[ID] => 9206
[post_author] => 34
[post_date] => 2018-02-20 09:22:21
[post_date_gmt] => 2018-02-20 09:22:21
[post_content] => Global seaborne LPG volumes reached 91.9m tonnes in 2017, an increase of 4.3 per cent on the 2016 figure. All of the additional material came from the US, where exports grew by 16 per cent to 29.0m tonnes, accounting for 33 per cent of global trade.
The casual observer might think that this would be good news for those involved in the transport of such gases, yet major vessel operators – particularly in the larger size segments – continue to struggle. Avance Gas, for example, which operates 14 mostly modern very large gas carriers (VLGCs) in the spot market, reported a 23 per cent fall in revenues last year, with average timecharter equivalent earnings down 42 per cent at $10,646/day. The company’s bottom line registered a loss of $54.8m and, while that was better than the previous year’s loss of $68.2m, the 2016 figure included impairment losses of $53.3m to reflect a sharp fall in the value of its seagoing assets.
VLGC owners have pointed unanimously to a surplus of tonnage in the market as the reason for the persistent weakness in the market. The demand for LPG is certainly there: LPG deliveries into China crew by more than 10 per cent in 2017, Indian imports surpassed those of Japan for the first time ever, and even Indonesia, traditionally a major gas supplier, saw demand grow and is now sourcing some of its LPG needs from the Phillips 66 terminal in Freeport, Texas.
Demand is only likely to increase further. Two new propane dehydrogenation (PDH) units are due to open in China this year and, with natural gas in short supply in the country, methanol-to-propylene plants have higher input costs, pushing up the price of propylene and increasing PDH utilisation rates by 10 per cent year-on-year. In India too, the government’s clean energy programme is still increasing LPG connections across the country and demand from the automotive LPG sector is expected to grow as a result of recent tax changes.
Furthermore, while long-haul demand for VLGCs has been tempered somewhat by the shorter route from the US to Asia offered by the enlargement of the Panama Canal, the popularity of the route means that waiting times for transit have increased.
TOO MANY SHIPS
According to Dorian LPG, which has 22 VLGCs in its fleet, the orderbook of new vessels stood at some 13 per cent of the existing VLGC fleet at the start of 2018, with eight new ships due for delivery during the year and another 18 in 2019. It also notes that VLGCs of 20 years of age or more accounted for 14 per cent of the fleet. However, prospects for increased trade volumes have encouraged some owners to go back to the yards with new orders – Dorian says nine contracts were placed in the first two months of the year – and, unless the pace of scrapping picks up, there is a danger that the market will remain over-tonnaged even with trade growth.
Bearing in mind that VLGCs, if properly looked after, can easily trade up to or even past 25 years of age, a surge in scrapping purely on the basis of age seems unlikely. On the other hand, the new vessels joining the fleet are far more efficient and are also being designed to meet upcoming restrictions on sulphur oxide emissions.
Looking at the market in late 2017, Drewry Shipping Consultants said that the global LPG fleet expanded at an average rate of 17 per cent in 2015 and 2016, but that 2017 would witness only 9 per cent growth. It expects this to slow to 5 per cent in 2018 and 3 per cent in 2019, barring further orders.
On the basis of its forecasts, Drewry calculated the payback period for four segments of the market, concluding that fully pressurised ships offer the best returns. A five-year old 3,500-m³ vessel will be paid off in eight years, it says, while in the Handysize segment – semi-refrigerated vessels of 15,000 m³ – the equivalent is 19 years.
SMALL IS BEAUTIFUL
Epic Gas, which operates exclusively in the fully pressurised segment, concurs with Drewry’s assessment. In its financial statement for 2017 it noted that fourth quarter market rates for 3,500-m³ and 5,000-m³ vessels were 30 per cent higher than a year earlier, while those for 7,500-m³ carriers were off by 1.9 per cent and those for 11,000-m³ ships were essentially flat.
That market performance was a result largely of restrained ordering. Net fleet growth in the fully pressurised sector was 4.1 per cent in 2017, with eight deliveries and two demolitions (excluding Chinese-flagged ships operating exclusively in domestic trades). That figure was down on the 6.4 per cent growth in 2016 and Epic Gas expects the trend to continue.
As 2017 started there were only six vessels due for delivery in 2018 and 2019, representing a 1.8 per cent increase in existing fleet capacity. This is, the company says, the lowest supply growth in any bulk commodity shipping sector. Moreover, in the existing fleet there are 11 ships aged 28 years or more; if these go for scrap – and the average age of recent demolition sales was 28.5 years – then it will more than compensate for the new deliveries.
Nor is there any significant fleet expansion planned in the smaller semi-refrigerated segment, which can compete with fully pressurised ships; only seven newbuildings were on order at the start of this year while there were 18 demolition candidates. “We expect that higher operating costs for the older units and probably capital investments required by new legislation will compel owners to strongly consider scrapping these older ships,” Epic Gas says.
WORK THOSE BOATS
While growing US exports work to the benefit of VLGCs, they also help the pressurised segment and Epic Gas says the fourth quarter of 2017 saw a recovery in liftings. “Exports to the Caribbean and Central America remained firm,” it says, noting that one of its ships made the first ever delivery of pressurised LPG to a new facility in Puerto Sandino, Nicaragua.
The market for small LPG tankers is also strong in Asia, with China the main driver. A 6.8 per cent year-on-year increase in propylene imports in the fourth quarter – despite the rise in PDH output – was behind much of the increased demand for ships and the consequent uptick in rates. Cargoes are moving from Thailand, the Philippines and Indonesia in greater number, adding to tonne-mile demand.
Epic Gas also notes that fully pressurised ships are piggybacking on the VLGC market, undertaking ship-to-ship transfers for final delivery into smaller ports. During 2017 the company carried out 413 such operations, more than double the number carried out in 2016. The market is particularly strong in Singapore, for supplies to Sri Lanka and Bangladesh, and also continues to develop in West Africa as new infrastructure is opening up.
[post_title] => LPG tankers: Timing is everything
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[post_name] => lpg-tankers-timing-everything
[post_modified] => 2018-02-19 17:26:06
[post_modified_gmt] => 2018-02-19 17:26:06
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LPG tankers: Timing is everything
There has never been so much gas around, yet many LPG tanker owners continue to struggle in a weak market. Is it all about over-tonnaging?