Ukraine crisis creates geopolitical turmoil, clouding VLGC market in 2022: BW LPG

The geopolitical turmoil from Ukraine crisis has clouded the VLGC market in 2022, even as the market was starting to see improvement following disruption from volatile LPG freight and new coronavirus variants, BW LPG, a unit of shipping major BW Group, said in a report on March 3.

Near-term rate volatility could be triggered by bunker-price shocks, changing trading patterns, unexpected LPG inventory, management and changes to shipping inefficiencies, the company said in its fourth quarter and 2021 report.

"While it is still too early to conclude what the effects will be for VLGC shipping, the uncertainty has dramatically increased," it said referring to Russia's invasion of Ukraine.

However, the company said there was optimism over the medium and longer term, with COVID-19 pushing shipping as a whole to accelerate change and adopt new technologies.

"For 2023 onwards, despite the uncertainties from the heavy newbuilding delivery schedule and the implementation of IMO EEXI regulations, we remain confident on the long-term VLGC market as LPG remains a viable transition fuel towards decarbonization and the use of cleaner energy," it said referring to the Energy Efficiency Existing Ship Index.

VLGC rates ranged from $6,000 mt/day to $100,000 mt/day in 2021, it said.

Uncertain near-term outlook

Near-term spot rate outlook was highly uncertain due to geopolitical developments, it said, and the company had fixed about 79% of available fleet days in first quarter of 2022 at an average rate of $42,000/day on a discharge to discharge basis.

Singapore delivered marine fuel 0.5%S bunker prices have been rising since December 2021 to hit $910/mt on March 3, the all-time high since S&P Global Commodity Insights launched the assessment in July 2019, due to surging crude oil prices and supply tightness.

According to S&P Global data, VLGC rates on the key Persian Gulf to Japan route peaked at $119/mt on Jan. 12-13, 2021, the highest since hitting $136/mt on July 16, 2015.

Rates hit $27/mt on March 8, 2021, the lowest since touching $23.50/mt over June 23-25, S&P Global data showed.

VLGC rates averaged $52.26/mt in 2021, down from $59.04/mt in 2020, S&P Global data showed. Rates between Jan. 3 and March 3, 2022, averaged $56.67/mt, having peaked at $74/mt on Jan. 17 and was the lowest so far at $42/mt on March 2, according to S&P Global data.

BW LPG also flagged lower fleet supply due to the high number of ships drydockings in 2023, which refers to ships sent to drydocks for maintenance.

Rates have soared in recent years due to continued inefficiencies in the Panama Canal due to implementation of new booking rules triggering longer delays, reduction in vessel speed and potential scrapping driven by tightening emission controls.

The report said the global VLGC fleet in 2022 will grow to 340 ships this year, 378 in 2023 and 381 in 2024.

The report added that 15 BW LPG-owned VLGCs will be retrofitted with dual-fuel propulsion technology.

The company invested more than $92 million in 2021 on fleet upgrades, such as decarbonizing technology and digitalization.

Data from 12 retrofitted VLGCs on water suggested about 20% reduction in CO2 emissions, while smart operations and operational efficiency saved about $10 million and reduced greenhouse gas emissions by about 12% from 2019 baseline, the company said, adding that it continued to develop and explore other technologies.

On the LPG market, it said North American LPG exports rose 13% on the year to 52.9 million mt in 2021.

"US exports are expected to grow due to favorable oil and gas prices, continued depletion of drilled but uncompleted wells and optimization of natural gas liquids-related production," the report said.

Current oil and gas prices will incentivize capital investments and infrastructure development, which will support sustained export growth, it added.

Middle Eastern LPG exports edged up 1% to 36.1 million mt, while Iranian exports jumped 53% on the year to 5.3 million mt, it said, adding that additional production is expected to ramp up, such as the Kuwait's fifth Gas Train project.

China's LPG imports recovered by 23% on the year to 23.3 million mt in 2021, mostly due to start-up of new propane dehydrogenation plants and LPG-fed steam crackers, a trend that is set to continue into 2022, with five PDH plants slated to come onstream, it said.

India's LPG imports increased by 11% on the year to 18 million mt in 2021, it said.