Login   |   Register   |  Contact Us

LPG Carrier Market Relief

July 29, 2022

In the January 2022 Tanker Market Outlook, we expanded our analytical coverage of the gas market by looking into the LPG market fundamentals and generated our first earning outlook for VLGC carriers.  Given the recent geo-political events and energy crunch, we have updated our statistical forecasting models for VLGC demand, supply and future earnings.

 

After a 10.8% annual growth captured in 2021, the LPG carrier demand measured by ton-mile is expected to increase again by 11.2% in 2022 and over 5% per annum for the next five years.  One of the main drivers for this bullish story could be the strong LPG exports from the US Gulf.  Although the growth in 2022 is expected to be marginal, the US LPG surplus will markedly increase by 250,000 b/d in 2023.  Meanwhile, LPG deficit in both Europe and Far East (to a less degree) will simultaneously worsen in the next 3 years, suggesting a natural cargo flow from the US to these two regions.   However, although the LPG supply in the Middle East will recover to the pre-COVID level, the growing regional demand will put a lid on available export.  Export volume to the Far East and South-East Asia could both face strong headwinds, while volume to India will stay supported throughout the forecasting period.  The shortened transiting mileage of the Middle Eastern cargoes and the uptick in US exports will result a heavy decline for the market share% of the Middle East market, from 15% in 2021 to potentially 9% by 2026.

 

The evolving VLGC demand, nevertheless, is only part of the story, as an overwhelming VLGC fleet growth in 2023 could temper the market.  A total of 81 VLGCs are currently scheduled for delivery between 2022-2025 with limited number of deletion candidates (historical avg. age for VLGC deletions = 30 years).  As a result, the VLGC fleet size will expand by 10% in 2023 and continue increasing by 7.5% and 5.5% in the following two years.

 

Similar to the oil tankers, VLGC ton-mile demand and net fleet growth are strongly correlated with freight and earning levels.  Our statistically model relying on data from as early as 2016 suggested 98% correlation between the BLPG1 (AG/Japan) freight rates and VLGC demand/supply variables, and 99% for the global TCE averages.  As the growth pace of the VLGC fleet size significantly outpace our demand outlook post 2022, we foresee a gradual ease in both freight and earning levels till 2026 (Figure 1).  The tight yard capacity could put a brake on the fast-growing fleet size since any orders in the 2H of 2022 likely to have the earliest delivery date in 2025.  Therefore, VLGC market could rebalance again, and earnings could have the potential to bounce back in the outer years.