LPG Shipping Outlook

Transcription

1 banchero costa LPG Shipping Outlook (an analysis of the fleet profile, trade prospects, and rates) September 2018 bancosta blue studies volume WET 2018/#17 banchero costa research ; research@bancosta.com Sep 2018 LPG Shipping Outlook 1

2 Index 1. Fleet Development page 3 2. Shipbuilding Trends page Detailed Age Profiles page The Demand Side page The Charter and S&P Markets page Final Words page 56 Sep 2018 LPG Shipping Outlook 2

3 Fleet Development (deliveries, demolition, fleet growth) Sep 2018 LPG Shipping Outlook 3

4 Introduction on LPG carriers and their cargo LPG carriers are utilized for the transportation of three main types of cargo: 1. Liquefied petroleum gas (LPG), i.e. propane and butane used for heating, cooking, car fuel, and chemical feedstock 2. Petrochemical gases such as ethylene, propylene, butadiene and VCM (Vinyl Chloride Monomer) used as feedstock for various products in the chemical industry, especially for plastics 3. Anhydrous ammonia used primarily in the agricultural sector for the production of fertilizers These products all have gaseous forms at normal atmospheric pressure and ambient temperature. To reduce their volume and facilitate transportation by ship they can be liquefied, by means of refrigeration and/or pressurisation. In our fleet analysis, we segment the total liquefied petroleum gas (LPG) carrier fleet by size into the following sections: 1. 1,000-12,999 cu.m. (pressurised or semi-refrigerated) 2. 13,000-24,999 cu.m. (mostly semi-refrigerated) 3. 25,000-69,999 cu.m. (fully refrigerated) 4. 70,000 and over cu.m. (fully refrigerated) 5. Ethylene carriers (specialised carriers, temperatures below -100 degrees Celsius) Ethylene is particularly demanding as a cargo, requiring a temperature of -104 degrees Celsius (or equivalent in pressure). Hence, Ethylene carriers are often considered as a separate ship type different from conventional LPG carriers, due to their ability to contain such low-temperature cargoes. Ethylene carriers are usually small ships, with a capacity below 10,000 cubic meters, although some larger units such as 22,000 cubic meters also exist, and some 80,000 cubic meters vessels are already on order. Sep 2018 LPG Shipping Outlook 4

5 Summary of Fleet Developments The LPG carrier fleet seems to have polarised into the two size extremes small pressurised or semi refrigerated units of size between 3,000-12,000 cubic meters, and large fully refrigerated units of size greater than 70,000 cubic meters. Few units are found in the medium sizes. Large fully refrigerated ships represent only 19 percent of the LPG fleet in terms of number of vessels, but account for a majority 65 percent of cubic meter capacity. The popularity of VLCGs has a huge impact on deliveries in terms of cubic capacity. During the first 8 months of 2018 deliveries slowed 60% compared to the same period in 2017 reaching almost 1.0 mln cu.m. (29 units), of which 0.6 mln cu.m. (6 units) were VLGCs. For the rest of 2018 another 0.5 mln cu.m. (26 units) are currently scheduled to be delivered, of which 0.3 cu.m. (4units) are VLGCs. Not only deliveries slowed considerably, during the first 8 months of the year the demolition activity registered already a 9 years record with 31 units (around 0.8 mln cu.m.): 5 VLGC (0.4 mln cu.m.), 7 units (0.3 cu.m.) between 25/69,999 cu.m., 1 unit between 13/24,999 cu.m., 10 units between 1/12,999 cu.m. and 8 ethylene carriers. With slower deliveries and stronger demolitions the growth of the LPG carrier fleet is expected to slow considerably in 2018; in 2015 the fleet grew at 16 percent, in 2016 at 17 percent, in 2017 at 9 percent, in 2018 we expect a very reasonable 2 percent growth, that however is expected to accelerate in Only the ethylene carrier fleet is expected to keep growing at a very strong pace of 11 percent in 2018, compared to 22 percent in Newbuilding activity resumed with 28 new orders (1.7 mln cu.m.) recorded during the first 8 months of the year, most of them for VLGC with 18 orders totalling 1.6 mln cu.m., but the activity remains well below the levels of the first half of the decade when yearly orders were often in the hundreds. South Korean yards maintain their strong position in this sector attracting half of the 28 new orders placed. Hyundai Heavy Industries was awarded with 8 new orders for VLGC followed by Jiangnan Shipyard of China (5 units) and Hyundai Mipo, Samasung Heavy Industries and Sasaki with 3 orders each. Sep 2018 LPG Shipping Outlook 5

