Sailing on LPG s New Tides: Strategies for adapting in a new era of diversification in Supply & Demand Clarksons Platou Gas Clarksons Platou Gas/Japan LPG Conference March 218
<=1988 199 1992 1994 1996 1998 2 22 24 26 28 21 212 214 216 218 218 22 No. of Vessels No. of vessels No. of Vessels Dramatic change in the VLGC fleet continues Age Profile of the VLGC Fleet Forward Availability 4 4 3 3 2 2 1 1 2 + yrs 8 6 2-24 yrs 1 2 3 2 1-19 yrs 8 7 7 3 3 2 3 11 27 12-14 yrs 9 3 2 13 8 3 44 2 4 Orderbook 7 16 11 3 2 2 1 1 3 2 2 1 1 Fleet Development Base Scrap Scenario -2-2 - -4-3 212 213 214 21 216 217 218f 219f 22f Fleet Development High Scrap Scenario 212 213 214 21 216 217 218f 219f 22f Deliveries Removals -2-2 -9-1 -6 2 1 1 - -1 2 1 1 - -1-1 Clarksons Platou Gas/Japan LPG Conference March 218
199 1991 1992 1993 1994 199 1996 1997 1998 1999 2 21 22 23 24 2 26 27 28 29 21 211 212 213 214 21 216 217 218 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Spot Rate - $ pmt TCE $ per month The VLGC Freight Market: How low did it go? Baltic VLGC Index: AG-Japan 16 1 14 13 12 11 1 9 8 7 6 Average 199-Ytd 218 4 3 2 1 Average 199-Ytd 218 (exc 14/1) Assessed Earnings Take a Hit 24 22 VLGC's OPEX Range 2 18 16 14 12 1 8 6 4 2 Clarksons Platou Gas/Japan LPG Conference March 218
2.8 2.4 1.6 2. 1. 3.4 8.3 8.6 1. 9.6 11.3 1. MMT 2.4 2.3 29.7 3.6 36.2 38.4 U.S exports continue to gain market share in Asia Seaborne LPG Exports Seaborne LPG Imports Asia/Global 21 216 217 4 4 7.7 18.1 3 China India 6. 3 Japan South Korea 1.6 11.2 2 Indonesia 2 Others 1 1 23% 7% Approx 67% Imports (excluding coastal movements) AG US Africa North Sea Non-US Americas Asia Asia Americas Europe Balance 1% 6% Clarksons Platou Gas/Japan LPG Conference March 218
Week 1 Week 4 Week 7 Week 1 Week 13 Week 16 Week 19 Week 22 Week 2 Week 28 Week 31 Week 34 Week 37 Week 4 Week 43 Week 46 Week 49 Week 2 Week 3 Week 6 Week 1 Week 4 Week 7 Week 1 Week 13 Week 16 Week 19 Week 22 Week 2 Week 28 Week 31 Week 34 Week 37 Week 4 Week 43 Week 46 Week 49 Week 2 Week 3 Week 6 MT MT 217/18 VLGC Volumes ex US & Middle East v Freights Ex US Ex Middle East 8 $ PMT Volume Lifted US-ARA US-Chiba (via Panama) 1, 4 $ PMT Volume Lifted AG-Japan 1, 7 6 9 8 7 6 3 3 2 9 8 7 6 4 2 3 2 1 4 3 2 1 1 1 4 3 2 1 Source: Clarksons Platou Clarksons Platou Gas/Japan LPG Conference March 218
Jan'13 Apr'13 Jul'13 Oct'13 Jan'14 Apr'14 Jul'14 Oct'14 Jan'1 Apr'1 Jul'1 Oct'1 Jan'16 Apr'16 Jul'16 Oct'16 Jan'17 Apr'17 Jul'17 Oct'17 Million MT Million Tonne Miles (Avg Laden Distance x Total Tonnes) 8% 8% 8% 87% 87% 9% 91% 93% 92% % Utilisation of the Fleet 9% 9% 97% West/East Arbitrage volumes increasingly important VLGC US Liftings by Destination Utilisation falls, despite rising laden distances 2.8 2.6 2.4 2.2 2. Tbc Africa East N.W.E Med Americas % East 1% 9% 8% 7% 4, 3, % Utilisation Tonne-Miles 1% 9% 1.8 1.6 1.4 1.2 1..8 % going East 212 12% 213 19% 214 22% 21 41% 216 47% 217 9% 6% % 4% 3% 3, 2, 2, 9% 8%.6.4.2 2% 1% 1, 8%. % 1, 7% Clarksons Platou Gas/Japan LPG Conference March 218
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Primary number of cargoes cancelled/deferred Flat Netbacks cents/gallon (exc Terminal Fees) U.S Cargo Cancellations & Netback Prices Export volumes also driven by pricing 14 Cargo Cancellations Mt/B Asia +1 (via Neo-Panama) 6.6 6. 12.4 4.8 1 4.2 3.6 8 3. 2.4 1.8 6 1.2.6 4. -.6 2-1.2-1.8-2.4-3. Source: Clarksons Platou Clarksons Platou Gas/Japan LPG Conference March 218
