Record global trade in liquefied petroleum gas, a result of increasing U.S. energy independence, is driving up rates for hauling the fuel on tankers at a time when most commodity shipping is losing money.
Prices on the industry’s benchmark trade route rose 42 percent to $68.38 a metric ton this month, according to the Baltic Exchange in London. Costs to haul the fuel will exceed the record $81.64 set in 2008 by the end of the year, Miguel de Potter, chief financial officer of Exmar NV, the third-largest publicly listed owner, said in an interview. Shares of the owner of 26 LPG carriers will gain 11 percent in 12 months, according to the average of five analyst estimates compiled by Bloomberg.
The U.S. is exporting a record amount of LPGs including propane and butane as it taps new energy reserves found in shale-rock formations. The surge in LPG shipping returns is spurring billionaire investors John Fredriksen and Wilbur Ross to build gas carriers. Rising rates contrast with losses for most of the merchant fleet because of a glut of capacity that Clarkson Plc, the biggest shipbroker, estimates is the worst in about three decades.
“This is a new trade that’s evolved,” said Knut Stangebye Olsen, an analyst at Lorentzen & Stemoco AS, an industry consultant in Oslo. “There’s a lot of shale production in the U.S., and they’re building pipelines, they’re building new terminals, so there are a lot of volumes.”
The cost to transport a ton of LPG on a very large gas carrier, or VLGC, jumped 72 percent since the start of January, according to the Baltic Exchange, which publishes rates on more than 50 maritime routes. Daily earnings for the vessels, which haul 44,000 tons of cargo, will average $28,000 this year, 7.7 percent more than in 2012, estimates RS Platou Markets AS, an Oslo-based shipbroker. The ships need about $24,000 to break even, according to Platou.
Shares of Antwerp, Belgium-based Exmar (EXM) climbed 9.9 percent to 8.45 euros in Brussels this year and will reach 9.40 euros in 12 months, the predictions show. The company will report net income of $58.9 million for 2013, 8.4 percent more than last year and following a $34 million loss in 2011, according to the mean of five analyst estimates. That contrasts with oil-tanker owners who lost a combined $27 billion since 2009, according to Intertanko, the industry’s biggest trade group.
Solvang ASA in Stavanger, Norway, has 16 LPG tankers, making it the biggest publicly traded LPG tanker operator by capacity. Its stock fell 11 percent this year on average daily trading volume of about 1,500 shares. Solvang is followed by Tokyo-based Nippon Yusen K.K. (9101), whose shares rose 39 percent to 280 yen this year. StealthGas Inc., based in Athens, has the greatest number of carriers and the company said in March it was deploying ships thousands of miles to the Americas to meet rising demand.
About 60 percent of LPG comes from natural-gas extraction and the rest from oil refining, according to the World LP Gas Association in Paris. Trade in the fuel, used in everything from cigarette lighters to plastics, will advance 6 percent to a record 71 million tons this year, according to Joachim Greig & Co., an Oslo-based shipbroker.
Propane costs $477 a ton in Texas, compared with $793 in Japan and $675 in northwest Europe, according to data compiled by Bloomberg. The difference is spurring U.S. exports, which have a disproportionate effect on shipping rates because of the distances involved. A round trip to Tokyo from Houston can be as long as 36,000 miles, compared with 15,000 miles from Saudi Arabia to Japan and back, the industry’s benchmark route. That ties up tankers for longer, effectively reducing the capacity of the global fleet.
Further gains in U.S. LPG exports that rose 33 percent to a record 71.9 million barrels last year may be hindered by delays in building new terminals and congestion at existing sites. The 54-mile Houston Ship Channel, the biggest waterway for U.S. energy exports, already receives more foreign vessels than any other U.S. port, according to the Army Corps of Engineers.
The gains in shipping rates also may be curbed by accelerating fleet growth. Capacity will expand 5.6 percent this year and 4.7 percent in 2014, compared with 1.7 percent in 2012, according to London-based Clarkson.
New vessels will arrive as economists predict weakening growth in the biggest consuming nations. Japan’s economy will slow in 2013 and for at least the next two years, the average of 46 economist estimates compiled by Bloomberg shows. The 17-country euro region’s recession extended to a record sixth quarter in the first three months of the year.
The shale boom is also lifting demand for tankers hauling refined oil products. The U.S. shipped a record 745,000 barrels a day of gasoline and products such as naphtha and benzene that are blended to make the auto fuel in December, according to Energy Department data. Rates for medium-range product tankers will average the highest since 2008 this year, d’Amico Shipping International SpA, a Luxembourg-based owner, said this month.
Ross, the founder of WL Ross & Co., owns a majority stake in Navigator Holdings Ltd., the largest operator of midsize LPG vessels. Frontline 2012 Ltd., founded by Fredriksen, the world’s richest ship owner, said in March it was ordering at least four VLGCs.
Outstanding orders for new LPG tankers equal 16 percent of existing capacity, from 10 percent a year ago, according to data from IHS Fairplay, a Redhill, England-based research company.
“The order book remains pretty small and is unlikely to absorb the demand-growth requirements that will be there,” said Doug Mavrinac, an analyst at Jefferies LLC in Houston whose recommendations on the shares of shipping companies returned 17 percent in the past six months. “Given that the U.S. now has an increasing ability to ship out increasing production, you should see further supplies hitting the market.”
To contact the editor responsible for this story: Alaric Nightingale at firstname.lastname@example.org