6 The vast majority of the LPG carrier fleet, 750 units, are small units of less than 13,000 cubic meters. Very Large Gas Carriers (VLGCs) of over 70,000 cubic meters number only 264 units, or about 19 percent of the fleet. Sep 2018 LPG Shipping Outlook 6

7 In terms of cubic capacity, however, VLGCs of over 70,000 cu.m. account for 65 percent of capacity, for a total of over 21.2 million cubic meters. Vessels under 13,000 cu.m. account for only 9 percent of total capacity. Sep 2018 LPG Shipping Outlook 7

8 The popularity of VLCGs has had a huge impact on deliveries in terms of cubic capacity. In 2017, total deliveries reached almost 3.0 mln cu.m. (73 units), of which 1.9 mln cu.m. (23 units) were VLGCs. In 2018, 1.6 mln cu.m. (55 units) are currently scheduled to be delivered, half of the growth is expected to come from VLGCs. Sep 2018 LPG Shipping Outlook 8

9 During the first 8 months of 2018 we registered the delivery of 29 units for a total of 1 mln cu.m, including 6 VLGCs (0.6 mln cu.m.), 8 units between 25/69,000 cu.m. (0.3 mln cu.m.), 3 units between 13/24,999 cu.m., 5 units between 1/12,999 cu.m. and 7 Ethylene carriers (0.1 mln cu.m.). After a strong start in January deliveries slowed considerably. Sep 2018 LPG Shipping Outlook 9

10 During the first 8 months, 2018 registered already a 9 years high in demolition activity with 0.8 mln cu.m. demolished already. On an annualized basis demolitions could reach more than 1 mln cu.m setting an historical record for the sector. Sep 2018 LPG Shipping Outlook 10

11 Demolition activity has been particularly strong in June and July when 0.4 mln cu.m of capacity were removed. In total 30 units were demolished so far: 4 VLGC, 7 units between 25/69,999 cu.m., 1 between 13/24,999 cu.m., 10 smaller units and 8 ethylene carriers. Sep 2018 LPG Shipping Outlook 11

12 The record strong demolition activity however is still lower than deliveries in all segments except the 1/12,999 cu.m. that keep growing. The net growth of the fleet, so far in 2018, has been 0.3 mln cu.m. Sep 2018 LPG Shipping Outlook 12

13 Our growth forecast for is based on the current full orderbook and assuming demolition activity to continue at similar levels as in recent years. Sep 2018 LPG Shipping Outlook 13

14 Our growth forecast for is based on the current full orderbook and assuming demolition activity to continue at similar levels as in recent years. Sep 2018 LPG Shipping Outlook 14

15 Our growth forecast for is based on the current full orderbook and assuming demolition activity to continue at similar levels as in recent years. Sep 2018 LPG Shipping Outlook 15

16 Our growth forecast for is based on the current full orderbook and assuming demolition activity to continue at similar levels as in recent years. Sep 2018 LPG Shipping Outlook 16

17 Our growth forecast for is based on the current full orderbook and assuming demolition activity to continue at similar levels as in recent years. Sep 2018 LPG Shipping Outlook 17

18 Ethylene carriers fleet always consisted of small carrier up to 25,000 cu.m.. During last few years we ve seen the delivery of the first Very Large Ethylene Carriers that impacted strongly of the fleet growth in term of cu.m. capacity. Sep 2018 LPG Shipping Outlook 18

19 Shipbuilding Trends (newbuilding orders, major builders) Sep 2018 LPG Shipping Outlook 19

20 Newbuilding activity resumed in 2018 after two rather quiet years: record low orders were registered in 2016 with only 12 units ordered. So far in 2018, 28 units were ordered: 18 VLGC, 2 in each of the medium size segments, 5 in the smaller segment and 1 ethylene carrier. Sep 2018 LPG Shipping Outlook 20