1/216 2/216 3/216 4/216 /216 6/216 7/216 8/216 9/216 1/216 11/216 12/216 1/217 2/217 3/217 4/217 /217 6/217 7/217 8/217 9/217 1/217 11/217 12/217 1/218 2/218 % 6% 6% % 1% 4% 6% 4% 1% 2% 21% 19% 14% 13% 31% 39% 36% 47% 43% 6% Northbound/Southbound 68% 84% 89% 88% 9% 1% VLGC Eastbound Movements & Neo-Panama Utilisation Split of U.S/East Liftings via Panama & Cape. Neo Panama Utilisation levels % US-Asia Transits via Cape Neo Panama Transits - Number 2H16 29% (post new locks) 217 17% 1% 9% 8% 7% 6% 4 3 2 1 4 9 8 34 31 32 3 29 3 31 26 27 1 17 2 16 16 19 22 14 Southbound Northbound % 4% 3% 2% 1% % -1-2 -3-4 3 7 9 1 12 17 21 2 19 16 1 18 26 2 22 2 27 31 29 31 Source: Clarksons Platou Clarksons Platou Gas/Japan LPG Conference March 218
21 216 217 218 219 22 221 222 21 216 217 218 219 22 221 222 M MT M MT 21 216 217 218 219 22 221 222 21 216 217 218 219 22 221 222 M MT M MT 21 216 217 218 219 22 221 222 21 216 217 218 219 22 221 222 M MT M MT Regional Net Seaborne Trade Balances will impact shipping flows. 4 3 3 2 2 1 1 North America Caribs/S. America 7-4 -6-8 -1-12 -14 Europe Africa 4 4 3 3 2 2 Middle East -2-3 -4 - -6-7 Asia/Australasia -2 6-4 -6-8 4-1 Source: Source: Clarksons Clarksons Platou Platou Clarksons Platou Gas/Japan LPG Conference March 218
VLGC Demand/Supply Balance & Utilisation Scenarios US Exports at Base Case Export Growth Number of Vessels Required/Change & $, /day 9 8 7 6 4 3 2 1 % Utilisation of Trading Fleet (Base) Higher Scrap Scenario Requirement Change in Fleet Supply Change in Fleet Supply (Higher Scrap Scenario) VLGC TCE ($,/day) VLGC 1 YR TC Rates ($,/day) Fleet Utilisation % 1 97 94 91 88 8 82 79 76 73-1 29 21 211 212 213 214 21 216 217 218 219 22 Data Source: Clarksons 7 Clarksons Platou Gas/Japan LPG Conference March 218
Sign of the Times: Environmental Regulations Key Baltic Sea ECA in effect North Sea ECA in effect EEDI for newbuildings formally adopted North American ECA entered into force EEDI & SEEMP Mandatory (Phase ) US Caribbean ECA enters into force Lower EEDI reference line (Phase 1) EU Monitoring, Reporting & Verification MRV becomes mandatory in EU ports EU MRV certification comes into force Lower EEDI reference line (Phase 2) Lower EEDI reference line (Phase 3) Date 26 27 28 29 21 211 212 213 214 21 216 217 218 219 22 221 222 223 224 22 Global NOx Tier I Limit 1.% ECA SOx Limit Global NOx Tier II Limit 3.% global SOx limit.1% ECA SOx limit NOx Tier III ECA limit * Ratification of BWMC BWMC - Ballast Water Management Convention EEDI Energy Efficiency Design Index ECA Emission Control Area BWMC applies to newbuilds & ships constructed before 8th September 217 if an IOPPC is completed on or after 8th September 214 and prior to 8th September 217.% global SOx limit MRV Monitoring Reporting and Verification BWMC applies to all other ships constructed before 8 th September 217 North Sea & Baltic Sea NOx ECAs in effect *At the MEPC 66 it was decided that, as of 1st September 21, Tier III limits within future ECAs will only apply to ships built after the date of adoption of the ECA, or a later date as may be specified in the amendment designating the NOx Tier III ECA. Clarksons Platou Gas/Japan LPG Conference March 218 SOx NOx
Comparison of Methods of Compliance MGO Scrubber LNG LPG/Ethane Storage tanks required for MGO/MDO Modifications to the fuel oil system may be required Are there any implications for engine efficiency and/or maintenance? Requires limited investment. However, fuel costs likely to be higher and availability of MGO/lower sulphur fuel unclear price spread between low sulphur fuel oil & HFO uncertain Requires space to install the scrubber There are various types and manufacturers to choose between Requires significant capital investment However, can run HFO Will the market be sufficiently strong to cover these investment costs or will the MGO/HFO differential be sufficiently wide to justify it? Reports on scrubbers with corrosion problems Requires gas or dual/tri-fuel engines, LNG tanks, booster pumps, double-walled piping etc Significant investment costs for the engine & modifications required Maintenance costs