Spot earnings for VLGCs have risen by more than 20% since drone attacks on oil facilities wiped out a large chunk of Saudi Arabia’s LPG production on 14 September.
According to Arctic Securities assessments, VLGC earnings reached $56,789 per day as of Wednesday, up from the pre-attack level of $46,420 per day.
VLGC rates for the Middle East-Japan route were assessed by the Baltic Exchange at $66.6 per tonne as of Tuesday, up 8.9% month on month. Rates for the Houston-Japan route are believed to be above $110 per tonne.
The buoyant sentiment has come as many market participants anticipate lower exports from Saudi Arabia in the coming months as seasonal demand is picking up, potentially boosting long-haul shipments to India and other Asian nations.
The US is deemed to be well positioned to increase its market share, with the latest weekly data from the Energy Information Administration showing propane stocks reached 101m barrels as of 13 September, which is not far from the all-time high.
Rate impact
“The major impact [has been] on VLGC rates … giving an early momentum to the market as it gears up to enter the high-demand season,” Drewry senior research analyst Aman Sud said.
Data from VesselsValue shows Saudi Arabia has exported 18 shipments on VLGCs or midsize gas carriers so far this month, compared with 40 shipments for the whole of August.
The major impact [has been] on VLGC rates … giving an early momentum to the market as it gears up to enter the high-demand season
Drewry’s senior research analyst Aman Sud
While Saudi Aramco — the country’s national oil firm — has vowed to restore oil production by the end of September, the output of associated gas is likely to take longer to recover, according to some market reports.
“Saudi Arabia delayed its October loadings to a certain extent,” Sud said. “We expect that Saudi Arabia’s LPG inventory would be low and it might be hard to supply LPG to its export market in the fourth quarter with Opec production cuts still in place.”
Moreover, Aramco is expected to hike its contract price for LPG following the production issues, potentially making it more economical for Asian buyers to purchase LPG from the US.
“The rise in Saudi CP [contract price] will see the US-Asia propane price arbitrage expanding, which would favour higher US LPG loadings in the short term,” Sud added.
With China still in need of relying on Middle Eastern cargoes due to its ongoing trade war with the US, some analysts expected India, the top buyer of Saudi LPG, to look for more supplies from farther afield.
“While [more than 95%] of LPG deliveries to India have historically been sourced from the countries within the Middle Eastern Gulf, the US-China trade war [has] increased the demand for Middle Eastern cargoes, putting a premium on them and, therefore, resulting in India sourcing some of the product from the US, Norway, Angola and Australia this year,” according to Kpler.
“[The] majority of Ras Tanura sourced cargoes end up in India. Therefore, should the volumes out of Ras Tanura drop in the upcoming months, India will be affected the most and would need to look for alternative sources of supply.”
Saudi Arabia exports roughly 60% of its LPG from Ras Tanura.
