Carriers in the segment for the biggest gas vessels (VLGCs) are among the few who have actually had a really good time during the past year. Where other segments are struggling to make a profit, the VLGC rates have, with only a few fluctuations, been at a historical high, and the segment is frequently lauded by analysts for facing a golden era.
But the party will not last, warns Nicholas Gleeson, CEO of the biggest owner and operator in the segment, BW LPG.
“The big change we’re going to see in the market will come from all the new ships being delivered from the ongoing newbuilding program,” he says, referring to Norwegian Avance Gas as well as Dorian LPG, among others, with each carrier set to take delivery of 14 and newbuildings respectively during 2015 and 2016.
The VLGC orderbook today stands at 50 percent of the current fleet, and even BW LPG will take delivery of three VLGCs – the carrier currently operates a fleet of 30 VLGCs, 11 of which are chartered in.
“Because the US export is strong and the supply of ships seems to have grown somewhat in line with this, some players believe that the rates will remain high forever. But that’s a mistake,” Nicholas Gleeson tells ShippingWatch.
Everybody wants in
“So if we stay at high rates in the years to come, we’ll see more ships being delivered until the rates are normalized. It’s only a matter of how long this will take.”
The market is especially confident in the US export of liquefied petroleum gasses such as protane and butane, but Gleeson points out that there will be times when the US supply will surpass the global demand, and adds the following about BW LPG’s expectations:
“We’re positive, but we’re probably more conservative going forward than some of our competitors. The rate normalization likely won’t happen until early 2016 and onwards.”
This development has made several players talk about the need for consolidation in the industry, as was the case with Avance Gas, where John Fredriksen’s Frontline 2012 placed its eight newbuildings in Avance Gas and received a stake in the company, which also includes Stolt-Nielsen and Sungas Holdings. Avance Gas CEO Christian Andersen has several times voiced a desire to acquire Dorian LPG, though this does not look set to happen anytime soon – in spite of the fact that both parties seem to agree on the need for consolidation.
Nicholas Gleeson of BW LPG has the following comment for this:
“Right now the market is red-hot, and the rates are towering, so this is not the best time to acquire assets or consolidate with other players in the market. We’re going to do it when it makes sense in the long term,” he says, adding:
“That being said, consolidation is important. And with the new players we’ve seen, there’s bound to be something.”
A divided market
Technical skills will also drive the development, he says. The many new ships will result in a shortage of technical management, officers and crewing, and this could slit the market in two for a period of time.
“As soon as the market gives, which will happen when the new ships are delivered, owners with one or two ships will – compared to the bigger fleets – will suffer from a much lower utilization rate. As such, they will have good reason to move their ships to a platform where they will be utilized,” explains Nicholas Gleeson, adding:
“When the market is normalized and becomes more rational, we’ll definitely be interested in adding ships to our platform, at the right price.”