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----- Forwarded by Mark Taylor/HOU/ECT on 05/31/2001 09:56 AM ----- =09Carlos Alatorre/ENRON@enronXgate 05/30/2001 08:52 AM =09 To: Mark Tayl= or/HOU/ECT@ECT cc: Kevin Meredith/ENRON@enronXgate Subject: FW: ENRON ON = LINE - PETROLEUM TANKER FREIGHT=09 Mark, I hope this is of some use, I have schedule a meeting for Thursday @10:00 t= o go over it with Joe King Thanks, Carlos -----Original Message----- From: =09Lin, Homer =20 Sent:=09Wednesday, May 30, 2001 8:39 AM To:=09Alatorre, Carlos Subject:=09FW: ENRON ON LINE - PETROLEUM TANKER FREIGHT Hope this is of some use... this is the history of the project before it fe= ll 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 A= M --------------------------- From:=09Jennifer Fraser/ENRON@enronXgate on 05/14/2001 10:21 AM To:=09Homer Lin/HOU/ECT@ECT cc:=09=20 Subject:=09FW: ENRON ON LINE - PETROLEUM TANKER FREIGHT -----Original Message----- From: =09King, Joe =20 Sent:=09Friday, May 11, 2001 5:42 PM To:=09Moncrieff, Scott; Shankman, Jeffrey A.; Nowlan Jr., John L.; Fraser, = Jennifer; Maffett, Randal; Mahoney, Chris; Gagliardi, Larry Subject:=09ENRON ON LINE - PETROLEUM TANKER FREIGHT In an effort to get the concept off the ground here in the States, particul= arly Houston, to that of equal extent presently being experienced in London= , we need to come up with a marketing/educational assault on the States mar= ket. When attempted in the past, we found the concept was heavily resisted = by die-hard crude traders and vessel owners. The biggest complaint, other t= han sheer stupidity on anything futures related, was that no one had any fa= ith 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. =20 Below you will find the most widely accepted index known as The Baltic Inte= rnational Routes (BITR). The Baltic International Tanker Routes Date 11-May-2001 =09=09=09=09=09=09=09=09=09=09=09=09=09The Following Indicative Tanker=09=09=09=09=09=09=09=09=09=09=09=09=09 Routes Form The #=09Description=09=09=09Size MT=09Wordscale Assesment=09=09Change=09 = Basis T1=09M.E. Gulf to US Gulf=09=09280000=09=09=09 59.25=09=09=09- 0.25=09= =09Ras Tanura to LOOP T2=09M.E. Gulf to Singapore=09=09260000=09=09=09 62.05=09=09=09- 0.90=09= =09Ras Tanura to Singapore T3=09M.E. Gulf to Japan=09=09250000=09=09=09 60.50=09=09=09- 0.68=09=09R= as Tanura to Chiba T4=09W. Africa to US Gulf=09=09260000=09=09=09 75.75=09=09=09 0.50=09= =09O.S. Bonny to LOOP T5=09W. Africa to USAC=09=09130000=09=09=09122.00=09=09=09- 0.45=09=09O.S= . Bonny to Philadelphia T6=09Cross Mediterranean=09=09130000=09=09=09133.50=09=09=09- 1.50=09=09S= idi Kerrir to Lavera T7=09North Sea to Cont=09=09 80000=09=09=09141.25=09=09=09- 0.25=09=09Su= llom Voe to Willemshaven T8=09Kuwait-Singapore (Crude=09=09 80000=09=09=09129.50=09=09=09 0.25= =09=09Mena al Ahmadi to Singapore =09and/or DPP Heat 135F) T9=09Caribs to US Gulf=09=09 70000=09=09=09162.00=09=09=09 1.25=09=09Pu= erto la Cruz to Corpus Christi T0=09ME Gulf to Japan=09=09 75000=09=09=09204.00=09=09=09- 0.50=09=09Ras= Tanura to Yokohama =09(CPP/UNL)-Naptha/=09=09 =09Condensate T11=09Caribs - USAC (CPP/UNL)=09 33000=09=09=09309.75=09=09=09 1.25=09= =09Rotterdam to New York T12=09Caribs - USAC (CPP/UNL)=09 30000=09=09=09323.20=09=09=0918.75=09= =09Aruba to New York Copyright The Baltic Exchange Limited 2000 Any Use of this information must be by permission of The Baltic Exchange Li= mited The Baltic Exchange would like to thank its panellilsts for their contribut= ions. 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 as= sessed 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 exchang= e, 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 ac= tivity for the day and average what has been reported as done. The tanker = market, for the most part, is very transparent. =20 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 sa= me 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 T= 9 route - 70,000 MT loads Puerto La Cruz (P.L.C.) and discharges Corpus Ch= risti - 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 (M= ay 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 t= he 5.10 p/mt flat which =3D 1.53 p/mt x 70,000 mt cargo =3D 107,100 USD; vi= ce 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 sh= ould have a solid understanding of the short haul crude oil markets as it p= ertains to their screen trades and to how it will effect freight. In addit= ion, we recently ourselves have had more activity in the short haul crude m= arket 