A shortage of very large gas carriers (VLGCs) in the Mideast Gulf has pushed freight rates to record highs in September as many vessels have left the region seeking higher revenues in the US Gulf.
The freight rate for a VLGC loading at Ras Tanura, Saudi Arabia, for a voyage to Chiba, Japan, shot up by $152/t on 8 September, according to Argus assessments, a rise of nearly 55pc in a little over a week, and stabilised at $155/t on 12 September — the highest since Argus began assessments in 2003.
Owners have kept their offers consistently above the market level amid low competition since the rate's first sharp increase on 31 August, when it climbed by $9.50/t in a single day.
The rally began when Saudi Aramco released its October-loading cargo prices. Mideast Gulf LPG demand has been firm following a rush of demand from Japan's autogas and industrial sectors along with persistent Indian buying. The additional demand led Aramco to raise its monthly contract prices (CPs).
Charterers faced a shortage of ships in the Mideast Gulf as the Saudi cargoes were quickly snapped up, with much of the LPG fleet having moved to the US Gulf, where Panama Canal delays were generating higher revenues for shipowners.
Until then, rates in the Mideast Gulf had been at a three-month low as LPG seaborne exports from the Mideast Gulf to east Asia have been gradually dropping since May and plunged by 16pc in August to 544,815t, down from 648,947t the previous month, according to Vortexa data.
With more cargoes and higher revenues in the west of Suez markets, many vessels ballasted to the Atlantic basin and left a slim vessel supply behind.
Panama delays
Rising delays to transit the Panama Canal have kept ships out of the spot market for longer in recent weeks and driven rates up. In addition, the higher rates drew ships to the US Gulf from all around the world in August as time-charter equivalent (TCE) revenues were higher than any other region.
This led to loadings from the Atlantic basin reaching an average premium of $16,860/d over voyages from the Mideast Gulf last month.
Delays in the canal have had a profound impact on global VLGC freight rates in recent years, and congestion along with a change to the booking system have made scheduling transits more difficult and more expensive.
Waiting times for an unbooked vessel transiting from the Pacific to the Atlantic peaked at 18 days in August. This put significant upward pressure on prices for the two daily auctioned Neopanamax transit slots, which hit $2.4mn on 23 August, up from an average of $482,256 in the month until then.
This encouraged shippers to send vessels on far longer journeys through the Suez Canal or around the Cape of Good Hope. Market sources indicated that many vessels ballasting from the Mideast Gulf to the US chose the Suez Canal instead of the Panama Canal, which adds 10 days to the voyage and contributes to reducing further the worldwide ship availability.
Outlook
As demand for LPG from the US remains high, with a wide arbitrage in August, there is still an incentive for more loadings to come out of the US to east Asia.
But the spread between Ras Tanura and Houston to Chiba has flipped after the sharp hikes in the past weeks, securing a premium of $8,235/d for loadings from the Mideast Gulf to east Asia over those coming from the US.
Higher revenues in the Pacific basin are likely to attract more ships back to the region, which in parallel could shrink further the availability of vessels in the US Gulf.
