Gleeson: Spot VLGC freight to fall in 2016

OREANDA-NEWS. February 06, 2015. Historically high spot LPG waterborne freight rates should soften significantly in 2016 as the size of the global fleet rises by 50pc to outpace US export capacity, BW LPG chief executive Nick Gleeson said today at the Argus Americas LPG Summit.

This year the VLGC market will remain tight, but in the first half of 2016 shipping capacity and US export abilities will meet. As the large 2016 orderbook comes to delivery in the latter half of the year, however, freight prices could tumble as the balance between both capacities is offset.

The current VLGC fleet holds about 168 vessels. This year 37 new VLGCs will be delivered, with an additional 40 new ships expected to come online in 2016.

Spot VLGC freight rates for a move between the Mideast Gulf and Asia Pacific hit a record-high of \\$143/t last summer as vessel utilization climbed to 98pc. The current rate is pegged at \\$86/t, which is still historically strong. Last year's market was stricken by volatility, and bounced between a \\$101/t range from the yearly low of \\$42/t. The 2013 average rate was \\$59/t.

A recent spurt of VLGC purchases by shipowners has come to an end, Gleeson said, and the VLGC fleet may need to reduce as much as 20pc once the Panama Canal expansion is complete.

From a value perspective, LNG vessels and even ethane-capable carriers, or VLECs, will have priority for Panama Canal shipments over LPG vessels. BW LPG does not believe the Panama expansion project will have huge impacts on freights, Gleeson said.

With the expansion, demand decreases by one VLGC assuming US Gulf coast to Asia Pacific transit by way of the canal, relative to the journey around the Cape of Good Hope. A round trip voyage for a VLGC will cost about \\$300,000.

BW LPG is the largest VLGC owner and operator in the world, with 36 gas carriers in its fleet.