LPG Shipping Surge Seen Extended Amid Panama Delay

Delays to the $5.25 billion expansion of the Panama Canal may extend a surge in rates for vessels hauling liquefied petroleum gas to Asia from the U.S., a shipping company and industry analysts said.

“We have been basing our plans on using Panama, so if there are delays then that’s going to tighten the supply of ships,” Christian Andersen, president of Avance Gas Holding Ltd said by phone today. The company is the fifth largest vessel owner specializing in LPG, according to data from Clarkson Plc, the world’s biggest shipbroker.

The expansion works were suspended yesterday after negotiations broke down between the Panama Canal Authority and a group of construction firms undertaking the enlargement, according to the head of the authority. A spokeswoman for Sacyr SA, which is leading the works, said they were slowed rather than halted.

The enlarged waterway will curb demand for LPG carriers to transport the fuel because the link shaves about 17,000 miles off round-voyages between Tokyo and Houston, requiring fewer tankers for the same amount of cargo. The U.S., which is producing the most crude in 25 years, is accelerating shipments of LPGs including propane and butane because they are byproducts from extracting crude and gas.

Demand for the largest ships hauling LPG, used for cooking and heating, is surging as the U.S. boosts exports. The country has among the world’s cheapest supplies of the fuel, which is also a feedstock for the petrochemicals industry.

Market Impact

The widening of the Panama Canal will reduce the number of ships required to haul 1 million tons a year of LPG to Asia from Houston to four vessels from six, according to Andersen. The the delayed start will prolong a rally in freight costs.

“As long as the Panama Canal remains unfit for taking VLGCs, that’s going to have a positive impact on the freight market,” Erik Nikolai Stavseth, a shipping analyst at Arctic Securities ASA, said by phone today. “Assuming exports continue as normal, volumes will continue to be shipped.”

Rates for VLGCs, the industry’s biggest ships, will rise to $45,000 a day in 2015 from $30,400 in 2012 and then drop to $37,500 after the completion of the Panama Canal expansion cuts voyage durations, Arctic estimates show.

Avance Gas, which is owned by Stolt-Nielsen Gas, Sungas Holdings Ltd and Frontline 2012 Ltd., has six VLGCs on the water and another eight under order. The total fleet of such vessels is about 160 vessels.

“The volumes will continue to move, it’s just that they will move longer-haul, rather than through Panama,” said Nicola Williams, an analyst at Clarkson Plc, the world’s biggest shipbroker. “We see a continuation of longer-haul movements for a longer time than we’d originally anticipated.”

(Corrects list of shareholders in penultimate paragraph of story published Feb. 6.)
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