sailing on lpg’s new tides: strategies - global …...vlgc demand/supply balance & utilisation...

Sailing on LPG’s New Tides: Strategies

for adapting in a new era of diversification

in Supply & Demand

March 18 Clarksons Platou Gas/Japan LPG Conference March 2018

Clarksons Platou Gas

www.clarksons.com Clarksons Platou Gas/Japan LPG Conference March 2018 March 18

Dramatic change in the VLGC fleet continues…

Age Profile of the VLGC Fleet Forward Availability

-2 -5

-2 -4 -3

-10

-5

0

5

10

15

20

0

50

100

150

200

250

300

2012 2013 2014 2015 2016 2017 2018f 2019f 2020f

No

. o

f V

es

se

ls

Fleet Development Base Scrap Scenario

2 3

7

11

27

12

9

3 2

13

8

35

44

20

4 3

5 7

3

8

1 2

3 2

5 5 5

8 6

7

16

11

0

5

10

15

20

25

30

35

40

45

50

<=

198

8

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

18

20

20

No

. o

f v

essels

15-19

yrs

0-14 yrs

Orderbook

20-24

yrs

25 +

yrs

-2

-9

-2

-10

-6

-15

-10

-5

0

5

10

15

20

0

50

100

150

200

250

300

2012 2013 2014 2015 2016 2017 2018f 2019f 2020f

No

. o

f V

es

se

ls

Fleet Development High Scrap Scenario

Deliveries Removals


The VLGC Freight Market: How low did it go?

Baltic VLGC Index: AG-Japan Assessed Earnings Take a Hit

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

160

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Spot

Rate

- $

pm

t

Average 1990-Ytd 2018

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2200

2400

Jan-1

6F

eb

-16

Ma

r-1

6A

pr-

16

Ma

y-1

6Jun-1

6Jul-1

6A

ug-1

6S

ep-1

6O

ct-

16

No

v-1

6D

ec-1

6Jan-1

7F

eb

-17

Ma

r-1

7A

pr-

17

Ma

y-1

7Jun-1

7Jul-1

7A

ug-1

7S

ep-1

7O

ct-

17

No

v-1

7D

ec-1

7Jan-1

8F

eb

-18

TC

E ‘000 $

per

month

VLGC's OPEX Range

Average 1990-Ytd 2018 (exc 14/15)


U.S exports continue to gain market share in Asia…

35.6

20.4

11.3

8.3

2.8

1.6

38.4

25.3

10.0

8.6

3.4

2.0

36.2

29.7

10.5

9.6

2.4

1.5

0

5

10

15

20

25

30

35

40

45

AG US Africa North Sea Non-USAmericas

Asia

MM

T

2015 2016 2017

Seaborne LPG Exports

18.1

11.2 10.6

6.5

5

7.7

China

India

Japan

South Korea

Indonesia

Others

60%

10%

23%

7%

Asia

Americas

Europe

Balance

Seaborne LPG Imports Asia/Global

Approx 67%

Imports

(excluding

coastal

movements)

www.clarksons.com March 18 Clarksons Platou Gas/Japan LPG Conference March 2018

Source: Clarksons Platou

2017/18 VLGC Volumes ex US & Middle East v Freights

0

100

200

300

400

500

600

700

800

900

1,000

0

10

20

30

40

50

60

70

80

Week

1

Week

4

Week

7

Week

10

Week

13

Week

16

Week

19

Week

22

Week

25

Week

28

Week

31

Week

34

Week

37

Week

40

Week

43

Week

46

Week

49

Week

52

Week

3

Week

6

‘000 M

T

$ PMT

Volume Lifted US-ARA US-Chiba (via Panama)

Ex US Ex Middle East

0

100

200

300

400

500

600

700

800

900

1,000

0

5

10

15

20

25

30

35

40

Week

1

Week

4

Week

7

Week

10

Week

13

Week

16

Week

19

Week

22

Week

25

Week

28

Week

31

Week

34

Week

37

Week

40

Week

43

Week

46

Week

49

Week

52

Week

3

Week

6

‘000 M

T

$ PMT

Volume Lifted AG-Japan


West/East Arbitrage volumes increasingly important

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

Jan'1

3

Apr'13

Jul'1

3

Oct'1

3

Jan'1

4

Apr'14

Jul'1

4

Oct'1

4

Jan'1

5

Apr'15

Jul'1

5

Oct'1

5

Jan'1

6

Apr'16

Jul'1

6

Oct'1

6

Jan'1

7

Apr'17

Jul'1

7

Oct'1

7

Mil

lio

n M

T

Tbc

Africa

East

N.W.E

Med

Americas

% East

VLGC US Liftings by Destination

% going East

• 2012 12%

• 2013 19%

• 2014 22%

• 2015 41%

• 2016 47%

• 2017 59%

95

%

93

%

87

%

80

%

85

%

91

%

92

%

90

%

97

%

95

%

87

%

85

%

100,000

150,000

200,000

250,000

300,000

350,000

400,000

75%

80%

85%

90%

95%

100%

Millio

n T

on

ne M

iles (

Av

g L

ad

en

Dis

tan

ce x

To

tal T

on

nes)