likely to be higher Loss of cargo space (more important for some types of vessels v others LNG infrastructure limited, spec and costs uncertain Requires investment - engine has to be able to run on Ethane or LPG, piping etc Some of the new Multigas/Ethane carriers already using Ethane as a fuel and has cost advantages Significant investment costs for the engine & modifications required, but lower than LNG Maintenance costs likely to be higher Overcomes some of the hurdles of requiring the infrastructure in place particularly if LPG or Ethane is the cargo Clarksons Platou Gas/Japan LPG Conference March 218
Future Proofing - LPG as a Fuel Engines ME-GI (Gas Injection) engines typically burn LNG. However, the high pressure injection is indifferent to the gas composition, so they can burn different mixtures with higher hydrocarbon content such as LPG (with modifications to the auxiliary components as the density of LPG is higher than the density of LNG) ME-LGI (Liquid Gas Injection) Engines were designed for Methanol, but can burn LPG as well as Ethanol. To date, the orders have been for Methanol as a fuel, but Propane is possible. - LGI engines would be powered by LPG as a liquid fuel (whereas GI engines are injecting LNG as a gas). The liquid fuel is injected via a booster injection valve, which raises the fuel pressure and eliminates the need for high pressure fuel lines. There is no need for cryogenic equipment used for LNG systems. Therefore, less expensive & uses fairly standard equipment - LPG components such as injectors/valves can be designed smaller than LNG components, therefore less heavy and less expensive Clarksons Platou Gas/Japan LPG Conference March 218
Benefits of using LPG as a fuel Meets the criteria for a lower SOx marine fuel solution, PM & CO2. NOx emission reductions & IMO Tier 3 targets can be achieved if combined with other systems LPG has a higher calorific value compared to most other oil products & LNG - has the same efficiency gains as LNG No risk of oil spills whilst bunkering No need to spend additional time bunkering, if using the cargo No need for separate LPG storage tanks, if fuel comes from the cargo tanks LPG pumps, compressors etc are generally less expensive than LNG Lower maintenance costs than diesel/gasoline as burns more cleanly More efficient than fuel oil/gas oil However, LPG needs a higher pressure. There are also some safety concerns in gaseous form Propane & Butane are heavier than air and could therefore potentially be more dangerous if it leaks in the engine room Clarksons Platou Gas/Japan LPG Conference March 218
Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 $/GJ Costs could also be cheaper 26 24 22 2 18 16 Propane N.W.E Low Sulphur MGO Rotterdam 14 12 1 8 6 4 2 Clarksons Platou Gas/Japan LPG Conference March 218
Implications for the Market. Environmental Legislation WILL impact the freight market, as it will impact how vessels trade & costs Investment decisions will have to be made by Owners Adapt, Scrap or Wait & See? Higher fuel costs will be borne by Receivers A formula for charging for the LPG as a fuel can be established Engine/vessel designs evolving as are agreements around LPG bunkering hubs JANUARY 29, 218 South Korea's plans to pioneer LPG as a marine fuel with a GE Combined Gas turbine Electric and Steam System (COGES) powered car/passenger ferry are picking up pace. Classification society Bureau Veritas has now given the design Approval in Principle and the Korea LPG Association reports that a Memorandum of Understanding has been signed for what it says will be the world's first LPG ship bunkering hub A potential new Tide of LPG demand growth only a matter of time! Clarksons Platou Gas/Japan LPG Conference March 218
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