Epic Gas Bullish on LPG Carriers Market

Global seaborne liquefied petroleum gas (LPG) volume is expected to grow by over 6% in 2019 and surpass 100 million tonnes for the first time.

Singapore based provider of pressurised LPG vessels, Epic Gas said that it is well positioned to benefit from the improving fundamentals of the LPG shipping market.

For the fourth quarter of 2018, freight levels for most sizes in the pressurised sector were similar to the stronger levels seen in the third quarter. Rates for the 3,500cbm, 5,000cbm, 7,500cbm and 11,000cbm averaged $8,671, $9,870, $10,565 and $13,315 per day, respectively, up 12% for the 3,500cbm, 6% for the 5,000cbm and 7,500cbm vessels, and 2% for the 11,000cbm vessels.

During the fourth quarter, three newly-built pressurised vessels delivered – a 4,000cbm and two 5,000cbm vessels – whilst two small-sized semi-ref vessels totalling 11,400cbm were scrapped.

The year 2018 ended with a total of 329 pressure vessels (non-Chinese flagged over 3,000cbm) on the water, including six newbuilds totalling 36,500cbm that delivered during the year. Five pressure vessels of an average age of 27.6 years and totalling 17,100cbm were scrapped. This resulted in a net fleet year on year growth in capacity of 1.1% as compared to net fleet growth of 4.1% in 2017, 6.4% in 2016 and 9.0% in 2015.

There are five newbuild vessels scheduled to be delivered in 2019 and five more in 2020, representing a 1.4% increase in existing fleet capacity, assuming no scrapping of older vessels, the lowest supply growth in any bulk commodity shipping sector.

Further, in the existing international trading fleet, there are sixteen ships / 56,533cbm that are aged 28 years and older, making them potential scrapping candidates, which will further reduce the net fleet growth rate.

The smaller-sized semi-ref fleet that can compete with the pressure vessels has an order book of five vessels, two of which are the more expensive ethylene vessels purpose built for that trade. This newbuild capacity of 53,300cbm equates to an average annual semi-ref fleet growth of approximately 3.5%, which is more than likely to be lower due to a scrapping ‘pool’ of fifteen non-ethylene vessels and seven ethylene vessels that are 28 years and older.

"We expect that higher operating costs for the older units and probable capital investments required by new legislation will compel owners to strongly consider scrapping these older ships. There were thirteen small-sized semi-ref vessels totalling 98,300cbm that were scrapped in 2018, at an average age of 32 years," Epic gas, which claims to be the largest commercial operator of pressurised LPG carriers, said.

The second-hand market for pressure vessels remained active with 23 transactions concluded during the year, reaffirming the sector as having the highest asset liquidity within the LPG space. Over 90% of the sales were to buyers based in Asia and the Middle East. The average age of transacted vessels was 17 years, with second-hand prices trending upwards.

Drewry reports that global seaborne LPG volumes are expected to grow to 102.6 million tonnes in 2019, 6.4% higher than the 96.4 million tonnes shipped in 2018. In the fourth quarter 2018, Epic Gas loaded approximately 812,000 tonnes and was involved in 726 cargo operations in 137 different ports. LPG cargoes made up 73% of the cargoes lifted with the balance being petrochemicals.

"We had six vessels operating in the Americas, eighteen in the Europe/Middle East/Africa belt and fourteen in Asia," it said.

The USA remains the largest single driver of LPG exports, a year on year gain of 13.5% on exported tonnes, and continued development of infrastructure and export capacity. In Asia, imports by China and India last year grew by 5.4% and 8.1% respectively compared to a year ago, as these two countries remain key demand drivers. Growing LPG consumption for domestic use and developing infrastructure in countries like Bangladesh, Indonesia, Philippines, Vietnam and in sub-Saharan Africa are expected to drive LPG imports and the pressurised LPG vessel trade.

"During the quarter, our vessels performed a total of 95 ship-to-ship (STS) operations on a global basis, bringing the annual total to 358 operations, an equivalent of one operation a day. Due to the forecast increase in global LPG seaborne trade and VLGC shipments in 2019, we expect further growth ahead," Epic gas said.

In the petrochemical trade, Chinese Propylene imports remains an important driver in the 3,500cbm and 5,000cbm pressure vessel trade in Asia. A robust and much larger underlying market for associated derivative products continues to positively impact propylene imports.

The market in North West Europe remained strong during the quarter with expected seasonal delays as well as low water levels on the Rhine causing trade disruptions and impacting vessel availability. The Mediterranean and Black Sea saw the usual movement of contract cargoes on trader-controlled tonnage. From the USA, export volumes on pressurised and on small sized semi-ref vessels this quarter amounted to approximately 162,000 tonnes, the highest in the year and a 37% increase from the previous quarter, with increased deliveries to Central and South America.