Spiking LPG demand fuelling VLGC orders

A sharp rise in LPG shipping demand, particularly out of the US, is driving an ordering frenzy for very large gas carriers (VLGCs) which will increase the size of the LPG shipping fleet by over 50% over the next two
years, according to the LPG Forecaster report published by shipping consultancy Drewry. The main demand driver has been US exports and their trade with Asia. US LPG exports rose 64% in 2013 and a growing proportion of this traffic is moving to Asia, up from 7% in 2012 to 14% in 2014.

The report shows that while Japanese imports declined in the second quarter of 2014, imports into both China and South Korea rose strongly. A steady flow of cargoes in the Middle East and an increase in exports from West African countries also helped boost demand for larger LPG carriers, especially VLGCs.

These developments have led to a rise in tonne-mile demand, resulting in tight tonnage availability and record high spot freight rates, according to Drewry. Drewry’s VLGC Middle East to Japan benchmark doubled in the first six months of 2014, reaching an all-time high of USD 117 per tonne in April. Source: Drewry’s LPG Forecaster Record earnings and the prospect of rising long-haul trade between the US and Asia has encouraged ship operators to invest in new tonnage. In the six months to June 2014 the orderbook for LPG carriers jumped over 25% from 171 vessels to 215, meanwhile the VLGC orderbook soared 68% from 47 to 79 ships.

 “LPG shipping has managed to attract around USD 2.7 billion in newbuilding investment so far this year,” said Drewry’s lead energy shipping analyst Shantanu Bhushan. “Most of the current orderbook for VLGCs are expected to join the LPG fleet between 2014 and 2016, and with minimal demolition activity anticipated Drewry is forecasting that fleet capacity will rise 52% over this period.”

Drewry projects that the approaching refinery turnaround season in the Far East could help boost imports into the region further. “This will help support spot rates through the remainder of the third quarter and into the fourth. However, we do not expect current highs to continue for long due to the pressure of rising tonnage availability in the major loading regions,” Bhusan said.

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