Asia's LPG importing giants like Japan, South Korea and China need to
stop complaining about relatively high freight rates and get used to paying
higher costs, the world's single largest operator of refrigerated LPG shipping
told an industry conference in Dubai late Monday.
Jens Ismar, director of chartering and projects at BW Gas, said the cost
of building large LPG tankers had soared in recent years, much like every
other major piece of infrastructure supporting the world's oil and gas
industry, and that Asia's LPG importers would need to adjust to a high cost of
shipping.
"Today that [cost] is $59/mt. I think most of you would tell me that I am
in shipping, and that this is an outrageous number, but that's a fact," said
Ismar, referring to the price for shipping LPG in large tankers along the most
frequently-referenced shipping route between Ras Tanura in Saudi Arabia and
Chiba, in Japan.
Ismar estimated that it now costs about $105 million to build a VLGC, up
from $68 million for a new ship back in 2003. Assuming a 25-year operating
life, LPG shippers need to get paid at least $59/mt to earn the 10% return on
investment that would help them run their fleets -- up from the $34/mt they
needed four years ago.
Currently, the Ras Tanura-Chiba route is pegged at about $54/mt, and the
route has seen a roller-coaster ride in 2007, sinking as low as $19/mt in
early February.

NO RETURN TO CHEAP FREIGHT, SAYS BW GAS
Speaking at CMT's Second Annual LPG Trading Summit in Dubai, Ismar said a
return to low freight rates was not on the cards, despite the fact that
around 27 new VLGCs are likely to arrive on the market in 2008, and a total
of 56 new VLGCs are on order around the world for delivery in coming
years -- more than half the size of the world's current fleet of VLGCs.
"We are about to see the kind of additions that we have not seen before,"
said Ismar. But he predicted that at least five existing VLGCs would be
scrapped next year, on top of an estimated eight that have been scrapped in
2007 to date.
With total growth for extra shipping next year able to support 23 new
ships, the likely scrapping of five and delivery of 27 would, on a net basis,
leave world demand for large LPG ships one VLGC higher next year, he expected.
This year's blow-out in freight rates back in February shook out weak
shippers, he said. On top of the eight ships that were scrapped this year, two
more VLGCs were converted to floating storage, while a further four were
converted to Capsesize tankers for moving other oil products, he said.
Ismar said the steep drop in freight rates at the start of the year was
driven by trading strategies, as much as market fundamentals. "It's a very
shallow market compared to the tanker market," said Ismar, referring to LPG
shipping.
"We are not naive enough to think that shipping rates are set simply by
supply and demand."
BW Gas, formed in April 2003 when World-Wide Shipping took over Bergesen
to create Bergesen WorldWide Ltd. (the company has since been renamed as BW
Gas), owns and operates 31 of the 106 VLGCs that ship LPG in large quantities
around the world, and has eight of the 56 new VLGC's that are on order.
--Dave Ernsberger, dave_ernsberger@platts.com