%

Uti

lisati

on

of

the F

leet

% Utilisation Tonne-Miles

Utilisation falls, despite rising laden distances


U.S Cargo Cancellations & Netback Prices

…Export volumes also driven by pricing

-3.0

-2.4

-1.8

-1.2

-0.6

0.0

0.6

1.2

1.8

2.4

3.0

3.6

4.2

4.8

5.4

6.0

6.6

0

2

4

6

8

10

12

14

Ja

n-1

6

Feb

-16

Ma

r-16

Ap

r-1

6

Ma

y-1

6

Ju

n-1

6

Ju

l-1

6

Au

g-1

6

Sep

-16

Oct-

16

No

v-1

6

De

c-1

6

Ja

n-1

7

Feb

-17

Ma

r-17

Ap

r-1

7

Ma

y-1

7

Ju

n-1

7

Ju

l-1

7

Au

g-1

7

Sep

-17

Oct-

17

No

v-1

7

De

c-1

7

Ja

n-1

8

Feb

-18

Fla

t N

etb

acks c

en

ts/g

allo

n (

exc T

erm

inal

Fees)

Pri

mary

nu

mb

er

of

carg

oes c

an

celled

/defe

rred

Cargo Cancellations Mt/B Asia +1 (via Neo-Panama)



Source: Clarksons Platou Source: Clarksons Platou

89

%

88

%

84

%

95

%

10

0%

68

%

56

%

20

%

47

%

39

%

5%

6

%

6%

0%

10

%

4%

21

%

10

%

36

% 43

%

31

%

19

%

14

%

6%

13

%

4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

01

/20

16

02

/20

16

03

/20

16

04

/20

16

05

/20

16

06

/20

16

07

/20

16

08

/20

16

09

/20

16

10

/20

16

11

/20

16

12

/20

16

01

/20

17

02

/20

17

03

/20

17

04

/20

17

05

/20

17

06

/20

17

07

/20

17

08

/20

17

09

/20

17

10

/20

17

11

/20

17

12

/20

17

01

/20

18

02

/20

18

% US-Asia Transits via Cape

Split of U.S/East Liftings via Panama & Cape…. Neo Panama Utilisation levels

VLGC Eastbound Movements & Neo-Panama Utilisation

4

9 5

8

15 17

26

34 31 30 29

32

16 20

16 19

30 27

22

31

14

3 7

5 9

17 21

26 25 27

31 29

20 19 22

15 12

16

25

18

31

15

-40

-30

-20

-10

0

10

20

30

40

No

rth

bo

un

d/S

ou

thb

ou

nd

Neo Panama Transits - Number

Southbound Northbound

2H16 – 29% (post new locks)

2017 – 17%



10

15

20

25

30

35

40

2015

2016

2017

2018

2019

2020

2021

2022

M M

T

North America

Asia/Australasia

Regional Net Seaborne Trade Balances will impact shipping flows….

-10

-8

-6

-4

-2

2015

2016

2017

2018

2019

2020

2021

2022

M M

T

Caribs/S. America

-14

-12

-10

-8

-6

-4

2015

2016

2017

2018

2019

2020

2021

2022

M M

T

Europe

4

5

6

7

2015

2016

2017

2018

2019

2020

2021

2022

M M

T

Africa

20

25

30

35

40

45

2015

2016

2017

2018

2019

2020

2021

2022

M M

T

Middle East

-70

-60

-50

-40

-30

-20

2015

2016

2017

2018

2019

2020

2021

2022

M M

T


www.clarksons.com

VLGC Demand/Supply Balance & Utilisation Scenarios

Clarksons Platou Gas/Japan LPG Conference March 2018 March 18

US Exports at Base Case Export Growth

Data Source: Clarksons

70

73

76

79

82

85

88

91

94

97

100

-10

0

10

20

30

40

50

60

70

80

90

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Fleet Utilisation %

Number of Vessels Required/Change & $ ,000 /day

% Utilisation of Trading Fleet (Base) Higher Scrap Scenario

Requirement Change in Fleet Supply

Change in Fleet Supply (Higher Scrap Scenario) VLGC TCE ($ ,000/day)

