Record Fuel Output Returning Exmar’s Tankers to Profit: Freight

The world is refining and extracting so much oil and natural gas that record amounts of byproducts are being generated, creating a flood of liquefied petroleum gas for the ships carrying the fuel used in stoves and lighters.

Trade in LPG will rise 3.9 percent to 62 million metric tons this year, compared with no more than 2 percent fleet growth, according to Lorentzen & Stemoco A/S, an industry consultant in Oslo. Charter rates will rise 8 percent, the most since 2008, investment bank Fearnley Fonds ASA predicts. Exmar NV (EXM), which operates 29 of the vessels, will return to profit this year and its shares will jump 38 percent in 12 months, according to as many as five analyst estimates compiled by Bloomberg.

Global refinery capacity rose 11 percent and natural-gas consumption 31 percent in the past decade, increasing the need for Exmar and closely held BW Group Ltd.’s LPG ships. The Middle East is the biggest exporter and Asia the largest buyer. The rebound in costs is a consequence of owners failing to order enough new vessels after rates fell 40 percent from 2006 to 2010, in contrast to oil tankers and dry-bulk commodity carriers, where there is now a glut of capacity.

“This market was in the doldrums for years, but now there are not many new ships and volumes are increasing,” said Steve Engelen, the manager of research and projects at Joachim Grieg & Co., an Oslo-based broker serving the largest owners. “The additional volumes of LPG in the Middle East are so big they have to export, rather than consume them domestically.”

Gas Cylinders

The monthly cost of hiring a mid-size carrier will average $720,000 in 2012, from $666,000 in 2011, according to Rikard Vabo, an analyst at Fearnley in Oslo. Exmar is the biggest publicly traded operator of mid-sized vessels, each holding 35,000 cubic meters (1.24 million cubic feet) of LPG, enough to fill about 1.6 million 20-pound gas cylinders.

Exmar, which also operates vessels hauling liquefied natural gas and storing fuel, expects monthly rates for mid- sized carriers to reach $1 million by the end of the year, Chief Financial Officer Miguel de Potter said by phone on April 25. That would be the most since December 2006, he said.

The Antwerp-based company will report net income of $36.7 million for this year, compared with a loss of $45.4 million in 2011, according to the median of five analyst estimates compiled by Bloomberg. Shares of Exmar rose 1.9 percent to 5.86 euros ($7.75) in Brussels trading this year and will reach 8.10 euros in 12 months, the average of three estimates shows.

The biggest owner of LPG carriers is BW Group, according to data from London-based Clarkson Plc, the world’s largest shipbroker. The Hamilton, Bermuda-based company’s bonds maturing in 2017 are trading at 99.15 cents on the dollar, from 75 cents in October, data compiled by Bloomberg show.

Ships Moving

Global LPG demand will advance 1.4 percent to an all-time high of about 232 million tons this year, according to JBC Energy. Asia, the biggest consuming region, will use 3.4 percent more as shipments from the Middle East, the largest exporter, rise 4.2 percent, the Vienna-based consultant estimates. The Middle East will account for 29 percent of growth in production and Asia 90 percent of the additional buying, bolstering charters for ships moving supply to where it’s needed.

The expansion in energy production may weaken on signs of slowing economic growth, diminishing the amount of LPG available for export. The U.K. fell into a double-dip recession in the first quarter and the International Monetary Fund is predicting a contraction in the 17-nation euro region. Chinese Premier Wen Jiabao cut the nation’s growth target to 7.5 percent last month, the lowest since 2004, and the U.S. economy expanded 2.2 percent in the first quarter, less than economists had forecast.

Petrochemicals Industry

Energy consumption fell 1.5 percent in 2009 as the global economy endured its worst recession since World War II, according to data from London-based BP Plc. Natural-gas output slumped 2.8 percent, the most since at least 1970, and oil refining slipped 2.6 percent, the steepest drop since 1981.

Slower growth also may curb demand for chemicals used in everything from plastics to paints, created using LPG as a feedstock. European production of ethylene, the largest starting product made in the region, fell 6 percent in 2009, according to Nexant Inc., a White Plains, New York-based consultant to the petrochemicals industry. The chemical industry accounted for 27 percent of LPG demand in 2010, according to a report from the Paris-based World LP Gas Association.

Weaker demand growth wouldn’t necessarily reverse the advance in charter rates because there is already little spare capacity. The fleet expanded 10 percent since the end of 2008 and outstanding orders at shipyards will add another 10 percent, the least of any tanker class, data from IHS Inc. show.

Energy Agency

That compares with growth of 23 percent for Suezmaxes, each holding 1 million barrels of oil, and outstanding orders equal to 24 percent of existing capacity. Rates for Suezmaxes fell 68 percent this year, according to the Baltic Exchange in London, which publishes daily rates along more than 50 maritime routes. About 90 percent of world trade goes by sea, the Round Table of International Shipping Associations estimates.

World oil output rose 2.6 percent from a year earlier to 90.6 million barrels a day last quarter, the International Energy Agency estimates. Refineries processed 74.1 million barrels a day on average in 2011, the most since at least 2004, according to the Paris-based group. Natural-gas production rose to a record 112.1 trillion cubic feet in 2010, according to the most recent data from the U.S. Energy Department.

Extracting natural gas yields about 10 percent LPG and represents 60 percent of supply, according to the gas association. The remainder comes from refining crude, with about 10 percent of each barrel of oil consisting of propane, ethane and butane, according to data compiled by Bloomberg.

“A lot of LPG will be shifted overseas from countries that don’t have consumption,” Exmar’s De Potter said. “Investors are just starting to get interested in LPG, but most of them are not there yet. It’s below the radar screen.”

To contact the reporter on this story: Isaac Arnsdorf in London at iarnsdorf@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

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