US LPG export spike may push VLGC rates to $300,000/day by 2015: DNB

Singapore (Platts)--11 Dec 2013 459 pm EST/2159 GMT

Very large gas carrier freight rates could rise to $200,000-300,000/day in late 2015 and beyond from the current $37,000/day with the opening of the enlarged Panama Canal, because of the spread in propane prices between the US and China, DNB Markets said Wednesday.

VLGCs sailing through the expanded Panama Canal will result in more arbitrage cargoes moving east, the DNB report said.

VLGC demand to ship out from the US would increase from 16 vessels in 2013 to 78 ships by 2017, the report said, with more than 50% of the volume going to north Asia by 2017, up from around 20% currently.

LPG traders, such as Vitol, are currently seeing a profit of $7.7 million per VLGC cargo based on an 84-day round voyage, current spot VLGC rates, current propane arbitrage of $414/mt, and a terminal fee of $68/mt, DNB said.

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Propane is currently priced around $620/mt in the US compared with $938/mt in northwest Europe and $1,034/mt in China. Chinese butane prices are even higher, at around $1,114/mt.

DNB said officials from Japanese trading house Itochu, Vitol and US group Enterprise Products were interviewed for is research report.

Butane and propane are mainly used for gasoline blending, as a fuel gas, and as a feedstock for the petrochemical industries.

The arbitrage movement on propane has been affecting VLGC spot rates, which reached a high of $55,000/day in the third quarter.

The LPG market in 2015 is likely to have tight vessel availability and a high arbitrage, DNB Markets said, adding US LPG exports alone will absorb the current VLGC order book for 2014-16, assuming there is no further expansion of LPG terminals in the US.

DNB raised its forecast for VLGC rates during 2013-15 by 40% to $45,000/day for 2014, $60,000/day for 2015 and $55,000/day for 2016, up from a previous forecast of $37,000/day during 2013-16.

The US share of global LPG trade is on the rise and this will push up the demand for VLGCs to ship the gas. The US accounted for 12% of the LPG exports of the top 9 exporters in 2012, rising to 21% in 2013.

--Sameer Mohindru,
--Edited by Dan Lalor,

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