VLGC 1 YR TC Rates ($ ,000/day)

www.clarksons.com

Sign of the Times: Environmental Regulations

Clarksons Platou Gas/Japan LPG Conference March 2018 March 18

Date

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Baltic Sea ECA in effect

ECA – Emission Control Area North Sea ECA in effect Global NOx Tier I Limit

NOx

1.0% ECA SOx Limit SOx

EEDI for newbuildings formally adopted

Global NOx Tier II Limit

3.5% global SOx limit

North American ECA entered into force

EEDI – Energy Efficiency Design Index

EEDI & SEEMP Mandatory (Phase 0)

Ratification of BWMC

BWMC - Ballast Water Management Convention

US Caribbean ECA enters into force

BWMC applies to newbuilds & ships constructed before 8th

September 2017 if an IOPPC is completed on or after 8th

September 2014 and prior to 8th September 2017

Lower EEDI reference line (Phase 1)

0.1% ECA SOx limit

NOx Tier III ECA limit *

Lower EEDI reference line (Phase 2) 0.5% global SOx limit

Lower EEDI reference line (Phase 3)

Key

*At the MEPC 66 it was decided that, as of 1st September 2015, Tier III limits within

future ECAs will only apply to ships built after the date of adoption of the ECA, or a

later date as may be specified in the amendment designating the NOx Tier III ECA.

EU Monitoring, Reporting & Verification

MRV – Monitoring Reporting and Verification

MRV becomes mandatory in EU ports

EU MRV certification comes into force

North Sea & Baltic Sea NOx ECAs in effect

BWMC applies to all other ships constructed before 8th

September 2017

www.clarksons.com Clarksons Platou Gas/Japan LPG Conference March 2018

Comparison of Methods of Compliance

March 18

• Storage tanks required

for MGO/MDO

• Modifications to the

fuel oil system may be

required

• Are there any

implications for engine

efficiency and/or

maintenance?

• Requires limited

investment. However,

fuel costs likely to be

higher and availability of

MGO/lower sulphur fuel

unclear

• price spread between

low sulphur fuel oil &

HFO uncertain

• Requires space to

install the scrubber

• There are various

types and

manufacturers to

choose between

• Requires significant

capital investment

• However, can run HFO

• Will the market be

sufficiently strong to

cover these investment

costs

• or will the MGO/HFO

differential be

sufficiently wide to

justify it?

• Reports on scrubbers

with corrosion problems

• Requires gas or

dual/tri-fuel engines,

LNG tanks, booster

pumps, double-walled

piping etc

• Significant investment

costs for the engine &

modifications required

• Maintenance costs

likely to be higher

• Loss of cargo space

(more important for

some types of vessels v

others

• LNG infrastructure

limited, spec and costs

uncertain

MGO Scrubber LNG LPG/Ethane

• Requires investment -

engine has to be able to

run on Ethane or LPG,

piping etc

• Some of the new

Multigas/Ethane carriers

already using Ethane as

a fuel and has cost

advantages

• Significant investment

costs for the engine &

modifications required,

but lower than LNG

• Maintenance costs

likely to be higher

• Overcomes some of

the hurdles of requiring

the infrastructure in

place – particularly if

LPG or Ethane is the

cargo


Engines

ME-GI (Gas Injection) engines typically burn LNG. However, the high pressure injection is indifferent to the

gas composition, so they can burn different mixtures with higher hydrocarbon content such as LPG (with

modifications to the auxiliary components as the density of LPG is higher than the density of LNG)

ME-LGI (Liquid Gas Injection) Engines were designed for Methanol, but can burn LPG as well as

Ethanol. To date, the orders have been for Methanol as a fuel, but Propane is possible.

- LGI engines would be powered by LPG as a liquid fuel (whereas GI engines are injecting LNG as a

gas). The liquid fuel is injected via a booster injection valve, which raises the fuel pressure and

eliminates the need for high pressure fuel lines. There is no need for cryogenic equipment used for LNG

systems. Therefore, less expensive & uses fairly standard equipment

- LPG components such as injectors/valves can be designed smaller than LNG components, therefore

less heavy and less expensive

“Future Proofing” - LPG as a Fuel

March 18


• Meets the criteria for a lower SOx marine fuel solution, PM & CO2. NOx emission reductions & IMO Tier 3

targets can be achieved if combined with other systems

• LPG has a higher calorific value compared to most other oil products & LNG - has the same efficiency

gains as LNG

• No risk of oil spills whilst bunkering

• No need to spend additional time bunkering, if using the cargo

• No need for separate LPG storage tanks, if fuel comes from the cargo tanks

• LPG pumps, compressors etc are generally less expensive than LNG

• Lower maintenance costs than diesel/gasoline as burns more cleanly

• More efficient than fuel oil/gas oil

However, LPG needs a higher pressure. There are also some safety concerns – in gaseous form Propane

