With export capacity from the US expected to further increase in 2024, shipowners are upbeat about the possibility of more LPG trade, continuing the momentum from 2023 where freight rates and profits climbed.

North America LPG exports by VLGCs are set to grow by 12.3% in 2024 and then 8.7% in 2025, according to BW LPG. VLGC shipments from the Middle East are forecast to grow by 4.9% in 2024 and 3.4% in 2025.

Both Avance Gas and BW LPG noted they expect deliveries to China to continue to grow in 2024. Chinese propane dehydrogenation (PDH) demand is expected to remain resilient, despite weak margins, as refiners are forced to run their PDH units to generate cashflow for handling debt, Avance Gas added.

BW LPG reiterated its positive view for 2023 and 2024 amid high volatility, noting key underlying drivers that include high oil prices leading to increased oil and gas exploration conducive to continued strong export growth from the US as well as steady growth from the Middle East and new PDH plants coming on stream in China.

Transit Restrictions at the Panama Canal Cause Ripple Effect

Ongoing transit restrictions at the Panama Canal are expected to amplify inefficiencies in the VLGC fleet, according to shipowners.

Avance Gas expects the continued growth in trade, delayed deliveries and the inefficiencies in the Panama Canal will likely absorb the fleet expansion.

Transit restrictions at the Panama Canal have caused more ships to ballast back to the US the long way round via the Suez Canal or the Cape of Good Hope, in comparison to voyages a year ago, BW LPG said, adding that alternative routes will lead to as much as a 50% increase in voyage duration.

With fewer transits at the Panama Canal, voyage distances ultimately increase, causing more logistical disruptions, which in turn lead to higher freight costs amid a dwindling supply of readily available carriers.

While November is typically a busy month at the canal and fees are often inflated above average, after further restrictions were implemented at the end of October, auction slots costs have skyrocketed.

The average fee paid for a VLGC transit through the Neopanamax Locks at the Panama Canal in November reached $2.157 million. A new record high fee was paid for a transit on Nov. 8, hitting just shy of $4 million, in addition to the regular transit fee of $400,000. Comparatively, the average fee paid for LPG carrier transits was around $982,500 in November 2022.

Continued Momentum for Shipowners

Looking ahead, Avance Gas lists the current global VLGC fleet at 373 carriers, with an orderbook of 69 vessels or 18% of the existing fleet. Twenty carriers are due for delivery in 2024 and a further 13, 18, and 12 due in 2025, 2026 and 2027, respectively.

Following a strong year for VLGC newbuilds, little downward pressure was recorded on freight rates. A continually tight VLGC supply/demand balance, strong arbitrages and logistical constraints have kept freight rates holding above five-year averages, New York-listed shipowner Dorian LPG said.

The cost of freight for a VLGC loading a cargo from Ras Tanura to Chiba averaged $107.81/metric ton in January-November this year, up from $75.27/mt in the same period last year, according to OPIS pricing data. And in the third quarter, the assessment averaged $121.05/mt compared to $66.69/mt in July-September 2022.

The cost of freight for a VLGC loading from Houston to Chiba averaged $168.36/mt in the first 11 months of the year, compared to $119.19/mt in the same period in 2022. The same freight averaged $189.35/mt in July-September, up from $105.77/mt in Q3 2022, OPIS pricing data showed.

VLAC orders will increase

Lastly, one trend to watch in the gas shipping market is the increasing number of orders for Very Large Ammonia Carriers (VLAC). Shipbrokers have noted they expect to see an increasing number of VLGC owners opting to retrofit their carriers to be able to carry ammonia.

At the time of writing there have been 11 VLAC orders placed – not including the six optional VLACs attached to an order from Denmark-based shipper Maersk Tankers. The majority of the VLACs on order will not be delivered until 2026, with two due to arrive in 2027.

Ammonia is considered a carbon neutral alternative fuel given that it does not emit any carbon dioxide during combustion, making it a promising candidate for decarbonizing the maritime shipping industry.

–Editing by Rob Sheridan, rsheridan@opisnet.com