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 ti= me - contributing factors that effect market swings are the same as any mar= ket 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 liabil= ity sanctions), combined with a herd mentality that trades on a "last done"= philosophy combined with panic and weather delays particularly in EC Mexic= o 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 ma= rket. Basic API gravity conversion for crude is 7.33 bbls p/mt hence 7.33 = x 70,000 mt =3D 513,000 bbls. This size vessel dominates the short haul crude market (caribs to usg) (whe= re 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 allow= s the traders more flexibility to sell the cargos delivered to a wider rang= e of buyers. When the big boats (VLCC's) (very large crude carriers) (usua= lly 2 million bbl plus boats) come to the USG from the Persian Gulf, West A= frica, North Sea, etc.. they park off at Anchorage and then are lightered o= r off loaded to 70,000 mt boats to then bring the crude in. (I apologize i= f this is remedial for any readers) In any event, when the USG sees a surg= e 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 carib= s, or the T9 route. For the most part the breakdown is as follows : Mexico (Cayo Arcas, Pajaritos,) Mayan ,Isthmus, Olmeca crude - mainly domin= ated by shell who have the processing deal with the Mexicans where they del= iver them cpp from the USG. Citgo has a few, as does Valero who will proba= bly have more with recent acquisition of Diamond Shamrock Refining, Orion, = Coastal, Fina, Conoco, Koch, Chevron etc. =20 Venezuela (Puerto la Cruz, Amuay, Puerto Miranda, la Salina, Bajo grande) e= tc. 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. S= ome 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 move= s p/mo.) for 2 years. The freight rates are settled off a 1 to 5 point for= mula off Mardata (Lloyds register) which they in turn can hedge with Online= .=20 Owners - who for the most part are always going to try to be bullish - if h= ave an understanding of hedges could have interest for stabilizing cash flo= ws. Quite possibly Origination or Marketing could assist in promoting it t= o 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 d= eal with on physical vessel trading. In addition, the freight people are n= ot going to have the authority or descision capabilities to trade on line t= hat trading Department Heads might have. In- house freight books as is the case with Scott and myself experienced mu= ch more activity in 2000 then what we have seen thus far in 2001, A combine= d result of a smaller time charter fleet this year and declining tanker rat= es which makes it difficult to go long freight in the spot market as well a= s limited exposure to the spot market as a result of no longer having any s= upply 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.A= merica. Im confident if the EOL Tanker freight took off we would once aga= in be able to experience the same success we have seen each year thus far i= n ship trading by increasing our presence in the markets. The U.S. broker MJLF, particularly Bob Flynn, has been trying to get this o= ff the ground now for over 5 years and even had an unsuccessful JV with Cit= ibank. 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 presen= tly 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 alwa= ys the case and is why in the States there have only been about 2 deals con= cluded overall. Flynn, whose motivation is commissions, can be viewed as either a competito= r of ours or instrumental in helping us with establishment. For it would b= e 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 eas= y 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 futu= res rates are nowhere near indicative of physical freight and trades are be= ing 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 w= eren't just owners and bids weren't just charterers but more of a global bo= ok balancing tool, who knows what can be done. The last time we tried to g= et this going was last year when we had an analyst named Sameer in the grou= p who was coordinating the launch with Louise Kitchen; I believe it lost mo= mentum with legal. Since London has been able to get it going under the di= rection 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 fre= ight markets be it technical or commercial and welcome the idea of a explai= ning worldscale and volatility as im sure is the case with Scott in London.
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