The LPG shipping market - BRS

52Atransition

year
LPG SHIPPING
2010 HAS, BY ALL ACCOUNTS, BEEN A YEAR OF TRANSITION FOR THE GAS MARKET.
After the dramatic collapse of rates in the benchmark VLGC segment at
the end of 2008 and the start of 2009 came stagnation, followed by a
timid but consistent revival.
ESHIPS SHAMAL
LPG carrier, 6,400 cbm,
delivered in August 2010
by the South Korean
shipyard STX O&SB Busan,
owned by Eships-Emirates
Ship Investment, on long-term
time charter to CSSA
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54
THE LPG SHIPPING MARKET
in 2010
2010 has benefited from more favourable rates, with a Baltic
Index (44,000 mt LPG Ras Tanura/Chiba) yearly average of
$35.2 pmt compared to $22 pmt in 2009. There were many
changes over the course of the year and the LPG market will
not be exactly as it was before.
In effect, the emergence of a Trans-Atlantic market for VLGCs
is becoming apparent, and in part explains the roller-coaster
ride which characterised the resurgence of this segment, as
seen in the Baltic Index in 2010. Unstable demand from the
West created an intermittent surplus and deficit of tonnage,
and owners had trouble anticipating demand and adapting
PRODUCT PRICES AND FREIGHT RATES
their vessel availabilities due to freight rates that were still
quite weak, higher bunker costs and an increasingly prominent
risk from piracy.
Another remarkable element of 2010 was the start of a strong
resumption of activity in the petrochemical markets, arising
from a significant increase in production of LPG from the Middle
East Gulf countries, which have emerged as a cheaper alternative
supply source compared to European refinery product.
This upturn in activity has absorbed a number of vessels on
long haul voyages, with a subsequent knock-on shortage of
tonnage in other markets.
Very Large Gas Carriers: a revival in new orders
2010 saw the delivery of nine new units, in comparison to
the 39 vessels delivered between 2008 and 2009. The most
notable event of the year was the return to newbuilding activity,
initiated by Petredec’s order for two VLGC units in August
2010. These were the first orders for two years and at a reported
price of $75m per unit, almost $20m less than the last
orders placed in 2008.
In total, four units were ordered over the course of the year
(of which one was for SK Shipping and one for Astomos). To date,
there are eight VLGCs to be delivered between 2011 and 2013.
In spite of a full orderbook and a surplus of available VLGC
tonnage due to reduced production from the Middle East Gulf
countries, this segment should reveal some nice surprises in
Products Dec. 09 Jul. 10 Dec. 10 Dec. 09-10 %
Crude oil, Middle East Gulf ($/bbl) 75.75 71.5 88.8 17%
Brent crude, North Sea ($/bbl) 72.99 73.0 91.1 25%
IFO 380 cst Rotterdam ($/mt) 428 423 488 14%
Naphtha CIF Rotterdam ($/mt) 660.5 610 868 31%
Natural gas ($/mmbtu US Henry Hub) 5.28 4.7 4.2 -21%
Propane CP (contr. price FOB Saudi Arabia) ($/mt) 720 615 905 26%
Butane CP (contr. price FOB Saudi Arabia) ($/mt) 730 625 945 29%
Anhydrous ammonia (FOB Black Sea) ($/mt) 280 325 400 43%
Ethylene (contr. price Europe) (€/mt) 840 958 1,005 20%
Propylene poly gr (contr. price Europe) (€/mt) 750 978 1,070 43%
Butadiene (Europe spot) (€/mt) 900 1,480 1,325 47%
TC Hire basis 6/18 months ($/mth) Dec. 09 Jul. 10 Dec. 10 Dec. 09-10 %
Baltic Index 44000 Mt MEG-Japan ($/mt) 28.02 37.88 42.47 52%
VLGC 65/85,000 cbm 550,000 600,000 700,000 27%
LGC 52/60,000 cbm 560,000 480,000 530,000 -5%
MIDSIZE 23/45,000 cbm 615,000 550,000 600,000 -2%
HANDY SIZE 13/22,000 cbm 630,000 580,000 610,000 -3%
SMALL ETHYLENE 4/12,000 cbm 510,000 510,000 550,000 8%
SMALL SEMI REF 4/8,000 cbm 430,000 450,000 480,000 12%
SMALL PRESSURIZED 3,5/7,500 cbm 270,000 280,000 295,000 9%

the medium term. Even if the surplus quantities of LPG remain
uncertain, it is clear that the increases in production capacity
in Qatar and Abu Dhabi will have a decisive impact on the
employment of VLGCs.
