Subject: FW: ENRON ON LINE - PETROLEUM TANKER FREIGHT
From: [email-masked]
To: [email-masked]
Cc: [email-masked]
Date: Wed, 30 May 2001 01:52:00 -0700 (PDT)

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.