Downtrend persists in VLGC rates; fleet expected to see growth in 2021, 2022

Singapore — LPG freight witnessed sharpest decline in 20 years to more than seven-month lows at $30.5/mt Feb. 25, even as the Very Large Gas Carrier fleet is expected to see net growth of around 6% each year in 2021 and 2022, slowing from 8% year-on-year net expansion in 2020.

There are currently 314 VLGCs -- vessels above 70,000 cu m -- in operation worldwide, making up 22% of the gas shipping fleet, Banchero Costa Research said in a February report.

In contrast, just under 170 VLGCs were in operation when rates jumped to record high of $144.5/mt on July 23, 2014, driven by the tsunami of US LPG to global markets, at the dawn of the shale revolution.

Over 2020, 23 VLGCs were delivered -- or 1.89 million cu m of capacity -- to be followed by another 20 units this year, the report said. No VLGCs were demolished in 2020, it added.

Middle East to Japan freight rates have been sliding since hitting more than five-year highs of $119/mt over Jan. 13-14. Rates touched almost two-year lows at $23.5/mt on June 23, 2020, Platts data showed.

Weak LPG demand

VLGC rates continued to nosedive, even as milder temperatures in the US Gulf began to gradually ease disruption at the Houston Ship Channel, prompting gradual loadings and efforts to export. This followed recent power outages, force majeures, and the loss of 2 million-3 million b/d of US crude production in the week of Feb. 14-19.

While operations at all terminals are underway, the VLGC loading momentum is reportedly slow, albeit improving over the course of operations.

But a sea fog looms over one to two days, threatening further disruption in clearing vessels backlog.

Shipping activity in the Middle East is being sustained by acceptances of March term nominations by Qatar Petroleum and ADNOC without cancellations, but with minor delays, as well as some spot shipments by QP and out of Kuwait.

But this was countered by Saudi Aramco's reduced exports for February and March loadings in line with the country's OPEC+ commitment to cut production.

While Chinese LPG demand for propane dehydrogenation plants is recovering post-Lunar New Year, retail requirements were being met by domestic refineries.

Japanese and South Korean demand has slowed after the end of a severe winter, Indian and Indonesian spot demand has yet to reemerge, while Taiwan has not shown appetite for LPG as alternate feedstock because propane's discount to naphtha remained narrow.

Still, the shipping market was hoping the freefall would soon hit a bottom, as more vessels head for the US when the pace of loadings improves, Grieg Shipbrokers said.

The broker added that 90 VLGCs are scheduled to be in dry docks for special surveys in 2021, of which up to 46 are planned for the first quarter.