Overall there was a recovery in the VLGC market in 2010,
and this in spite of the cold lay-up of four VLGCs between
March and May. Even if this only represents 3% of the total
VLGC fleet, it is testament to the nervousness that was prevalent
in this segment of the market. By all evidence, in 2010
we witnessed the emergence of an Atlantic market for VLGCs,
a probable sign of recovery in this segment. It is already
LGC / Midsize: a pleasant surprise for the 35,000 cbm vessels
As regards the LGC fleet, there very little development in 2010,
with neither deliveries nor scrapping, and the cold lay-up of
just one unit. With a total of 21 units and an average age of a
little over 8 years, this segment is small and has a limited impact
on the market. However the LGCs benefited from the revival of
the VLGC market, filling in during periods of strong demand
and enjoying the late rally in ammonia trade on the preferred
Black Sea / USG route. Another determining factor has been
the welcome integration of the new 35,000 cbm units delivered
over the course of 2010, which alone represented almost 7%
Handysize / Small: a domino effect
In 2010, 10 new units were delivered into the Handy segment,
of which six vessels were for Naftomar (3 x 22,500 cbm Fully
Ref and 3 x 16,500 cbm Semi Ref). These deliveries represent
a 16% increase in the existing fleet capacity.
In the chartering market these units enjoyed the convergence
of two factors: first of all, the quasi disappearance of the
15,000 cbm Semi Ref vessels, as this segment was reduced
to a total of nine vessels with an average age of 22 years.
The limited number of units and their increasing age excludes
them from their preferred trade Med / NWE and Med / Black
Sea due to the strict vetting standards there. In addition, the
long distance petrochemical trade experienced an upswing
in activity towards the end of the year, principally on the
routes NWE / USG, MEG / NWE, and MEG / SEA or Far East.
To illustrate this, at the end of 2010, 12,000 tonnes of CC4
(crude Butane) Med / USG was being negotiated north of
$170 pmt. The Handy segment (12,000 cbm - 22,000 cbm)
in reality took advantage of a strong demand for smaller units
(8,000 cbm - 12,000 cbm), and by domino effect this tightness
was also felt by the larger capacity vessels (35,000 cbm).
With nine deliveries in 2010, or 9% of the existing fleet in
terms of number of units, the ethylene segment saw several
developments. Firstly, a record number of new orders (22 firm
being questioned whether it would not be beneficial to create
a second freight index for Atlantic trade, in order to better reflect
this trend and try to stabilise what is becoming a separate
market.
2010 was also a year of transition and change in terms of
commercial organisations. International Gas Carriers, the
pool formed by Solvang and Neu, was dissolved in November,
with both parties deciding to henceforth operate their vessels
separately. At the same time, Stolt-Nielsen Gas and
Sungas decided to join forces, forming a fleet of five VLGCs
operated by Avance Gas.
of the existing midsize fleet. In early 2009, the scheduled delivery
of 17 units prompted fears of a collapse in this market.
The market was therefore reassured and surprised in 2010 by
the flexibility of these vessels to operate in the ammonia trade,
with their inferior size allowing them to cover routes inaccessible
to LGCs. The 35,000 cbm vessels were also well employed
on the LPG market because their size corresponded perfectly
to the inter-regional routes, such as MEG / India and Med /
NWE, and also Trans-Atlantic voyages.
and three options) in such a period of uncertainty confirms
considerable faith from market players in the prospects for
growth in this sector: 16 units of 12,000 cbm were ordered
(eight for Jaccar at Sinopacific and eight for TPG at STX),
three + three options for 6,500 cbm vessels were ordered for
equal division between the three members of the Unigas Pool,
and 3 x 6,500 cbm for Anthony Veder were ordered at SHI.
000 $ pcm
1 200
1 000
800
600
400
200
0
01/08
LPG CARRIERS 5,000 - 22,500 CBM
MEDIUM TERM T/C (6-18 MONTHS)
03/08
05/08
07/08
09/08
11/08
01/09
03/09
05/09
07/09
09/09
11/09
01/10
22 500 cbm SR
8 000 cbm ethylene
5 000 cbm PR
03/10
05/10
07/10
09/10
11/10
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56
THE LPG SHIPPING MARKET
in 2010
In total, along with prior orders, 28 ethylene units should be
delivered between now and 2014, representing more than
380,000 cbm of additional transport capacity.
The main trigger for this improvement is the willingness of the
European petrochemical industry to source cheaper product
from Middle East Gulf producers. This new strategy relates to
a policy of reducing refining activity in Europe, which is now
considered too costly, and has been further encouraged by
environmental considerations. If one of the effects of this relocation
of refinery zones to the East has been an increase in
employment rates for ships and a better tonne/mile ratio, another
effect has been the change in zone of employment for the
small pressurised units. In effect, for some years the south east
Asian markets have been absorbing the majority of new tonnage
destined for local transport of petrochemical gases and
LPG in small lots.
