The VLGC market has been hit by multiple operational challenges stemming first from the US-China trade war and then the Iran war, both compounded by capacity constraints at the Panama Canal. But they have boosted freight rates to new highs and allowed VLGC owners, including the world's largest, Singapore-based BW LPG, to post bumper second-quarter profits. Argus spoke with BW LPG chief executive Kristian Sorensen on the challenges and opportunities ahead:
How could the Hormuz crisis reshape LPG trade patterns and VLGC deployment?
With Middle Eastern LPG exports choked, it is all about US-Asia trade. US exports are not re-placing the shortfall from the Middle East, but higher US flows and longer-haul trading patterns are absorbing substantial shipping capacity, which is driving freight rates up. There has also been a higher-than-expected number of VLGCs controlled by Middle Eastern and southeast Asian interests in the Indian Ocean waiting for the strait of Hormuz to reopen. It is quite likely that countries in southeast Asia and India will source more of their LPG imports from the US.
Do you expect US LPG exports to retain their larger share of Asian demand once Hormuz conditions normalise?
Markets east of Suez have been the main outlet for US LPG exports for several years and I can't see this changing soon. European and Latin American markets are not large enough to consume the massive US volumes, while the Asian market has the size and the energy mix that fit well with LPG. This goes hand-in-hand with highly dynamic US LPG pricing supporting the competitiveness of US cargoes and allowing supplies to penetrate new markets, including India and east Africa.
Given the constraints at the Panama Canal, will it remain the dominant route for US exports, and is the LPG pipeline project necessary for future growth?
The Panama Canal's capacity is more or less fixed for this decade. We see it as a bottleneck, with increased competition for transit slots from several shipping segments, driven by substantial newbuild orderbooks, including a growing fleet of VLGCs. As VLGCs are not prioritised at the canal, we believe it is inevitable that more will sail around the Cape of Good Hope be-tween Asia and the US due to congestion and if they sail to India and southeast Asia. How the Panama pipeline dynamics play out remain to be seen, as shipping logistics on both sides of the canal will become more complex. If India, southeast Asia and east Africa continue to in-crease their share of US exports, the canal becomes relatively less important.
BW LPG recently ordered eight Panamax-capable VLGCs that can transit the smaller Panama Canal locks. What benefits will these bring?
The 90,000m³ dual-fuel VLGC Panamax design is optimal in terms of size, fuel efficiency and trading flexibility. Historically, Panamaxes were smaller than the conventional VLGCs, but these vessels have erased that disadvantage. This means they are more flexible than conventional VLGCs when trading through the Panama Canal, while they are similarly competitive on non-Panama long-haul trades.
The VLGC newbuild orderbook is sizeable at about 155 out to 2030. What gives you confidence that long-term LPG trade growth can absorb this?
The underlying appeal of LPG as a commodity is still promising. It is unique in the sense of being a versatile by-product of crude and natural gas production, meaning over time it will al-ways be priced competitively on international markets. The dislocation between LPG production and consumption is very shipping-intensive, and we believe it will remain so in the future. There will also be a need to replace older and less-efficient vessels, as about 15pc of the glob-al VLGC fleet is older than 20 years. But there is obviously a limit to how many ships are needed and shipping markets are well known for boom-and-bust cycles. So we continue to actively manage risk and exposure while renewing our fleet opportunistically.
Will the propane dehydrogenation (PDH) sector continue to drive China's LPG trade growth in the coming years or will other uses become more important?
Assuming a normalisation in the markets and in US-China trade relations, we believe there is still room for growth in Chinese LPG demand. As mentioned, LPG can penetrate and develop new markets thanks to its competitive pricing and versatility. Whether it is the PDH sector or other markets driving Chinese demand 5-10 years from now is difficult to assess since the use of LPG historically has shifted between various industries and sectors. But the petrochemical industry is likely to be a significant consumer of LPG in the next decade.
Is BW LPG interested in moving into the growing ethane or ammonia segments?
Never say never, but our business model is as a pure-play VLGC and LPG trading set-up. This model is important for our investors to ensure transparency and provide the cleanest exposure to the most attractive LPG markets. We currently don't have any ships trading ammonia, but we have many years of experience from shipping it when we owned smaller LPG ships, and it is likely that ammonia trade will expand in the future. So we are not strangers to the ammonia market if something develops for VLACs [very large ammonia carriers]. For now, it appears the pace of the market's development is slower and less certain than we forecast.
How do you view current regulatory and geopolitical risks for shipping firms?
Given how the world has evolved during the past few years, geopolitical uncertainty is the overshadowing risk factor. We went through the phases of the US tariff war and regulatory challenges in 2025, but this has dropped off the radar due to the escalating Middle East situation. When it comes to environmental and emissions regulations, we are quite fortunate in the LPG shipping space as the dual-fuel LPG propulsion technology has been embraced as the industry standard, combining 15-20pc lower CO2 emissions with significant marine fuel cost savings.
Why did BW LPG exit its planned investment in Indian LPG infrastructure earlier this year, and does it signify a shift in strategy away from vertical integration?
The planned Indian terminal investment was small compared with our balance sheet. As things evolved, and VLGC and LPG market complexity and risk increased, we realised that the time, efforts and resources we allocated to a relatively small project were disproportionate to the expected return. The main value creators for our shareholders lie within our shipping and trading activities, and as market volatility increased on the back of unpredictable geopolitics, it was increasingly important for us to redirect our focus to our value-creating business.
What is the biggest risk to the VLGC sector that the market is underestimating?
It is becoming speed blind and unrealistic in your market outlook. Shipping will remain a cyclical business and managing the market exposure will remain a key factor for success in the future. Every ice cream seller makes good money on a sunny day — the real test comes when the market turns. For LPG commodity markets, low oil and natural gas prices are bad for the exploration and production of LPG. But over time, I am not too worried about that as I believe population and prosperity growth require a lot more energy than previously expected, and LPG fits very well into that story.
