Drewry: LPG Shipping Earnings to Remain Buoyant

LPG shipping earnings are forecast to remain buoyant on the back of low oil prices and the absence of fuel substitution, according to Drewry’s LPG Forecaster.

Low oil prices have not triggered the substitution of LPG as the fuel of industrial use, as feared by some analysts. As a result, LPG shipping demand has remained intact and low bunker prices have supported vessel earnings.

Drewry expects this trend to continue, as 60% of global consumption is residential whose demand is largely inelastic to oil price change. The remainder is largely consumed by petrochemical production and Drewry estimates that only 20% of the sector’s capacity is capable of switching away from LPG fuel. Historically, LPG consumption has proven remarkably stable in spite of oil price volatility.

Meanwhile, the fall in oil prices has lowered shipping’s fuel costs which have fed through into time charter equivalent (TCE) earnings despite weakening freight rates. For example, Drewry estimates that lower fourth quarter bunker costs contributed an 11% boost to LPG TCE earnings for very large gas carriers (VLGCs) on the Arabian Gulf-Japan route compared to the previous quarter. Over this period average freight rates fell 26% to $85 per tonne.

A similar trend has been witnessed on coastal trades, with North West Europe-East Europe TCE earnings rising 22% over the same period despite lower freight rates.

“The implication is that LPG shipping has everything to gain from lower oil prices, despite unfounded fears that this may reduce cargo demand and so damage sector earnings,” said Shresth Sharma, Senior Gas Shipping Analyst at Drewry. “While we do not anticipate VLGC freight rates reaching the highs of last year given the large number of vessels lined up for delivery, we expect bunker costs to remain low through 2015 which will help support LPG shipping earnings.”

Share this article

Follow World Maritime News

Posted on February 26, 2015 with tags , .

In Depth>

Events>

<< Nov 2019 >>
MTWTFSS
28 29 30 31 1 2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 27 28 29 30 1

The 9th Annual Event Green Shiptech China Congress 2020

The 9th Annual Event- Green Shiptech China Congress 2020 will be held on next…

read more >

CWC World LNG Summit & Awards Evening

The CWC World LNG Summit & Awards Evening will be returning to Rome in 2019 to celebrate it’s 20th year.

read more >

Salvage & Wreck

Salvage and Wreck Removal Conference will focus on Casualty management case studies, Dealing with hazardous cargo and container ship fires…

read more >

Maritime Reconnaissance and Surveillance Technology

As varied threats in the Mediterranean Sea continue to proliferate, the need to advance…

read more >