21 Despite newbuilding activity resumed, the number of units placed during 2018 are far from the levels registered during 2013, 2014 and 2015 when an average of 105 orders were placed each year. Sep 2018 LPG Shipping Outlook 21

22 The standard sizes of LPG carriers remain sharply polarized between small units below 10,000 cu.m. and VLGCs of around 80,000 cu.m., with medium-sized designs such as 22,000 cu.m. or 35,000 cu.m. remaining rather rare. Sep 2018 LPG Shipping Outlook 22

23 Of the current LPG carrier orderbook, about 58 percent in terms of units are between 80,000-84,000 cu.m. and 6 units on order of 98,000 cu.m. constitute another 13 percent. Sep 2018 LPG Shipping Outlook 23

24 The 27 orders seen in 2017 were split between Japanese, Korean, and Chinese yards with a slight preference for Korean yards. In 2018 half of the orders were placed at Korean yards, mainly at Hyundai, followed by Japan, China and Philippines. Sep 2018 LPG Shipping Outlook 24

25 Since 2007, we have witnessed a strong expansion of LPG carrier construction at Korean yards and more recently at Chinese yards. Japanese yards have maintained a fairly steady volume but have lost ground in the current orderbook. Sep 2018 LPG Shipping Outlook 25

26 Detailed Age Profiles (for individual sizes) Sep 2018 LPG Shipping Outlook 26

27 Age range 30 yrs yrs yrs yrs yrs 5-9 yrs up to 4 yrs No of units % of fleet 1% 8% 3% 10% 19% 15% 44% Sep 2018 LPG Shipping Outlook 27

28 Age range 30 yrs yrs yrs yrs yrs 5-9 yrs up to 4 yrs No of units % of fleet 0% 4% 7% 8% 24% 19% 38% Sep 2018 LPG Shipping Outlook 28

29 Age range 30 yrs yrs yrs yrs yrs 5-9 yrs up to 4 yrs No of units % of fleet 2% 10% 12% 7% 10% 33% 26% Sep 2018 LPG Shipping Outlook 29

30 Age range 30 yrs yrs yrs yrs yrs 5-9 yrs up to 4 yrs No of units % of fleet 16% 11% 17% 11% 13% 19% 14% Sep 2018 LPG Shipping Outlook 30

31 Age range 30 yrs yrs yrs yrs yrs 5-9 yrs up to 4 yrs No of units % of fleet 3% 8% 4% 14% 21% 23% 28% Sep 2018 LPG Shipping Outlook 31

32 The Demand Side (imports, exports, trade) Sep 2018 LPG Shipping Outlook 32

33 Background on LPG trade Liquefied petroleum gas trade is primarily supply-driven rather than demand-driven, being a by-product of oil and natural gas production. The trade relies on regional petrochemical plant imbalances, some of them structural and some of them caused by temporary price differences. Most of the trade is short-haul and regional, within the US Gulf/Caribs, Europe and Asia. Some long-haul trades driven by structural imbalances have been for example: butadiene imports from Europe to the U.S., as U.S. crackers, based on light liquid feed, yield insufficient butadiene for domestic consumption, and ethylene and propylene surpluses in Asia being shipped to Europe. Recent years have also seen an expansion of long-haul trades from the U.S. to Asia, as U.S. exports expanded with the shale revolution, and Asian propane demand increased with the building of propane dehydrogenation (PDH) plants. LPG is very much a traded commodity dependent on short-term price differences. Hence, LPG carriers need to have the flexibility to trade at different load and discharge ports. Petrochemical gases are usually considered premium cargoes that demand higher rates than propane or butane. They are usually carried in smaller ships, with 5,000-15,000 cu.m. capacity being the norm. Trade is more often conducted under longer-term contracts, rather than spot. There has been a fall in the transport demand of petrochemicals including ethylene, propylene and butadiene, reducing demand for smaller LPG carriers. Leading exporters of LPG cargoes include the U.S., Qatar, UAE, Algeria, and Saudi Arabia. Leading importers are China, Japan, India, and South Korea, with Asia accounting for over half of overall trade. European imports are significant in volume but less so in tonne-mile terms, as most imports are sourced from within the region or short-haul from North Africa. Sep 2018 LPG Shipping Outlook 33

