Gas tankers in for a rough ride

Most gas tanker owners have surely resigned to the fact that there is no immediate prospect of increased demand for the time being.

Some owners like Bergesen d.y. believe the gas market will improve in the autumn and cite increased scrapping as an important factor. However, the current problem is not necessarily one of supply, but rather of demand for freight.
Undoubtedly the demand for LPG and derivates is far too low to sustain freight at the current level. After a spurt of unexpected demand in January the demand for tonnage in North West Europe (NEW) is now lacklustre, apart from some coastal butane cargoes.

Market fundamentals
Market fundamentals are certainly not kind to owners, but developments in the past two months are a result of a general slowdown in many industrial sectors, both upstream (raw materials etc.) and downstream demand for product.
All of this has a negative impact on freight. It was principally a slowdown in US demand which set off a chain reaction.
Lower demand was made worse by higher oil prices and renewed uncertainty after the terrorist attack in the US in September. Since then the US has waged war on terrorism and the hunt for terrorist has made the oil market quite uneasy at times.

SR carriers hard hit
In this report we only deal with semi-refrigerated (SR) vessels up to 22,000 cbm and our diagram plots a 6,500 cbm and a 15,000 cbm vessel.
Since January freight levels have fallen, more dramatically for the biggest SR vessels than for the smaller sizes. We are now likely to see freight rates for both vessel sizes drop further in the next couple of months.
In our last issue we wrote, “Uncertainty permeated the gas market”. As it happened this turned out to be an understatement.It is now more like despondency. Even the big three operators, Bergesen, A.P. Møller and Exmar are not fully able to maximise on their pool operations because too much idle time for vessels.
As is apparent from the attached graph the bigger SR carriers are having a bad time of it. Most of the vessels in this class are engaged in the chemical gas market, and there are relatively few owners.
Many of these vessels have difficulties finding permanent employment and suffer because there has been a product shift in upstream activities. As a consequence these vessels have ventures into the pure LPG markets for propane and butane and have had to compete with bigger units.
The result is a squeeze on freight rates and this will continue. To add to the pressure another 10 vessels in this class are due for delivery in 2002 and 2003.
Without new demand from somewhere the surplus could force owners to scrap older tonnage.

The smaller carriers
The market for the smaller sizes is prevalent in the NEW area, and particularly in the North Sea basin. Statoil sold over two million tonnes of LPG to NEW based customers last year and is likely to increase this year given sufficient demand. In fact Statoil handles around 40 vessels per month at the Mongstad and Kårstø terminals. Landed cost of these shipments will decide whether or not Statoil can get rid of all its LPG in the future.
So far LPG has been a good business for Statoil, according to Mr Thor Abrahamsen, who is responsible for LPG trading. Traditionally one third of the landed cost is freight. To balance this out the freight has to come down with gas prices. Propane and butane prices are very volatile and notoriously difficult to predict. They could fall further.

//Petter Arentz

 

 

 

Back to SSG 4, April 5