& Butane are heavier than air and could therefore potentially be more dangerous if it leaks in the engine

room

Benefits of using LPG as a fuel

March 18


…Costs could also be cheaper

March 18

0

2

4

6

8

10

12

14

16

18

20

22

24

26

Ja

n-1

2

Ma

r-12

Ma

y-1

2

Ju

l-1

2

Sep

-12

No

v-1

2

Ja

n-1

3

Ma

r-13

Ma

y-1

3

Ju

l-1

3

Sep

-13

No

v-1

3

Ja

n-1

4

Ma

r-14

Ma

y-1

4

Ju

l-1

4

Sep

-14

No

v-1

4

Ja

n-1

5

Ma

r-15

Ma

y-1

5

Ju

l-1

5

Sep

-15

No

v-1

5

Ja

n-1

6

Ma

r-16

Ma

y-1

6

Ju

l-1

6

Sep

-16

No

v-1

6

Ja

n-1

7

Ma

r-17

Ma

y-1

7

Ju

l-1

7

Sep

-17

No

v-1

7

$/G

J

Propane N.W.E Low Sulphur MGO Rotterdam


• Environmental Legislation WILL impact the freight market, as it will impact how vessels trade & costs

• Investment decisions will have to be made by Owners – Adapt, Scrap or “Wait & See”?

• Higher fuel costs will be borne by Receivers

• A formula for charging for the LPG as a fuel can be established

• Engine/vessel designs evolving as are agreements around LPG bunkering “hubs”

“JANUARY 29, 2018 — South Korea's plans to pioneer LPG as a marine fuel with a GE Combined Gas

turbine Electric and Steam System (COGES) powered car/passenger ferry are picking up pace.

Classification society Bureau Veritas has now given the design Approval in Principle and the Korea LPG

Association reports that a Memorandum of Understanding has been signed for what it says will be the

world's first LPG ship bunkering hub”

• A potential new Tide of LPG demand growth – only a matter of time!

Implications for the Market….

March 18

www.clarksons.com

Disclaimer

March 18 Clarksons Platou Gas/Japan LPG Conference March 2018

The material and the information (including, without limitation, any future rates) contained herein (together, the "Information") are provided by H. Clarkson & Co. Ltd

("Clarksons Platou") for general information purposes. The Information is drawn from Clarksons Platou's database and other sources. Clarksons Platou advises that: (i) any

Information extracted from Clarksons Platou's database is derived from estimates or subjective judgments; (ii) any Information extracted from the databases of other maritime

data collection agencies may differ from the Information extracted from Clarksons Platou’s database; (iii ) whilst Clarksons Platou has taken reasonable care in the

compilation of the Information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures and may accordingly contain

errors; (iv) the provision of the Information does not obviate any need to make appropriate further enquiries; (v) the provision of the Information is not an endorsement of any

commercial policies and/or any conclusions by Clarksons Platou and its 'connected persons', and is not intended to recommend any decision by the recipient; (vi) shipping is

a variable and cyclical business and any forecasting concerning it may not be accurate. The Information is provided on "as is" and “as available” basis. Clarksons Platou and

its ‘connected persons’ make no representations or warranties of any kind, express or implied about the completeness, accuracy, reliability, suitability or availability with

respect to the Information. Any reliance placed on such Information is therefore strictly at the recipient's own risk.

This Information is confidential and is solely for the internal use of the recipient. Neither the whole nor any part of the Information may be disclosed to, or used or relied upon

by, any other person or used for any other purpose without the prior written consent of Clarksons Platou. Especially, the information is not to be used in any document for the

purposes of raising finance whether by way of debt or equity. All intellectual property rights are fully reserved by Clarksons Platou, its ‘connected persons’ and/or its licensors.

To the extent permitted by law, Clarksons Platou and its ‘connected persons’ shall not be liable to the recipient or any third party for any loss, liability or damage, cost or

expense including without limitation, direct, indirect, consequential loss or damage, any loss of profit, loss of use, loss of or interruption in business, loss of goodwill, loss of

data arising out of, or in connection with, the use of and the reliance on the Information whether in contract, tort, negligence, bailment, breach of statutory duty or otherwise,

even if foreseeable.

These exclusions do not apply to (i) death or personal injury caused by the negligence of Clarksons Platou and its ‘connected persons’ or (ii) the liability of Clarksons Platou

and its ‘connected persons’ for fraud or fraudulent misrepresentation. In this disclaimer 'connected persons' means, in relat ion to Clarksons Platou, its ultimate holding

company, subsidiaries and subsidiary undertakings of its ultimate holding company and the respective shareholders, directors, officers, employees and agents of each of

them. This disclaimer shall be governed by and construed in accordance with English law.

H. CLARKSON & CO. LTD, COMMODITY QUAY, ST. KATHERINE DOCKS, LONDON, EW1 1BF

sailing on lpg’s new tides: strategies - global …...vlgc demand/supply balance & utilisation...

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