34 U.S. shale revolution and lower domestic demand driving U.S. LPG exports LPG exports from the U.S. has shown a strong increasing trend, on average 35 percent per annum over the past 10 years. As natural gas processing increased with the U.S. shale revolution, output of natural gas liquids (NGL) also expanded, increasing by close to 8 percent on average per annum over the past decade. The increased domestic supply not only reduced the need for LPG imports, but also converted the U.S. into a net LPG exporter in Weekly statistics of U.S. propane and propylene production in the first eight months of 2018 records a 6 percent increase compared with the same period of the previous year, which was already a record year. U.S. LPG consumption is another driver for exports domestic demand of propane and propylene in the first 8 months of 2018 is estimated to be up just 4.5 percent over the same period in 2017 and 8 percent lower than its peak in Growth in U.S. LPG exports is expected to persist well into the next decade as NGL output from natural gas processing in the U.S. continues to grow. In its May 2018 forecast EIA forecast 2018 exports at 29.3 mln tonnes (+8 percent y-o-y) and a further increase in 2019 to 34 mln tonnes (+16.5 percent). U.S. is expected to account for a third of LPG exports by 2020 and around 38 percent by U.S. China trade war On August 23 China imposed additional 25% tariffs on imports of U.S. LPG together with several other petroleum products as part of its retaliation measures against duties on Chinese imports. In 2017 China imported an average 146,000 barrels per day of LPG from the U.S., during the first 6 months imports were already down to 98,000 barrels per day (-25 percent y-o-y). Less LPG exports to China means that U.S. will export more of its product to other Far Eastern destinations. Data available for the first 6 months of 2018 already show that the reduction of 33,000 barrels per day to China has been compensated by an increase of 33,300 barrels per day exported into India. Moreover other countries are already buying Sep 2018 LPG Shipping Outlook 34

35 a lot more U.S. LPG: Indonesia +16,200 bbl/d, Netherlands +22,000 bbl/d, S. Korea +11,500 bbl/d to mention the fastest growing. On the other end China is buying more and more gas from the Middle East, from where already imported more than 60 percent of its LPG in 2017, and from West Africa. Given the above the change in cargo flows so far is expected to have little impact on overall demand for LPG carriers. New projects in China In 2017, China s LPG imports grew at a slower pace of 14.9 percent to reach 18.3 mln tonnes. In 2016, Chinese LPG imports had grown 33.9 percent to 15.9 mln tonnes, underpinned by deliveries to East China where most PDH plants are located. China s imports are mainly sourced from the UAE, U.S., and Qatar, which accounted for 35 percent, 19 percent, and 15 percent respectively in China now has 8 PDH plants with a processing capacity of around 5.5 mln mt/year and propylene production of 4.6 mln mt/year. There are currently a number of plans at various stages to expand propylene production up to 8.3 mln mt/year by Moreover China Gas, the largest LPG service provider in the country, in its latest annual report projected its LPG sales to households to increase from 4 million mt in 2017/18 to 4.5 million mt in 2018/19 to 5 million mt in 2019/20 and 6 million mt in 2020/21. To meet booming demand China Gas is expected to import around 10 million mt/year of LPG over the next 5 years, up from the current 2.8 million mt/year, Platts wrote. Given the above, there is no doubt demand is going to remain very strong in China, up to the point that there are questions whether China will be able to satisfy its growing thirst for LPG without importing LPG from U.S.. Sep 2018 LPG Shipping Outlook 35

36 Sep 2018 LPG Shipping Outlook 36

37 million tonnes banchero costa World LPG Trade - Annual (source: JODI, BW LPG & estimates ; in million tonnes) % +1% +8% +5% +4% +11% +9% +7% +4% +6% (f) trade volumes y-o-y growth Global trade in LPG has grown by an annual average of around 6 percent over the last decade, driven largely by U.S. exports to Asian countries. Sep 2018 LPG Shipping Outlook 37

