manifesto lpg carrier petredec

Expanded Canal Could Mark the Beginning of the End for the Booming LPG Sector

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September 30, 2013

, one of 11 fully-refrigerated VLGCs owned by Petredec. Built by HHI in 2013. Image: Petredec

Sept. 30 (Bloomberg) — The widened Panama Canal will cut costs to ship U.S. cooking and heating gases to Asia by shortening voyages, effectively lowering tanker demand just as yards build more of the ships, according to Joachim Grieg & Co.

The canal expansion scheduled to finish in 2015 will shorten U.S.-to-Asia voyages for very large gas carriers to 25 days from 42 days going around Africa, said Steve Engelen, Oslo- based head of research at the shipbroking company whose clients include Europe’s largest producers. At the same time, yards will construct the most new vessels since 2008, according to data from Clarkson Plc, the world’s largest shipbroker.

U.S. terminal operators are expanding to take advantage of record exports of liquefied petroleum gases and prices a third of those in Asia, a byproduct of surging domestic oil and natural-gas output. The wider canal will require fewer ships for shorter voyages, eliminating the premium for tankers loading in the U.S. even as it stokes trade, Engelen said.

“LPG globally will become cheaper, which incites more trade and is always positive for shipping volumes,” Engelen said. “The amount of ships being delivered is too much even with the big step up in demand, and the market will get worse and then basically collapse.”

Yearly Average

Spot rates for VLGCs to Asia from the Middle East jumped 57 percent this year to $63.53 a metric ton and are heading for the highest annual average since at least 2004, according to the Baltic Exchange in London. Rates from the U.S. are more than three times higher, according to Joachim Grieg. Each ship, 750 feet long and 120 feet wide, can hold about 80,000 cubic meters (2.8 million cubic feet) of propane or butane.

Construction to double the canal’s capacity is 64 percent complete, the Panama Canal Authority said on its website Sept. 10. The expanded waterway will be able to handle ships as long as 1,200 feet and as wide as 160 feet, against the current 965 feet and 106 feet, data on the website show. Seven of the VLGC fleet’s 154 vessels can use the canal now, according to data from IHS Maritime, a Coulsdon, England-based research company.

U.S. LPG exports reached a record 10.5 million barrels in May and are heading for the highest annual total since at least 1981, Energy Department data show. Houston-based Targa Resources Partners LP said last month it would double capacity to load 3 million barrels a month this quarter, increasing to more than 5 million next year. Enterprise Products Partners LP began operating its expanded Houston facility in March to load 7.5 million barrels a month, up from 4 million. It could reach 10 million barrels a month as soon as 2015, the company said.

A gallon of propane costs $1.04 in Houston, compared with $3.22 in Japan, according to data compiled by Bloomberg. Asian imports of LPG rose 5 percent to 19.6 million tons last year, the most since 2000, data from London-based Clarkson show.

Shipyards have orders to build 23 VLGCs with total capacity of 1.9 million cubic meters in 2015, according to Clarkson. That will be the most deliveries since 2008, data show. Not accounting for demolitions, the new vessels would expand the fleet by 15 percent to 15 million cubic meters in 2015, the fastest pace in seven years.

– Isaac Arnsdorf, Copyright 2013 Bloomberg.

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