Liquefied petroleum gas (LPG) exports are likely to continue to rise in the second half of this year and into 2024, buoyed by greater demand from China and larger export potential from the U.S. Gulf, shipowner Avance Gas said in its quarterly results on Wednesday.
Increased demand from new propane dehydrogenation (PDH) plants in China and flexi-crackers opting for propane as a feedstock rather than naphtha have spurred demand for LPG in Asia so far this year, Avance Gas said. This has in turn has offset the seasonal variation in demand that historically have led to weaker Q2 and Q3 freight markets, the firm added.
In the eight months to August, China’s new PDH capacity has already equaled the total commissioned for the whole of 2022, highlighting the year-to-year growth. Run rates are expected to reach 86% in Q4 2023, up from 76% at the end of the first half of this year.
On the export side, a combination of increased U.S. production and softer domestic demand is expected to continue, which will keep exports high in the foreseeable future. U.S. LPG production is expected to increase by around 4% from 2023 to 2024, attributable to increased fractionation and terminal capacity. Enterprise Products Partners L.P. announced earlier this summer that export capacity will increase to allow them to load a very large gas carrier (VLGC) in less than 24 hours.
Meanwhile, in the Middle East, production cuts from the Organization of the Petroleum Exporting Countries (OPEC) as well as the voluntary decrease in output from Saudi Arabia has equated to between two and three VLGCs per month. But the UAE and Qatar for example have not been affected by the cuts, with their LPG being sourced from natural gas. The two OPEC members have both increased natural gas production and have ramped up exports to cover the shortfall recorded from Saudi Arabia, Avance Gas noted.
Record high first half-year profits Avance Gas posted an all-time first half of the year for 2023, recording $72 million in net profits, compared to $42.7 million over the same period last year. Net profits came in around $35.7 million in Q2, nearly double the $18.4 million posted in April-June 2022.
“With a tight shipping market and a supportive arbitrage between the U.S. and East Asia, we anticipate a strong performance financially in the second half of the year, with time charter equivalent (TCE) rates expected to be firmer in the third quarter,” said Avance Gas CEO Øystein Kalleklev.
TCE rates averaged $52,000/day in Q2, down from $58,400/day in January-March, but up from $36,200/day in Q2 2022. Avance Gas anticipates TCE rates to average around the high-$50,000s/day during Q3.
There were seven VLGCs delivered during Q2 out of the 12 vessels expected, Oslo-based shipbroker Fearnleys data showed. The current orderbook for VLGCs stands at 67 ships, equalling 19% of the current global fleet, it added.
Avance Gas also purchased two newbuild LPG/ammonia vessels and entered the midsize gas carrier (MGC) market in June. It then returned in August to order two more from Chinese shipbuilder CIMC. The four MGCs are due for delivery in 2025-2026.
Avance Gas is financing the expansion into the new sub-segment by divesting its 2008-2009 VLGCs. It sold three VLGCs of this build date in 2022 and recently announced the sale of the 2008-built Iris Glory for $60 million. Following the sale of these vessels, Avance Gas only has one 2008-built VLGC left in its fleet, the Venus Glory.
“We are continuously renewing the fleet by selling older two-three ships while at the same time taking delivery of new dual-fuel VLGCs and contracting the new dual-fuel MGCs which can carry ammonia as well as LPG,” Kalleklev said. “This enables us to further improve our carbon footprint while at the same time diversifying the cargo types which our ships can transport. This means we are well positioned to comply with the stricter decarbonization rules the industry is now facing.”
The move into the MGC market increases the firm’s exposure to the ammonia market, a segment for which Avance Gas has reiterated a positive outlook. The shipper expects an increased use of ammonia in new applications such as marine fuel, power generation and hydrogen carriers.
Production locations will be based on availability, and cost of energy, rather than demand, hence the long-term outlook for both trading and seaborne transportation are highly compelling, according to Avance Gas.
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Source: Dow Jones