LPG Webinar: Deep Dive into the Current LPG Shipping Market with BW LPG, Dorian LPG and Navigator Holdings

Summary

• Increased demand for LPG in Europe has strengthened the market significantly
• Decreased oil production, exports from Russia bolstering seaborne LPG market
• New centers of energy exports, particularly in the Middle East, may be here to stay
• Environmental regulations and low orderbook beyond 2023 remain positive factors

Anders Onarheim, CEO – BW LPG Pte Ltd BWLLFLPG,;), and Mads Peter Zacho, CEO – Navigator Holdings NVGS discussed the main factors driving the LPG market’s strength, current demand for LPG, the state of exports in the US and Middle East, and the new building market, among other pressing topics, in Capital Link’s LPG Shipping Sector Webinar on November 30th, which was moderated by Jorgen Lian, Head of Shipping Equity Research – DNB Markets.

High Demand for Energy Driving LPG Market Strength

VLGC rates are above 100,000 per day, and in high season, diving into this, what is driving the markets is ”high demand for energy, particularly in Europe, which is a major importer of energy, has bolstered the LPG market”, stated Mads Peter Zacho, CEO of Navigator Holdings.. Anders Onarheim, CEO of BW LPG Pte Ltd added that although we don’t expect rates to remain at these levels, at the same time, we are experiencing good underlying demand along with other factors such as the Panama Canal delays.

Mads Peter Zacho added. LPG and ethane, which are being used as energy sources in Europe, are “flexible commodities,” as they can be used both for energy and in chemical production. LPG carriers are similarly flexible, in can be used to transport both LPG and a variety of other commodities, particularly ammonia, which can be used in fertilizer or as an alternative fuel source.

Mads Peter Zacho noted that LPG carriers have begun transporting more ammonia into Europe due to the fact that the region has long since ceased producing the chemical, and no longer receives imports from Russia and Ukraine, meaning that it has turned to other regions for the chemical. “We used to have maybe two, three vessels transporting ammonia. Today, it's ten, 11 vessels, so it's a full 20% of our total volume,” he said.

Anders Onarheim, also stressed LPG’s varied uses and affirmed its status as a “clean” product, while also noting that many have begun to question how LPG can come to play a larger, more lasting role in Europe in the future, even after any current factors impacting increased demand may change. Jorgen Lian, Head of Shipping Equity Research at DNB Markets, noted that, as LPG is easy to handle compared to other fuels, it can easily be utilized on a major scale, as no infrastructure investments are needed to transport it. This is essential to expanding the use of LPG and making it a mainstream energy option.

Shifts In Key Energy Exporters Likely Here to Stay

The reduction in energy production from Russia has also allowed the Middle East to play a larger role in the energy market, Theodore Young, CFO at Dorian LPG noted. The Middle East has experienced substantial growth in energy exports recently. The new increase in energy production in the region, as well as in exports to other parts of the world, particularly Europe, will likely remain well past the war in Ukraine, Theodore Young stated. “Europe is not going to go rushing back into Russia's arms, so that shift in production to other basins around the world, we think that's fundamental change,” he noted.

The LPG seaborne market in particular has benefited from reduced oil production in Russia, as Theodore Young noted, “No one has ever produced a metric ton of LPG on purpose it is simply a by-product of natural gas and oil production; moving oil production away from Russia is helpful because it has shifted to other areas that do produce LPG,” areas that will likely depend on transporting the fuel by ship.

New Builds And Ageing Vessels

Newbuild orders have been relatively small, especially for smaller vessels, Lian noted. To that point, Mads Peter Zacho noted that for smaller vessels, there is almost no order book, and  Navigator Holdings is not looking to putting any new building orders into the market.” Jorgen Lian added “on the VLGC side is very concentrated on one year but the order book beyond 2023 looks very thin” Theodore Young at Dorian LPG added there is a sizable amount of vessels that will be surveyed next year that would take these vessels out of the market for half a month to a whole month a “pretty significant reduction in capacity” and we have the CII and EXI regulations kicking in next year which is going to require a the older vessels in the fleet to slow down. Although there is a strong order book next year, taking these factors might not be as ugly as it seems.” .

Although the speakers expressed reticence at purchasing newly built vessels, Lian posed the question “I'm not saying that any of you are looking to order, but let's say you were. When would the vessel be delivered?” Anders Onarheim responded, stating that he would estimate “mid to late 2025” at the moment.

In terms of aging fleets, Lian noted that companies have found success in selling older vessels at good prices, and inquired as to where these vessels end up. Mads Peter Zacho stated that many of these ships end up being used in interregional trade in Asia and the Middle East. Anders Onarheim noted that BW LPG Pte Ltd has sold 19 ships in recent years, and the sector’s move toward selling outdated vessels has helped it become “more of a liquid sector with the ship values.”

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This content is for informational purposes only and is not intended to be investing advice.