LPG & Petrochemical Shipping: Current Status & Outlook A better market, but for how long? Nicola Williams, Clarksons March 16th 2005
The LPG Shipping Market today The LPG freight market started to move upwards from 4Q03 across all size sectors, albeit that rates strengthened from a low base Factors driving the increase:- Period of solid economic growth worldwide, notably in Asia Heavy scrapping levels over 2003/4 Dwindling LPG carrier orderbook, other ship types competing for yard space & firming newbuilding prices Growth in seaborne LPG volumes globally. Eastern demand buoyant, arbitrage opportunities driving tonne-mile demand and longer haul volumes in to the USG from the Middle East in 1H2004 Continued expansion of Ammonia volumes. Import demand in the US strengthens as a result of high natural gas prices Resurgence of long haul Petchem cargoes combined with further consolidation in control of the fleet, putting upward pressure on rates for Semi-Ref and Ethylene vessels
So where are we heading?... The LPG market is forecast to enter a period of sustained growth in volumes generated by more stringent flaring regulations & growth in LPG availability associated with new LNG supply Ammonia trade expected to continue to grow, enhancing competition between LPG & Ammonia demand for the LGC s & Midsizes Additional Petchem volumes to enter the market, specifically from the Middle East, underpinning tonne-mile demand. Europe & Asia fundamentally short 2004(e) Seaborne LPG Carrier Trade Million MT 2008 Seaborne LPG Carrier Trade Million MT 14.6 17.5 51 8.2 62 8.5 Ammonia Petchems LPG Ammonia Petchems LPG
VLGC s >60,000 cbm Despite consolidation of fleet control, VLGC rates have suffered over the last few years, owing to fleet expansion and over-capacity. Vessels trading in CPP Declining tonne-mile demand was also a contributory factor Since 2004, rates edging upwards on the back of older vessel removals, a slowdown in newbuildings deliveries & growth in LPG volumes & tonne-mile demand Idle time falls away & vessels move back into LPG from CPP as rates edge upwards and availability of VLGC s diminishes Outlook firm for the next few years given additional cubic demand expected to be generated by substantial new LPG volumes from Middle Eastern & Atlantic Basin suppliers, the deteriorating fleet age profile and the difficulty in obtaining early deliveries from the shipyards
Jun-04 Oct-04 Feb-05 Oct-03 Feb-04 Jun-03 Feb-03 55 50 45 40 35 30 25 20 15 10 VLGC Spot Rates - AG/Japan basis 43,000 MT Trendline Oct-98 Feb-99 Jun-99 Oct-99 Feb-00 Jun-00 Oct-00 Feb-01 Jun-01 Oct-01 Feb-02 Jun-02 Oct-02 Source: Clarksons Jun-98 Oct-97 Feb-98 Feb-97 Jun-97 $ PMT
20-24 Yrs 15-19 Yrs 10-14 Yrs 5-9 Yrs <5 Yrs 2005 2006 2007 2008 25 Yrs+ 2,250,000 2,000,000 1,750,000 1,500,000 1,250,000 1,000,000 750,000 500,000 250,000 0 Current VLGC Fleet Age Profile Source: Clarksons Cbm
'000 Cbm 10,000 8,000 VLGC Carriers Forward Fleet Development (Assuming vessels 25 Yrs+ Scrapped) Static fleet supply if vessels 25 years+ were scrapped 6,000 Newbuildings (current O/B) 4,000 2,000 Current Fleet Existing Fleet up to 25 Yrs old 0-2,000-4,000 End 2004 Source: Clarksons Scrapping Candidates Vessels 25 Yrs & over End 2008
LGC s (40-60,000 cbm) Although the rates came under some pressure with the delivery of 5 x newbuildings in 2003/4, to some extent this was mitigated by the removal of some older units over this period This market has not experienced the same volatility as the VLGC s Bergesen pool currently controls 67% of the tonnage in this size Ammonia is an important source of employment for these vessels which also trade in CPP. Demand for long-haul cargoes from the FSU into the States & Far East 2004/5 increased & spot rates firmed TC sentiment moving sharply upwards, in part following movement in the VLGC and midsize sectors Charterers seeking alternatives & to maximise economies of scale on longer-haul Ammonia Following the recent deliveries of a 50,000 cbm vessel for Sonatrach & 2 x 60,000 cbm s for Yara, only 2 vessels remain on the orderbook Outlook firm given the pressure expected from the VL s & trade growth in both Ammonia & LPG
1150 1000 850 700 550 400 Historical 1 Year Timecharter Rates Feb-99 Jun-99 Oct-99 Feb-00 Jun-00 Oct-00 Feb-01 Jun-01 Oct-01 Feb-02 Jun-02 Oct-02 Feb-03 Jun-03 Oct-03 Feb-04 Jun-04 Oct-04 Feb-05 78,000cbm 57,000cbm Source: Clarksons $'000 pcm
Age Profile LGC Fleet 40-60,000 cbm Thousands Cbm 500 450 400 350 8 6 By the end of 2005, almost 40% of the fleet will be aged 25 years+ 8 300 250 4 200 150 2 100 50-25 Yrs + 20-24 15-19 10-14 Source: Clarksons 5-9 <5 Yrs 2005