38 LPG Exports by Country in 2017 (source: JODI, ITC & estimates ; percentage share of volume) Others 18% USA 32% Norway 5% Kuwait 6% Saudi Arabia 8% Algeria 9% Qatar 11% UAE 11% Almost 32 percent of LPG exports are sourced from the U.S., while UAE, Qatar and Algeria are the next largest suppliers. Sep 2018 LPG Shipping Outlook 38

39 As natural gas processing increased with the U.S. shale revolution, output of natural gas liquids (NGL) also expanded, increasing by close to 8 percent on average per annum over the past decade confirmed the 8 percent, whilst during the first 6 months of 2018 the growth increased to a very strong 15 percent. Sep 2018 LPG Shipping Outlook 39

40 U.S. propane and propylene production remains strong, with August data showing a 5 percent year-on-year increase in output. With increased availability of LPG in the U.S., this represents a positive driver for exports. Sep 2018 LPG Shipping Outlook 40

41 Last 5 years showed an ongoing decline in U.S. LPG consumption, another positive driver for exports, and domestic demand of propane and propylene in 2017 is estimated to be down around 1.2 percent y-o-y. Meanwhile the first 8 months of 2018 showed a 4.5 percent increase compared with the same period a year ago. Sep 2018 LPG Shipping Outlook 41

42 However, U.S. propane inventories remain far below levels in , propping up U.S. propane prices and putting the differential with Asian propane prices into negative territory. This has reduced U.S.-Asia arbitrage opportunities over the near term. In 2018 inventories followed closely 2017 levels, but in August a 24 percent increase was registered compared to August Sep 2018 LPG Shipping Outlook 42

43 LPG exports from the U.S. has shown a strong increasing trend, increasing by an average of 35 percent per annum over the past 10 years exports grew around 9.6 percent year-on-year to reach 1.1 mln bpd. During the first 6 months of 2018 exports grew 12.2 percent Y-o-Y whilst imports by only 1.6 percent. Sep 2018 LPG Shipping Outlook 43

44 Despite the lack of arbitrage opportunities, in the first 6 months of 2018 LPG exports remained strong averaging around 832,000 bpd only outmatched by the substantial results recorded in the early part of Sep 2018 LPG Shipping Outlook 44

45 Japan, China and S. Korea made up the top 3 destinations for U.S. LPG exports in the first 6 months of 2018, accounting for 15 percent, 10 percent, and 9 percent of U.S. exports respectively. Sep 2018 LPG Shipping Outlook 45

46 The increase in U.S. LPG imports by Asian importers has been facilitated by the opening of the expanded Panama Canal, a ramp up in U.S. export terminal capacity, and as Asian importers diversified their sources. India imports were negligible in 2016, no imports registered during the first 6 months of that year, is now the 6th largest importer of U.S. LPG, compensating the reduction of imports by China. Sep 2018 LPG Shipping Outlook 46

47 LPG Imports by Country in 2017 (source: JODI, ITC & estimates ; percentage share of volume) Others 36% China 19% India 12% Turkey 3% Netherlands 3% USA 5% Indonesia 5% Korea 6% Japan 11% More than 50 percent of LPG imports are delivered in Asia, with China, Japan, India, and Korea collectively accounting for 48 percent. European imports are significant in volume but less so in tonne-mile terms, as most imports are sourced from within the region or short-haul from North Africa. Sep 2018 LPG Shipping Outlook 47

48 million tonnes Y-o-Y Growth (%) banchero costa China LPG Imports (source: customs data ; only including butane and propane ; in mln tonnes and percentage growth) % 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% -40.0% -60.0% % Imports Y-o-Y Growth The country s imports has surged over the past 3 years in particular, underpinned by deliveries to east China where most PDH plants are located. In 2016, Chinese LPG imports grew 33.9 percent to 15.9 mln tonnes. However, the pace of LPG imports have been starting to slow, to around 15 percent growth in Sep 2018 LPG Shipping Outlook 48

49 China LPG Imports in 2017 by Country (source: customs data ; percentage share of volume) Angola 3% Nigeria 4% S Korea 2% Australia 2% Algeria 1% Others 6% UAE 35% Kuwait 6% Saudi Arabia 7% Qatar 15% USA 19% China s LPG imports are mainly sourced from the UAE, U.S., and Qatar, which accounted for 35 percent, 19 percent, and 15 percent respectively in Sep 2018 LPG Shipping Outlook 49

