Avance Gas' fleet renewal strategy explained

This strategic move positions Avance Gas with a fleet encompassing eight eco VLGCs built in 2015, four large dual-fuel VLGCs, and four MGCs under construction.

When questioned about the timing of the sale coinciding with the expiration of a two-year time charter party with IOC, Mr Kalleklev emphasised, "We had previously announced our intention to sell all our 2008/9 ships to renew our fleet. The satisfactory prices achieved in these recent sales have enabled us to effectively execute our strategy."

Elaborating on the market conditions and demand for VLGCs that influenced this sale, Mr Kalleklev clarified, "Our focus has primarily been on fleet renewal. Despite the tempting strength of the VLGC market in recent years, we made the informed decision to sell older, less efficient vessels. The robust market conditions have translated into favourable resale prices, further validating our commitment to fleet renewal and maintaining an optimal spot exposure."

Avance Gas’ strategic emphasis on modernising its fleet through the sale of older vessels, while acquiring newer and more energy-efficient models, underscores its commitment to sustainability and operational efficiency in the LPG shipping industry.

In response to a query about the financial impact, Mr Kalleklev highlighted Avance Gas will realise significant gains and generate approximately US$55M in cash from the sales. The company intends to allocate these proceeds as an equity contribution for four newly contracted MGCs.

Additionally, the sale of two VLGC newbuilds, scheduled for delivery in 2024, will further boost gains and release cash.

Avance Gas has therefore announced its intention to distribute a portion of these proceeds to shareholders through dividends or capital reduction.

When questioned about the outlook for LPG shipping and Avance Gas’ role in the industry, Mr Kalleklev analysed the recent volatility in the VLGC spot market. He acknowledged the shrinkage of the arbitrage between the US and Far East had affected freight economics.

However, he emphasised the VLGC spot market is known for its volatility, citing similar movements observed at the beginning of 2023, which ultimately led to the best year for the VLGC spot market since 2015.

Mr Kalleklev expressed confidence in Avance Gas’ continued significance as a player in the industry, especially with its modern fleet and the ability to transport ammonia once the MGC newbuilds are delivered.

With limited term coverage, Avance Gas anticipates playing an outsized role in the spot market and aims for another successful year, building upon the achievements of 2023 and 2022.

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