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----- Forwarded by Mark Taylor/HOU/ECT on 05/31/2001 09:56 AM -----
Carlos Alatorre/ENRON@enronXgate 05/30/2001 08:52 AM To: Mark Taylor/HOU/ECT@ECT cc: Kevin Meredith/ENRON@enronXgate Subject: FW: ENRON ON LINE - PETROLEUM TANKER FREIGHT Mark, I hope this is of some use, I have schedule a meeting for Thursday @10:00 to go over it with Joe King Thanks, Carlos -----Original Message----- From: Lin, Homer Sent: Wednesday, May 30, 2001 8:39 AM To: Alatorre, Carlos Subject: FW: ENRON ON LINE - PETROLEUM TANKER FREIGHT Hope this is of some use... this is the history of the project before it fell into my lap. It describes the $5.10 flat rate calculation for BITR 9. Homer ---------------------- Forwarded by Homer Lin/HOU/ECT on 05/30/2001 08:36 AM --------------------------- From: Jennifer Fraser/ENRON@enronXgate on 05/14/2001 10:21 AM To: Homer Lin/HOU/ECT@ECT cc: Subject: FW: ENRON ON LINE - PETROLEUM TANKER FREIGHT -----Original Message----- From: King, Joe Sent: Friday, May 11, 2001 5:42 PM To: Moncrieff, Scott; Shankman, Jeffrey A.; Nowlan Jr., John L.; Fraser, Jennifer; Maffett, Randal; Mahoney, Chris; Gagliardi, Larry Subject: ENRON ON LINE - PETROLEUM TANKER FREIGHT In an effort to get the concept off the ground here in the States, particularly Houston, to that of equal extent presently being experienced in London, we need to come up with a marketing/educational assault on the States market. When attempted in the past, we found the concept was heavily resisted by die-hard crude traders and vessel owners. The biggest complaint, other than sheer stupidity on anything futures related, was that no one had any faith or could agree on a pricing index. Fortunately, the market is starting to see some spurts in this direction overseas and can expect the same here shortly. Below you will find the most widely accepted index known as The Baltic International Routes (BITR). The Baltic International Tanker Routes Date 11-May-2001 The Following Indicative Tanker Routes Form The # Description Size MT Wordscale Assesment Change Basis T1 M.E. Gulf to US Gulf 280000 59.25 - 0.25 Ras Tanura to LOOP T2 M.E. Gulf to Singapore 260000 62.05 - 0.90 Ras Tanura to Singapore T3 M.E. Gulf to Japan 250000 60.50 - 0.68 Ras Tanura to Chiba T4 W. Africa to US Gulf 260000 75.75 0.50 O.S. Bonny to LOOP T5 W. Africa to USAC 130000 122.00 - 0.45 O.S. Bonny to Philadelphia T6 Cross Mediterranean 130000 133.50 - 1.50 Sidi Kerrir to Lavera T7 North Sea to Cont 80000 141.25 - 0.25 Sullom Voe to Willemshaven T8 Kuwait-Singapore (Crude 80000 129.50 0.25 Mena al Ahmadi to Singapore and/or DPP Heat 135F) T9 Caribs to US Gulf 70000 162.00 1.25 Puerto la Cruz to Corpus Christi T0 ME Gulf to Japan 75000 204.00 - 0.50 Ras Tanura to Yokohama (CPP/UNL)-Naptha/ Condensate T11 Caribs - USAC (CPP/UNL) 33000 309.75 1.25 Rotterdam to New York T12 Caribs - USAC (CPP/UNL) 30000 323.20 18.75 Aruba to New York Copyright The Baltic Exchange Limited 2000 Any Use of this information must be by permission of The Baltic Exchange Limited The Baltic Exchange would like to thank its panellilsts for their contributions. Names of the panellists are available from the Baltic Exchange website (www.balticexchange.com) and in the manual for the panellists. When reading the above chart, you will find the various voyages that are assessed daily by the Baltic Exchange. This report comes out every day at 11:00 AM New York. While anyone in the biz can become a member of the exchange, the rates are assessed by a panel consisting of brokers ONLY; a total of 8 different brokerage firms that more or less look at the tanker market activity for the day and average what has been reported as done. The tanker market, for the most part, is very transparent. 1 in Norway 1 in France 1 in the U.S. 5 in London As you can see, it is more popular in London. This relates to the exact same concept that has been around for years as it pertains to the Dry freight market. The market that we wish to begin concentrating on in Houston would be the T9 route - 70,000 MT loads Puerto La Cruz (P.L.C.) and discharges Corpus Christi - described as caribs to USG. The flat rate (ws100) published by WorldScale (ws) for the year 2001 actual voyage P.L.C. to corpus is 5.10 p/mt. As u can see by the last posting (May 11th) for route T9, the exchange is calling it a ws162 market ....If you did a deal whereby you called and sold the month of Mays average at ws190 and the market stayed at the 160's level you would be making 30 points on the 5.10 p/mt flat which = 1.53 p/mt x 70,000 mt cargo = 107,100 USD; vice versa if you bought at ws 190. The initial attraction for Houston in this market is the same reason London trades T7 ( North Sea to Cont). We have a trading department here that should have a solid understanding of the short haul crude oil markets as it pertains to their screen trades and to how it will effect freight. In addition, we recently ourselves have had more activity in the short haul crude market particularly with 2 recent purchases of Columbian stems. 90% of the chartering for this market is done in the States and 75% of the international owners have commercial representation in the States. Route T9 has the volatility to swing from ws 155 to ws 315 over a months time - contributing factors that effect market swings are the same as any market when broken down. For example: Supply/Demand Scenarios - assume there are 25 stems in a month and only 23 boats that can make the different dates, and if only 10 of those boats are acceptable by the majors (or anyone else that is worried about spill liability sanctions), combined with a herd mentality that trades on a "last done" philosophy combined with panic and weather delays particularly in EC Mexico where 10-day turnaround voyages can increase to 20 days. 70,000 MT of crude is more commonly known in shipping as the 500,000 bbl market. Basic API gravity conversion for crude is 7.33 bbls p/mt hence 7.33 x 70,000 mt = 513,000 bbls. This size vessel dominates the short haul crude market (caribs to