Major Double top bottom forex cargo In LPG Shipping By 2018? However, the projected growth in demand for seaborne LPG trade is impressive.
I believe this growth will turn the market from oversupplied to very tight within the next 12-18 months. Investors who act now, while valuations remain depressed, have an opportunity to generate outsized returns through 2018-2019. Note: This article was originally published as a guest article April 20th on Value Investor’s Edge, a Seeking Alpha subscription service. LPG shipping has shown very large growth rates over the past couple of years, but an overbuild of vessels, with deliveries scheduled between 2014 and 2017, has resulted in an oversupplied market and low day rates. The normal article layout would be an overview of market dynamics with a conclusion at the end of the article. However, this time, I reversed it because I think the outcome of my simple market model will induce a heightened level of investment interest.
The graph pictures the total global fleet of VLGCs, with currently around 250 vessels on the water. The red line shows my approximation off the demand for these ships. Currently, the market is severely oversupplied, and to make matters worse, there is still a fairly large number of deliveries left in 2017. I did not include any non-delivery or slippage.
Including that would only make the picture more optimistic. I expect that people would think these numbers are wildly optimistic. The most important input variable is the tonne mile growth rate. In the remaining of the article, I will try to give a full market overview and show why I believe these input variables are quite realistic.
2016, which was a slowdown from 2014-2015 growth. The first clue about what is happening in the graph is the quick appearance of the U. LPG exporter due to the shale oil boom. The setup for LPG shipping was amazingly good since 2012, with huge growth of tonne mile and the potential for giant profits for shippers.
In the early years, LPG shipping rates have indeed boomed. Nevertheless, like often in shipping, these booming years resulted in massive new build orders, which swiftly killed the market upswing to a point where almost all LPG shippers were losing money. It should be obvious from the graph above that there was a huge new build growth during 2015-2017. By the end of 2014, the global VLGC fleet was 168 vessels large. In addition, even for 2017, there still are 26 more ships planned for delivery. The good news is that there is also some scrapping potential. 2017, it would grow by 8.
A relevant development for the scrapping potential of the LPG fleet is the upcoming Ballast Water Treatment regulation. 81 million to retrofit a VLGC to comply with the new regulation. In the model on top of the article, I used the above data on VLGC deliveries in 2017. I note that May and June this year look heavy. In my model on top of the page, I did not assume any non-delivery and slippage. If I expand the scope a bit wider to the full LPG fleet by using this sheet from the latest NVGS presentation, I note that there are also still some Medium size Gas carriers left in the order book.
The order book for small LPG Gas Carriers is looking very clean right now. The Avance Gas index can be interpreted as a quote for average VLGC spot rates. The long-term graph clearly shows the bull years 2014-2015 and the market crash due to the massive influx of new builds. A large part of 2016 has clearly been money losing for ships operating on spot markets. Despite a fleet growth from 207 to 247 vessels in 2016 and a few more in early 2017, the VLGC day rates have moved up a bit from the 2016 lows but are hardly impressive or money generating. There are two more 2016 developments worth discussing. Companies with modern fleets like Dorian LPG, BW LPG, and Avance Gas, of course, had reported much higher utilisations, but some peers have older and less efficient vessels.
The addition of the Phillips 66 Export Terminal at Freeport, Texas will increase further export of LPG from the U. Gulf in 2017 by four to eight VLGC cargoes per month. While the 2018 – in 2018 we expect Marcus Hook and enterprise to complete some expansions into our export capacities adding, five to nine VLGC cargoes a month. I think it indicates that it’s a factor of increasing trade which John alluded to and which has been absorbing the huge number of ships that we had delivered last year at a more successfully than perhaps would most of us thought they might be.