Shipowners are ordering more very large gas carriers and global demand for such vessels is expected to outpace supply in coming years as LPG exports are projected to grow 5% a year through 2016, shipping brokers and consultants said.
The Persian Gulf is expected to export some 41 million mt of LPG by 2016, up from 34 million mt in 2011, said Urs Dur, equity analyst at Clarkson Capital Markets LLC, a unit of the shipbroker. Annual exports grew 8% last year.
"Much of this increased supply is expected to flow to Asia and may exert upward pressure on ton-mile demand," he said in a recent research report.
Ton-mile demand is calculated by multiplying cargo size and voyage length.
The increased demand has been further boosted by a growing consumption base in emerging economies, with supply raised by the emergence of new export sources, especially in Russia and the US, where LPG and LNG exports are poised to rise considerably on the shale gas boom, Dur said.
Shipping industry consultant Drewry Maritime Research said there were 11 orders for VLGCs aggregating more than 900,000 cubic meters last year, compared with five VLGCs ordered in 2010 and four in 2011. A VLGC is about 54,000 dwt in size.
The average size has grown to 32,125 cu m last year from 15,179 cu m in 2010 because of the 11 VLGC orders, it said in a recent statement.
"Clearly, owners have shown a growing preference for larger vessels in the past few years so as to reap economies of scale, and as infrastructural facilities at ports have been improving," said Shantanu Bhusan, editor of Drewry Maritime Research's LPG Forecaster.
Bermuda-based tanker major Frontline Ltd. have confirmed a total of eight VLGCs, including an option for two more at China's Jiangnan Changxing shipyard, with one slated for fourth-quarter 2014 delivery. The rest are expected to come around 2015-2016, sources said.
Tomza Group has also placed an order for a VLGC at South Korean ship maker Hyundai Heavy Industries for $73.5 million. The vessel is due for April 2014 delivery.
Shipping sources told Platts that HHI recently signed a letter of intent with a European company, heard to be Dorian (Hellas), for a new building VLGC. A spokesman with HHI declined to comment.
Dorian entered the VLGC segment in 2005-06 with a series of new-builds at HHI. Recently, Dorian completed the supervision, on behalf of separate owners, of 10 ships with total contracted values exceeding $500 million - eight ships at HHI and two at Japan's Sumitomo Heavy Industries, the company said on its website.
Belgian gas shipping company Exmar and its joint venture partner Teekay LNG Partners last month ordered up to eight mid-size gas carriers with HHI. BULLISH LONG-TERM OUTLOOK FOR FREIGHT, AFTER SHORT-TERM BEARISHNESS
Drewry Maritime said LPG demand in saturated markets, such as Japan and South Korea, is expected to remain robust due to government support and increasing consumption in sectors other than residential.
China has also been investing in propane dehydrogenation units which could help imports to recover in the medium and long term.
"These developments, or expected developments, from both the supply as well as the demand side, have led owners to believe that ton-mile demand could rise in the medium and long term. In response, new building activity has gained momentum," Drewry Maritime said.
But some shipping sources are not as upbeat about the prospects for the tanker market, especially for the near term.
"I am fairly pessimistic on freight this year, you will have peaks, but not as high as previous years," one shipping source said. "If Indian imports less spot cargoes, that will take away lots of days and employment. There are no Iran tons and plenty of new buildings.
"Even though Houston is pumping out cargoes, traders and charterers are taking in time charter in the West and owners have to compete with their own ships." Shipowners are indicating freight rates for VLGCs plying the key Persian Gulf-Japan route for refrigerated LPG cargoes at just above $40/mt, down from last year' peak of $77.50/mt on August 18.
Dur expected maximum US export capacity to rise to 12 million mt in 2015 from 5 million mt now, requiring more ships for US export routes.
"As this market continues to develop, arbitrage opportunities should grow and more tonnage may be needed, thus increasing market demand for the smaller, fully pressurized fleet globally," he said.
Enterprise Product Partners earlier this month started operating its expanded LPG export terminal on the Houston Ship Channel, which will enable the US producer to load about 7.5 million barrels/month, up from 4 million barrels/month of low-ethane propane and refrigerated LPGs, the company said.
Industry sources said Enterprise will load nine 500,000-550,000-barrel VLGCs in March and 11 in April.
The growing supply of US LPG exports is already changing trade flows and pulling VLGC tonnage from all over the world, sources said.
"Freight rates will for sure peak when the Panama opens," the shipping source said. The expansion of the Panama canal is expected by 2015, which will halve the US-Japan voyage to 22 days.
Source: Platts