2010
2011
2012
2013
2014
2014
2015
Option
CONCLUSION
LPG CARRIERS DELIVERED IN 2010 AND ON ORDER (NUMBER OF UNITS)
VLGC
Handy Size
2010 was therefore a year of change and of decision-making
for some, in contrast to the paralysis experienced by markets
in 2009. Despite the fact that activity and chartering rates remain
relatively subdued in certain segments, future prospects
are positive given the potential for growth which is emerging.
If a return to traditional levels of activity is confirmed by the
now famous BRIC countries (Brazil, Russia, India, China), it will
be dependent not only on demand and production, but also
the “cleaner energy” policies put in place by the “Next Eleven”
countries (South Korea, Mexico, Turkey, Philippines, Egypt,
Indonesia, Iran, Pakistan, Nigeria, Vietnam, Bangladesh).
3
6
3
3
2
9
10
As regards these small pressurised vessels, the orderbook demonstrates
the strong growth of this market in terms of units,
and TC chartering rates (basis one year) only increased over
2010. As an example, the segment of 3,000 cbm vessels,
which alone represents two thirds of the pressurised units, saw
the monthly hire rate increase over the year from $220,000
pcm up to $260,000 pcm. Two factors should be taken into
account when explaining this increase in hire rates. Firstly, the
European market is rapidly absorbing the modern units approved
by the oil majors’ vetting departments. Moreover an
east of Suez market is emerging, which is less restrictive in
terms of vetting standards and age limits, but where the need
for vessels in terms of units and volume is only increasing. In
spite of a packed delivery schedule, with a 9% increase in
the fleet in 2010 and 14% expected in 2011, the prospects
of employment remain encouraging with good prospects in
particular east of Suez.
6
3
7 3
19
2
12
Midsize
Small
Industrialised countries for their part will have to consider the
introduction of cleaner energy and techniques to optimise fuel
consumption, which could bring about new challenges and new
areas for growth in the uses of LPG. Particularly noteworthy
is the growing interest in small-scale LNG which is already
materialising in Europe and which could open up new possibilities
for combined LPG / LNG vessels.
2011 is therefore shaping up as a year of opportunity: one
that will confirm developments started in 2010, but also offer
fresh challenges that go beyond a simple recovery in activity.
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6

The second hand market for LPG carriers
VLGC
In contrast to the previous year, the second hand market for
VLGC in 2010 saw a steady turnover of sales with approximately
ten transactions concluded, compared to just two recorded
in 2009.
Values for early 1990s built VLGCs were established at around
$15m, for example the Sunway (78,000 cbm, built 1991)
and the Noto Gloria (75,000 cbm, built 1992). For comparison
purposes, in the past two years the same investment would only
have purchased a 25-year old unit (instead of a 20 year old unit).
MIDSIZE AND SHIPS UNDER 15,000 CBM
In the Midsize gas segment, five units of 15,000 cbm (built
early/mid 1980s) and one 40,000 cbm vessel were sold for
scrap, at prices ranging between $350 and $500 per LT.
For the smaller ships, 2010 saw significant activity with more
than 40 transactions concluded for further trading, including
two en-bloc deals, namely the sale of four 3,200 cbm units
by MPC Capital to Lomar, and four units by MC Shipping to
Prime Marine.
In the ethylene market we noted a ten year old 7,500 cbm
vessel fetched $21.5m (Dania Spirit) while a 20 year old
8,200 cbm unit went for $12.5 m (Chemtrans Christian).
Generally speaking, pressurised tonnage maintained its
value, and in 2010 vessels fetched prices similar to those obtained
in 2007/2008, even though the ships were now two
MAIDO
LPG carrier, 4,300 cbm,
delivered in January 1999
by Romanian shipyard Severnav,
owned by Hartmann Schiffahrts
GMBH. Operated by GasChem
and charterered to Geogas
for LPG supply to Réunion
Stolt-Nielsen, present in the market for less than a year, confirmed
its status as a major player with the en-bloc purchase of four
very modern VLGCs. We understand the price is partially covered
by shares in the purchasing company.
In the demolition market, six units were sold at prices between
$430-470 per LT, an increase of about $100 per LT compared
to 2009.
or three years older. We note for example the sale of two
7,200/7,500 cbm vessels, built in 2001/2002 respectively,
at a price in the region of $16.5-$19m.
The same trend applied to the smaller 5,000 cbm segment,
which obtained in the region of $12m for 2001-built tonnage
(Bougainville) and $11m for a 1995-built unit (Gas Texiana).
In the 3,000 – 3,500 cbm segment, prices ranged between
$2.5m-$3.5m for end 1980/early 1990s built tonnage, to
$6.7m-$7.5m for 1996/1998 built units, and up to $17m
for 2009 built vessels.
For early 1980s built tonnage, this could only hope to receive
interest from the scrapyards, and we registered around a
dozen units between 5,000 and 12,000 cbm sold for demolition.
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