024 MB Shipbrokers K/S. All rights reserv ed. Breaking down the indication Ship Inspection REport = The SIRE program is a worldwide inspection regime. utilizing 3rd party inspectors with common training and oversight, to inspect vessels. Fuel and LNG prices to be used for expense accounting Buying Fuel and LNG – for Time Charters the Charterer will often ‘buy’ all the consumables on the vessel and ‘sell’ them back to the owner at the end. Can vary though. Brokerage – always include as early as you can to avoid issues later on – remember it adds to the charterers costs even if Owner pays Governing jurisdictions – usually UK Validity – typically indications have no validity – though some will, be careful not to miss the ones that do Subjects – Conditions precedent that must be met in order for the contract to the clean Page 8  © 2024 MB Shipbrokers K/S. All rights reserv ed. Indication Vs Offer Key Differences ‒ Offers are addressed to a specific counterparty ‒ They have a firm deadline/validity ‒ They have firm subject deadlines Page 9  © 2024 MB Shipbrokers K/S. All rights reserv ed. Subjects/Recaps When the ship is placed ‘on subjects’ it is important for everyone to be on the ‘same page’ Common Subjects A note on RECAPS Can be applied by either party, and negotiated as part of the countering process ‒ Know your Customer/Counterpart (KYC) ‒ It is often overlooked in LNG, but a vital part of the brokers role is to ‒ Time Charter Party Agreement (for a Charter) share a ‘clean’ main terms recapitulation (RECAP) to both parties. ‒ Cargo availability/award (for a tender) ‒ Often you as the broker will share one copy of the final mark up and ‒ Vessel availability (if relevant) one clean recap to make sure no party is confused/has a different ‒ Ship Shore Compatibility Study understanding of what has been agreed ‒ Management Approval/Board Approval ‒ Credit worthiness, guarantees being provided ‒ This step is important and often subject to mistakes, in the excitement of putting a ship on subs, it is important to take a step back to get this part right. ‒ Any other significant item which may cause the charter to fail through no deliberate fault of one party. ‒ Extensions to subjects are usually caveated with ‘extensions not to be unreasonably withheld’ and moving the deadline is very common. ‒ Often referred to as ‘rolling’ Page 10  © 2024 MB Shipbrokers K/S. All rights reserv ed. Subjects/Deadlines/Clean Fixing Lifting subjects ‒ Subjects get lifted as the preconditions of each get cleared ‒ Charter Party Subject usually requires the most work from the broker. The TCP is the next round of negotiations. ‒ Owners will usually provide the first draft as they will several ‒ Compatibility subject requires the Owner and the specific rider clauses and amendments on top of the generic TCP Loading/Discharging terminals to communicate, exchange docs and ensure the vessel can physically fit in the terminal, that the ‒ Be sure to keep track of counters (use tracked changes) manifolds are compatible and any additional equipment such as: ‒ Short distance pieces/reducers (for manifold compatibility) ‒ Cargo/Vessel availability subject commonly seen for tender ‒ Boil of Gas connections (JBOG – For Qatar) submissions or forward fixing other scenarios where there are ‒ Mooring line tails competing bids or other uncertainties. It is relatively uncommon and not a particularly desirable subject. ‒ Normally an Owner will pay for a load and discharge port, additional terminals will normally have a fee charged. This is due to the need to engage external simulations and analysis (such as Optimoor). ‒ Usually the Management/Board of Directors subject is the final ‒ LNG Carriers will be built with a variety of ports theoretically subject to be lifted. It usually requires all other subjects to be lifted and the final deal to be presented to management and receive final compatible, but if the vessel has not been to the terminal it will still approval. need to be cleared. ‒ If a sister-ship has been to the terminal previously then the procedure should be faster. ‒ Once all subjects vessels are referred to clean fixed Page 11  © 2024 MB Shipbrokers K/S. All rights reserv ed. Form B 1/4 Basic Specs of LNG Vessel Basic admin details for the vessel Charterers are most interested in: Age Yard Owner Overall vessel specs Occasionally ports will have physical restrictions- this is where to find that info Page 12  © 2024 MB Shipbrokers K/S. All rights reserv ed. Form B 2/4 – Fuel Oil (Equivalent) Consumption Often also called Speed and Consumption One of key elements in the Form B Note – MT of Fuel Oil Equivalent/day Note fuel consumption for in Port ops Page 13  © 2024 MB Shipbrokers K/S. All rights reserv ed. Form B 3/4 – LNG Info The ‘most important section’ Cargo capacity – both at filling levels and 100% gross cargo capacity Important things to note in this section: How long to cool down tanks Filling rates (aka how long to fill the tanks) Boil off rates both loaded/Ballast Page 14  © 2024 MB Shipbrokers K/S. All rights reserv ed. Form B 4/4 - Compatibility Ports that they vessel has been Cleared for (on paper) Officially cleared for/visited Sister ship compatibility may also be relevant Page 15  © 2024 MB Shipbrokers K/S. All rights reserv ed. Take away Questions Think about the following ‒ What is the process start to finish to clean fix a vessel ‒ What does TCP stand for? ‒ What do we mean when we say ‘main terms’? ‒ How many rounds of indicative and firm countering can you go through? ‒ What is some of the key information contained in an Indication/Offer/Recap? ‒ What are some of the common subjects in an LNG charter party? ‒ What is some of the key information contained in a Form B? ‒ What is industry standard brokerage for an LNG ship Charter? Page 16  © 2024 MB Shipbrokers K/S. All rights reserv ed. Any questions? Give us a call. +45 3344 1400 [email protected] Name Title [email protected] +45 3344 1400