Corrects Mideast Gulf LPG exports to east Asia in paragraph 6
Rising volumes on the important US Gulf to east Asia very large gas carrier (VLGC) route, and expectation that ships on the route will face more delays at the Panama Canal, set the scene for a firmer shipping market in 2022.
LPG flows from the US Gulf to Asia have strengthened, with 18.3mn t shipped by VLGC in January-November, up from 15.27mn t in 2020 and 11.35mn t in 2019, according to Vortexa.
US exports are projected to rise by 6pc on the year in 2022, according to Argus Consulting, while several propane dehydrogenation (PDH) plants are scheduled to start up in China in 2022, driving up propane demand.
The route from the US to east Asia is a major contributor of VLCC tonne-miles, given the length of the voyage with the added potential for delays at the Panama Canal, which is where we start to see some of the inefficiencies of the fleet.
Any delays at the Panama Canal can have a profound impact on freight rates globally. Shipowners were opting to ballast around the Cape of Good Hope or through the Suez Canal instead of waiting outside the Panama Canal, hiking freight rates. And with a new booking system coming into effect as of January 2022, VLGCs will no longer be able to book a period 1 slot and will only be able to apply for a period 2 or 3 transit slot, two weeks in advance of departure.
This could mean longer delays at the Panama Canal for VLGCs, additional costs to bookings and tying up vessels for longer. This can tighten the market and create volatility in spot rates, as we saw at the beginning of 2021 and to a degree in November.
There was a step back in exports from the Mideast Gulf in 2021 as a result of lower crude output under the Opec+ production agreement. The region exported 9.6mn t of LPG on VLGCs to east Asia in January-November, compared with 10.6mn t in 2020, Vortexa data show.
But with Opec+ ramping up output by 400,000 b/d each month since August, exports are likely to rise, particularly with a need to support rising demand in China and India.
India's residential LPG market continues to grow, as the country strengthens its position as the largest demand centre behind China.
India imported 10.41mn t of LPG from the Mideast Gulf in January-November 2021, a rise of 13.3pc and 1.4pc from the same period in 2019 and 2020, respectively, according to Vortexa data. This trend is expected to continue into 2022 and beyond.
The country introduced a second phase of the Pradhan Mantri Ujjwala Yojana scheme in August 2021 with the aim of connecting another 10mn households to LPG in lower-income rural areas.
Rising VLGC demand in both regions, particularly with more likelihood of Panama Canal delays, will stretch the fleet, particularly with the number of newbuild deliveries in 2022 expected to be similar to the past few years.
There are some headwinds, such as rumours of energy targets capping Chinese PDH expansion in the coming years. And the longer term outlook for vessel supply may concern shipowners, with 43 new ships expected to hit the water in 2023.
But for 2022, demand is expected to continue to grow, with more LPG supply from the Atlantic basin, adding to the tonne miles in a VLGC market where operational inefficiencies may become a bigger factor.
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