The Midsize Market 17-40,000 cbm Although suffering periods of idle time, rates have been less volatile for this sector Exmar Midsize Pool control approximately 46% of the fleet Ammonia provides a vital source of employment Ammonia & LPG cargoes have been competing for tonnage, with US import demand rising. Idle time has fallen while Spot & TC rates have edged upwards The fleet contracted in 2002 & vessel supply has been relatively constant 2003-5, with the bulk of the newbuildings only scheduled for 2006-2007 delivery Newbuilding interest has accelerated since the start of this year, with a total of 16 vessels now on order & a heavy delivery schedule for 2007 Nevertheless, a number of these newbuildings are already committed against new Ammonia projects LPG export growth is likely to have a trickle-down effect from the larger sizes
900 850 800 750 700 650 600 550 500 450 400 I Year Timecharter Rates Midsizes $'000 pcm Feb-99 Jun-99 Oct-99 Feb-00 Jun-00 Oct-00 Feb-01 Jun-01 Oct-01 Feb-02 Jun-02 Oct-02 Feb-03 Jun-03 Oct-03 Feb-04 Jun-04 Oct-04 Feb-05 35,000 cbm 30,000 cbm 24,000 cbm
11 86 Age Profile Fully-Ref Mid Size Fleet 17-40,200 cbm Thousands Cbm 450 400 13 11 350 300 9 9 250 8 6 200 150 6 4 100 50 1 0 25 Yrs + 20-24 15-19 10-14 5-9 <5 Yrs 2005 2006 2007 Source: Clarksons
The Semi-Ref Market 12,000 cbm+ Rates strengthening from the 4 th quarter of 2003 Upward movement in freights accelerated during 2004, supported by the recovery in long haul Petchem movements. Vessels employed in their premium Petchem trades rather than having to rely on LPG LPG market also more buoyant Spate of longer-haul Petchem fixtures from the 2 nd quarter onwards directly benefiting the larger size vessels. Namely Propylene ex USG & occassional VCM cargoes moved into Asia The larger 22,500 cbm Ethylene carriers enjoyed rising demand from Ammonia & LPG Freight expectations rise on upward rate movements in the smaller sizes & the midsizes Both for this size & smaller tonnage, anticipated rising volumes from the Middle East support forward market
650 600 550 500 450 400 350 300 Assessed 1 Year Timecharter Rates Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 15,000 cbm S/R Source: Clarksons $'000 pcm
25 Yrs+ 20-24 Yrs 15-19 Yrs 10-14 Yrs 5-9 Yrs <5 Yrs 2005 2006 2007 2008 200000 180000 160000 140000 120000 100000 80000 60000 40000 20000 0 Age Profile of the Fleet >12,000 cbm Sem i-ref Ethylene Cbm
The Smaller Gas Carrier Market under 12,000 cbm In addition to the impact of further fleet consolidation, a more active Petchems market, particularly Ethylene, has shaped the fate of this sector from the start of 2004 Consolidation of the pressure fleet also a factor Weak rates, over capacity & idle time was a feature of the market during most of 2003 Unscheduled downtime at European & Asian crackers have stimulated Petchem import requirements throughout 2004 Heavy Ethylene spot volumes into Europe combined with more active intraregional COA movements Butadiene & Propylene movements out to the East have also been a feature Butene 1 volumes more active Idle time significantly reduced Some scrapping, but also renewed interest in ordering
525 475 425 375 325 275 225 175 125 Assessed 1 Year Timecharter Rates Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 3,200cbm 7/8,000cbm Eth Source: Clarksons $'000 pcm
15-19 Yrs 10-14 Yrs 5-9 Yrs <5 Yrs 2005 2006 2007 20-24 Yrs 600000 500000 400000 300000 200000 100000 0 Age Profile of the Fleet <12,000 cbm Pressurised Semi-Ref Ethy lene 2008 25 Yrs+ Cbm
Concluding Remarks The tide has turned, but will this be a long term transition or a relatively short-lived recovery? The volume of new product which needs to be moved is expected to be a driving force through to the end of the decade Ageing profile of the fleet suggests further removals, although in a strengthening market will scrapping be delayed? The perennial wildcard of tightening age regulations: - Age should not necessarily imply a vessel is in bad condition Given the rise in newbuilding prices, are Charterers there to pay the rates necessary to justify investment? Potential diversification of the Ownership profile of the fleet rising freight rates are attracting investment from new players, will there be more? A buoyant economic environment one of the keys to sustaining the firmer market
Clarksons LONDON PARIS GENOA ATHENS SAN FRANCISCO HOUSTON HONG KONG SHANGHAI SINGAPORE SYDNEY MELBORNE AUCKLAND JOHANNESBURG The Market Leader in Gas Shipping LPG, Ammonia & Petrochemical Gas Chartering Spot, COA & Timecharter Project & Consultancy work Sale & Purchase Newbuilding & Secondhand Vessel & Fleet Valuations CLARKSONS GAS DEPARTMENT 12 Camomile Street LONDON, EC3A 7BP Telephone: +44 (0)20 7334 3099 Fax: +44(0)870 460 1516 E-mail: gas@clarksons.co.uk SERVING THE WORLD OF SHIPPING SINCE 1852 LONDON PARIS GENOA ATHENS SAN FRANCISCO HOUSTON HONG KONG SHANGHAI SINGAPORE SYDNEY MELBORNE AUCKLAND JOHANNESBURG