Two owners sign up for newbuildings in China and Japan, with analyst saying shipbuilding prices ‘have softened by at least $10m over the last two years.
An orders drought for very large gas carriers (VLGCs) that lasted more than a year has ended with up to five newbuildings booked at yards in China and Japan.
Singapore’s Petredec Holdings has ordered two 84,000-cbm VLGCs, plus two options, from Jiangnan Shipyard, while Kumiai Navigation has signed up for a 82,200-cbm ship at Kawasaki Heavy Industries (KHI).
Kumiai’s newbuilding will be built to the International Maritime Organization’s old Tier II standards but it will be equipped with an exhaust gas scrubber, ready for the upcoming low-sulphur emissions regulations in 2020.
It is believed to be the first VLGC from a Japanese shipyard to be equipped with a scrubber.
The price of Kumiai’s ship has not been disclosed but industry players believe it will be paying an extra $2.5m-plus to install the scrubber. Delivery is scheduled for the first quarter of 2020.
Petredec is expected to have clinched a bargain price at Jiangnan. Chief executive Giles Fearn confirms the order but declines to reveal the figure. Sources say it could be as low as $65m per ship.
When the market peaked at the end of 2015, Naftomar ordered VLGCs at Jiangnan reportedly for $72.5m.
Petredec’s ships are for delivery in the second and third quarters of 2019. Sources say it has been tempted by the low contract price and they believe the freight market will recover from a current spot market of $27,000 per day compared with the peak of more than $120,000 per day in July 2015.
“We are starting to see some consolidation within the VLGC sector… and the market expects to see accelerated scrapping of older vessels,” said Fearn, adding that Petredec cannot be “too dependent on third-party tonnage providers”.
Kumiai managing director Tomomaru Kuroyanagi confirms his company’s order, explaining why it has opted to equip the ship with the sulphur oxide scrubber.
“We think that environmental responsibilities will be imposed on both owners and operators more heavily in the future,” he told TradeWinds. “In fact, some of the European charterers are beginning to change their policy, not taking newly built vessels that are not equipped with a scrubber.
“If we do not follow the trends, we would never survive in the global market. For the time being, it is quite a big amount of investment to equip with a scrubber. However, it is an inevitable cost for the owners and operators if they want to maintain their reputation and presence in this market.”
Kumiai has also asked KHI to install a scrubber in a VLGC newbuilding that it ordered two years ago. The gas carrier, which is due to roll out of the drydock in the first quarter of 2019, is already fixed out to Japan’s Gyxis.
Kumiai is positive about the gas market outlook. “We believe LPG itself has a bright future because of its versatility as a clean energy and as a feedstock. Also there is a new concept/project using LPG as marine fuel promoted by Astomos Energy — a Japanese mega LPG player,” the company said.
Meanwhile, Ralph Leszczynski, chief analyst at brokerage Banchero Costa, believes the lowest shipbuilding price for the past decade makes it attractive for companies to place VLGC orders.
“Newbuilding prices for VLGCs have softened by at least $10m over the last two years, as Korean and Chinese shipyards are more aggressively trying to fill their orderbooks,” he said. “There had not been any orders for VLGCs throughout 2016 and early 2017. And it was good, as we need a breather, following deliveries of 35 units in 2015 and 45 units in 2016, which resulted in a net fleet growth of over 20% year to year in each of these two years, and contributed to a short-term collapse in market rates.
“The current orderbook for VLGCs beyond 2017 is negligible, with about 25 on order and half for delivery this year. But there are currently about 40 trading units that are over 20 years old.”
Demand remains good, says Leszczynski, because “LPG exports are a function of oil and natural gas production, and we are clearly in a market environment of low oil prices and strong oil production continuing for the medium to long term.
“In particular, we have again fast-growing oil production in the US, while Saudi Arabia and Opec in general are cutting oil and gas production,” he said. “This means LPG importers like China, Korea and India need to rely more on sourcing LPG from the US than from the Middle East, which adds tonne miles.”
The political dispute between Saudi Arabia and Qatar adds uncertainty to the future of LPG exports from the region, boosting the prospects of more LPG volumes being hauled from the US to Asia.
However, Leszczynski cautions that companies should not get overexcited and start ordering 30 or 40 more units.