After last year’s record-high earnings and the extremely profitable years following the shale gas boom in the US, 2016 turned out to be a challenging year for the VLGC market. The year was marked by high number of deliveries, closed product price arbitrage and consequently very low rates and earnings.
The downward trend that started in 2015 did not come to halt until September 2016 where the Baltic LPG Index (BLPG) dropped down to an almost record low point of 18.406 USD pmt. Measured in earnings (Baltic TCE excl. waiting time) this resulted in roughly 6000 USD per day- a level not seen after 2010.
High ordering activity in the preceding years let to an inflow of a total of 44 VLGCs, making up 22 % of the existing fleet at beginning of the year. At the same time only two vessels were scrapped leaving the market to struggle with a significant supply shock that could not be matched by an equivalent change in demand. With oil prices hovering between 45 and 55 USD and closed regional product price spreads, VLGC liftings from the US have for the first time in 3 years dropped in summer 2016, despite new export capacity coming online. Liftings from the Middle East have remained relatively stable over the year.
An event worth noting is the opening of the Panama Canal expansion in 2016, simplifying VLGC trade between the US gulf and the Far East. Reduced costs on this trade narrowed the arbitrage window that is needed to trigger additional cbm mile demand
Towards the end of the year the market seemingly bottomed out, bringing rates back above average OPEX levels. The average BLPG over 2016 is reported at 30 USD pmt, while Earnings (excl. waiting time) are assessed at an average around 20,000 USD per day.
Looking at the fundamentals for 2017, the outlook is not very promising. The orderbook with scheduled deliveries in 2017 counts 28 vessels, representing an expected increase of 11% on the supply side. The various export capacity additions in the US have slowly come into place, leaving no big changes ahead in 2017. In the long term Asian LPG demand is picking up, which, together with increased production in the US, is expected to lead to growing cbm-mile demand, pointing at higher rates beyond 2017.