50 India s LPG imports have grown at a strong pace of around 16 percent on average per annum over the past decade. Their government has been aggressively promoting LPG penetration in rural areas, while an increased gasoline tax has also encouraged consumption by vehicles. In 2017, India s LPG imports grew 7.1 percent to 9.2 mln tonnes. Sep 2018 LPG Shipping Outlook 50

51 Charter and S&P Markets (rates and newbuilding prices) Sep 2018 LPG Shipping Outlook 51

52 LPG spot rates showed strong volatility over the last 10 years, the market averaged $90/mt 2014 and 2015 and dropped to $30/mt in 2016; 2017 recorded the worst market in 15 years with an average of just $28/mt. At the beginning of Q2 this year rates bottomed at $20/mt and in one months reached $30/mt and stabilized around $40/mt early in July. Sep 2018 LPG Shipping Outlook 52

53 Timecharter rates for smaller LPG carriers have remained fairly stable with a slightly positive trend over the last year. VLGC timecharter rates, on the other hand, have fallen greatly from a high of $2 mln/month in mid 2015, to just $475,000/month in October 2016, since then a slow positive trend started. Sep 2018 LPG Shipping Outlook 53

54 Newbuilding prices for LPG carriers started softening in 2016, in line with the negative trend in the LPG market and maintained their negative tendency also in In January 2018 newbuilding prices for VLGCs recorded a change of direction increasing to an estimated $70 mln nowadays. Sep 2018 LPG Shipping Outlook 54

55 Second hand values for LPG ships have also continued to soften in line with the general market sentiment. Volatility has been particularly strong for VLGCs over the last few years registering a new negative record at USD 56 mln in 2017 and remaining on the same level also in Sep 2018 LPG Shipping Outlook 55

56 Final Words (summary and conclusions) Sep 2018 LPG Shipping Outlook 56

57 The Baltic LPG Index in 2017 recorded the worst market in 15 years with an average of just $28/mt. At the beginning of the second quarter 2018 rates bottomed at $20/mt and in one months reached $30/mt and stabilized around $40/mt early in July. During the first 8 months of 2018 deliveries kept slowing totalling just 1.0 mln cu.m. (29 units). Almost half of deliveries in cubic capacity came from the VLGC segment of the fleet with 0.5 cu.m. (6 units). For the last 4 months of the year another 0.5 mln cu.m. (26 units) are scheduled for delivery: the 1.6 mln cu.m. expected in 2018 are half of the deliveries registered in 2017and the lowest record since During the first 8 months of the year demolitions were already at a 9 years high with 0.8 mln cu.m. (31 ships), in particular 5 VLGC, for a total 0.4 mln cu.m. were removed from service. Global LPG trade has grown an average 6 percent over the last decade. In 2017 growth slowed to 4 percent in a year when the fleet expanded by 9 percent. In 2018 we expect demand growth to be back around 6 percent whilst the fleet is expected to grow at just 2 percent; this is slowly allowing the absorption of the oversupply generated by the orders placed during the booming years and a slow rise of spot rates. Moving forward, 2019 will register another increase of deliveries, especially of VLGC, that might slow the recovery, but then there are only few orders placed for delivery from 2020 onwards and the fleet is expected to grow at a much slower pace. LPG exports from the U.S. have increased by an average of 35 percent per annum over the past 10 years, mainly as a result of the U.S. shale revolution. In 2017 exports grew 9.6 percent to reach 1.1 mln bpd, during the first 6 months of 2018 exports were 12.2 percent higher than during the same period in U.S. LPG exports are becoming increasingly popular in Asia, facilitated by the opening of the expanded Panama Canal, a ramp up in U.S. export terminal capacity, and as Asian importers diversified their sources. The 25 percent tariff China imposed on U.S. LPG imports will clearly change trade flows, but other far eastern countries are importing a lot more LPG from U.S. whilst China is increasing its dependency on its traditional Middle Eastern exporters, that in 2017 already supplied 60 percent of its imports. The net impact so far remains difficult to assess. Sep 2018 LPG Shipping Outlook 57

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