The number of Greek shipowners who decide to invest in buying large ships to carry liquefied petroleum gas (LPG), a product of oil, is increasing.
Yiannis Hadzipateras’s Dorian, the Angelikousis group’s Kristen Navigation and the Latsis family’s Consolidated Marine Management are all rushing these days to position themselves in this specialized market, which until recently only attracted a few players due to its limited cargo. A Greek-interest company which was early positioned in the LPG shipping market is StealthGas of Haris Vafias.
So what has made ever more shipowners invest in LPG vessels? The answer is the expected doubling of global production, mainly due to the great investment plans of Middle Eastern countries. International analysts suggest that the LPG production available for export will increase by at least 54 percent until 2010.
Qatar is to assume a leading role, having chosen to draw LPG and sulfur from its large production of natural gas. In fact, the state’s Qatar Gas Transport Co is studying the possibility of acquiring 20 to 30 very large gas carriers (VLGCs) along with the chartering of vessels as well as agreements with existing shipowners who have the experience required in the market. Qatar’s LPG production will begin in early 2006 and should rise to 10 million tons by 2010 and to 14 million tons by 2014, making the small Arab country the biggest single LPG exporter, ahead of today’s leader, Saudi Arabia.
The same trend is apparent in other countries, with shipowners redrafting their strategies likewise, and investing in VLGCs. For instance, Consolidated Marine Management recently proceeded with ordering three new LPG ships, of 82,000 cubic meters (cbm), to be delivered between May and Sept. 2006. The company is also said to be negotiating ordering another six such vessels. Given that each costs about $91 million, the Latsis group’s investment could run over $800 million in a spell of just a few months. The company has included in its fleet two LPG ships of 82,000 cbm, or 59,423 dwt, since 2003, purchasing them at very favorable prices compared with current ones.
Recent data by Clarkson, the international shipping studies company, shows the cost of building an LPG ship of 78,000 cmb at $91 million today, up from $82.5 million in 2004 and just $58 million in 2002. Clarkson’s noted that this is the only type of vessel (along with chemical product-carrying ships) to record a rise in costs this period.
Considering the sector’s high mobility, many analysts are cautious about the risk of ship oversupply. This year just one VLGC is to be delivered, with five more in 2006. But then in 2007, there will be 10 and as many as 21 in 2008, with some deliveries already scheduled for 2009. The entry of these ships into the market is not necessarily negative, as by 2010 there will be 29 VLGCs aged at least 28 years; an age that on average sends such ships to the scrapyard. If this does happen then the market will regain its balance. Clarkson estimates the existing VLGC fleet at 106 ships, totaling 5,531,305 dwt.
Yet such complex attempts as LPG production hardly ever go according to schedule. One cannot rule out a delay in Qatar’s plans, which would prohibit it from meeting its production targets. The course of the market may also worry shipowners. Today a 28-year old VLGC can be chartered for up to $300,000 per month, with the rate being double for new ships. But if the LPG production doubles, rates will drop, hurting shipowners considerably.