usg) (where the refineries are) because they are the biggest boats you can get into most of the terminals due to physical restrictions such as draft, LOA, etc... This not only enables the majors to get their crude right in, but allows the traders more flexibility to sell the cargos delivered to a wider range of buyers. When the big boats (VLCC's) (very large crude carriers) (usually 2 million bbl plus boats) come to the USG from the Persian Gulf, West Africa, North Sea, etc.. they park off at Anchorage and then are lightered or off loaded to 70,000 mt boats to then bring the crude in. (I apologize if this is remedial for any readers) In any event, when the USG sees a surge in big ships coming west to the states, the 70,000 mt boats get sucked up by the lighterage companies enabling the short haul crude market boats to get tight which means rates will swing hard. Currently it is a weak market at the 70 x ws 160 level. On average there are approximately 30 physical cargos p/month for the caribs, or the T9 route. For the most part the breakdown is as follows : Mexico (Cayo Arcas, Pajaritos,) Mayan ,Isthmus, Olmeca crude - mainly dominated by shell who have the processing deal with the Mexicans where they deliver them cpp from the USG. Citgo has a few, as does Valero who will probably have more with recent acquisition of Diamond Shamrock Refining, Orion, Coastal, Fina, Conoco, Koch, Chevron etc. Venezuela (Puerto la Cruz, Amuay, Puerto Miranda, la Salina, Bajo grande) etc. players are PDV, Lyondell, BP, Exxon/Mob, Conoco, Orion, Coastal etc.. Columbia - same players (We certainly have the resources here for more exact figures and breakdowns.) Why would this work here in the States? With the recent surge in volatility, a lot of the above mentioned physical players have had their ass's handed to them. Freight is becoming a more crucial part of crude oil trading. Some of the bigger players have already put into place forms of hedges such as contact of affreightments (C.O.A.'s). For example, Lyondell has a C.O..A. with 3 different owners to provide 2 ships per month (that totals 6 moves p/mo.) for 2 years. The freight rates are settled off a 1 to 5 point formula off Mardata (Lloyds register) which they in turn can hedge with Online. Owners - who for the most part are always going to try to be bullish - if have an understanding of hedges could have interest for stabilizing cash flows. Quite possibly Origination or Marketing could assist in promoting it to the market - unfortunately, for me to speak to anyone outside of shipping in another company would hurt me with their freight people who I have to deal with on physical vessel trading. In addition, the freight people are not going to have the authority or descision capabilities to trade on line that trading Department Heads might have. In- house freight books as is the case with Scott and myself experienced much more activity in 2000 then what we have seen thus far in 2001, A combined result of a smaller time charter fleet this year and declining tanker rates which makes it difficult to go long freight in the spot market as well as limited exposure to the spot market as a result of no longer having any supply contracts here in Houston as when we had 2 jet stems, 2 gas oil stems and 2 mogas stems p/month with the vens. In addition we had more spot biz with trinidad and columbia and several supply commitments in West Coast S.America. Im confident if the EOL Tanker freight took off we would once again be able to experience the same success we have seen each year thus far in ship trading by increasing our presence in the markets. The U.S. broker MJLF, particularly Bob Flynn, has been trying to get this off the ground now for over 5 years and even had an unsuccessful JV with Citibank. Reason being, Citibank wasn't calling the market but was interested in it from a commission standpoint (as was the case with mjlf) but setting up avenues of hedges for ship building and vessel ownership. FIynn presently has a seller for 2 voyages p/month starting in July. The pricing would be the first 5 days and last 5 days of each month at ws 190 - he has a bid of 160 - so there's a lot of middle ground to get this done. This is always the case and is why in the States there have only been about 2 deals concluded overall. Flynn, whose motivation is commissions, can be viewed as either a competitor of ours or instrumental in helping us with establishment. For it would be in his best interest for there to be high activity, and as he is the only one presently in the States to have a seller or bid I feel he would be easy to manipulate and as stated before he is part of the panel. If this was to take off to the level that Enron has taken other markets -- whereby futures rates are nowhere near indicative of physical freight and trades are being done off of different pricing scenarios i.e.- months average- specific day close's, first half/2nd half, etc -- if it became so big that sellers weren't just owners and bids weren't just charterers but more of a global book balancing tool, who knows what can be done. The last time we tried to get this going was last year when we had an analyst named Sameer in the group who was coordinating the launch with Louise Kitchen; I believe it lost momentum with legal. Since London has been able to get it going under the direction of Scott Moncrieff we should also be able to offer it here. Scott advises me that he has the support/infrastructure that enables him to still cover the physical freight markets as it applies to the product traders as well as the global freight market and ship arbitrage opportunities that we both follow now. I would appreciate any advice or guidance on what would be the best way to pursue this and get it on the website. I am by no means trying to pass the buck here and am available to anyone who might need some insight to the freight markets be it technical or commercial and welcome the idea of a explaining worldscale and volatility as im sure is the case with Scott in London.
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