New US export capacity to dampen pressure on VLGC rates

A slew of LPG capacity expansion projects could lift the number of VLGCs loading on the Gulf coast, writes Yohanna Pinheiro

Planned LPG export capacity expansions on the US Gulf coast over the next three years could taper some previously forecast downward pressure on VLGC freight rates, in turn caused by a weighty influx of newbuilds scheduled for 2027 delivery.

US midstream operator Targa Resources announced plans late last month to expand its 450,000 b/d (14mn t/yr) Galena Park LPG terminal in Houston to 625,000 b/d by the third quarter of 2027. This came after peers MPLX and Oneok unveiled their project to develop a new 400,000 b/d LPG export facility in Texas City. These projects join rival firms Energy Transfer's and Enterprise Products' plans to expand their 480,000 b/d Nederland and 763,000 b/d Baytown terminals by 250,000 b/d and 300,000 b/d, respectively, by 2026 — although these will also incorporate ethane.

These projects could in theory add about 65 VLGCs/month loading on the Gulf coast once completed, although the ethane and liftings by midsize gas carriers will mean it is likely to be lower. VLGCs employed on a Gulf coast to east Asia voyage, which takes 28-45 days, stood at around 139/month last year compared with 119/month in 2023, Kpler data show, after Panama Canal transits improved and 40 newbuild VLGCs were delivered. About 100 more new vessels will have hit the water by late 2028, most due for delivery in 2027, threatening to oversupply the market. Scrapping is unlikely to balance it, despite more than 15pc of the fleet being 25 years old or more, because they will find employment in less conventional markets such as Iran.

The strong VLGC orderbook was fuelled by a rush to embrace a nascent ammonia fuel market. But the adoption of ammonia has been slow and market participants do not expect enough demand to absorb the added VLGC availability before 2030. Several of the very large ammonia carriers have not been contracted by projects still under development, meaning they are likely to ship LPG until the demand from ammonia emerges. Increased capacity on the US Gulf coast could help offset this vessel supply pressure, but whether the LPG import demand in longer-haul markets matches this is uncertain.

Fee-for-all

The world's largest VLGC owner, BW LPG, along with a range of freight market participants have highlighted a more immediate concern from the US government's recently announced proposal to impose fees on Chinese-built vessels and shipowners with newbuild orders at Chinese yards calling at US ports. "[The measure] would have very disruptive implications on the whole shipping market… trading houses, shipping companies, oil and energy majors all have Chinese-built vessels in their fleet," chief executive Kristian Sorensen says. About 15pc of the global VLGC fleet of around 400 vessels were built in China, most of them having been built in South Korea and Japan. And 24 of the 107 VLGCs on order are at Chinese yards, he says. BW LPG's VLGC fleet of 54 includes 11 Chinese-built ships.

The company remains optimistic on the outlook for the rest of 2025, despite the political and legislative uncertainty, as warmer weather in the northern hemisphere widens the US-Asia LPG arbitrage and additional export capacity on the Gulf coast opens later in the year. Further cargoes will also emerge from Qatar's North Field expansion, increasing vessel demand, BW LPG says. The potential for delays to re-emerge at the Panama Canal and an intense drydocking schedule for 80 vessels could also support rates, it says.

This outlook is shared by New York-listed rival Dorian LPG, which does not expect US-China tensions to disrupt the LPG trade because of China's dependency on US exports. Norwegian owner Avance Gas meanwhile suggests more aggressive US sanctions on Iran could push demand from the shadow fleet to the conventional market, supporting VLGC rates.

US LPG sea export capacity exports

VLGC rates

VLGC newbuild orderbook