Despite looming VLGC newbuild deliveries, shipowners bullish on LPG outlook 

Scrubber and dual-fuel economics

Scrubber and LPG dual-fuel engine technology have also tipped the economics in favour of shipowners, noted Mr Kalleklev. “These days, if you have a scrubber you don’t have to talk about cash breakeven,” he said. “Scrubber spreads are insane.” Of its 13 vessels in operation, Avance Gas has six VLGCs fitted with scrubbers.

Discussing the company’s first two LPG dual-fuel-powered VLGCs, Avance Polaris and Avance Capella, Mr Kalleklev said: “That [technology] is also in the money. If you can avoid burning low-sulphur fuel, it is a big competitive advantage.” Avance Gas has four other 91,000-m³ LPG dual-fuel VLGCs on order at Daewoo Shipbuilding & Marine Engineering (DSME) in South Korea, with deliveries extending into H2 2023.

“This market is incredibly volatile,” said Mr Kalleklev. He said if you had asked him a few weeks prior to the conference to describe the market he would have said “red hot”, with rates in the US$70,000 per day range. It has since cooled to rates in the US$30,000s. However, Mr Kalleklev shrugged off the fickle nature of the market, saying: “You can make a lot of money on volatility.”

“Scrubber spreads are insane"

Mr Lindeman said while there was little LPG waterborne trade from Russia, Finland relied on LPG carried by railcar from Russia. “LPG is very versatile. When one door closes, another one opens,” he said. As a result, Finland has fixed ice-class gas carriers from Navigator Gas to transport LPG in preparation for winter. “They are looking ahead,” noted Mr Lindeman. “They need a reliable supply for feedstock to run their plants”.

Mr Lindeman concluded: “Europeans are looking for reliability, so they have to change sourcing.”

Mr Young envisions about a 6% annual growth in LPG production from the US, with exports expected to reach 50M tonnes this year. He noted that investors are demanding capital discipline from shale gas producers through share buybacks, debt reduction and dividends, instead of new production. He said it is hard to justify to investors funding new production when there could be new taxes and regulations looming from the Biden administration. 

He noted, however, the UN identified LPG as a bridge fuel in the energy transition. He said LPG is a “part of the solution of decarbonisation, not a part of the problem.”

Large orderbook

When asked by Mr Vaagen to comment on whether there were any concerns about the large number of VLGCs on order, Mr Kalleklev said that while most would hit the water in 2023, the orderbook for 2024 was “very slim” and “zero” for 2025. He said newbuilding prices at South Korean shipyards were close to US$95M. “It’s difficult to order on speculation at these kinds of prices,” he said. “If you want to have a ship in 2025, you better get moving because those slots are being gobbled up by LNG carriers and container ships. I’m not too worried about it. It might be softer [in 2023] than 2022, but I’m pretty bullish about 2024 and 2025.”

“Europeans are looking for reliability, so they have to change sourcing”

As of mid-May, the global orderbook for VLGCs stood at about 20% of the current global fleet, with an additional 67 ships, equivalent to roughly 6M m³ of carrying capacity, expected to join the global fleet by the end of 2024.

Mr Lindeman said: “Ammonia is a big story” because there was none coming out of Ukraine, representing about 20% of seaborne trade, resulting in higher fertilser prices. Ammonia would have to be transported over longer distances, generating more tonne-mile demand. He said: “The big push” for green and blue ammonia was a positive for the future.

Mr Kalleklev concluded: “Oil prices are US$110, spot LNG is US$180 per barrel of oil equivalent and coal is extremely expensive. If you can’t afford LNG, you should be buying LPG because it’s much cheaper.” He added: “Being worried about demand today, it’s not on my top 10 list of worries. Of course, there are going to be people buying this. It’s cheap.”