Golar LNG Ltd. Message Board

Friday, 03 June 2011 00:00

In late 2007, following an unprecedented ordering boom, the orderbook for very large gas carriers (VLGCs) of 70-85,000 cubic metres stood at 51 vessels. At the time there were only 112 VLGCs in service but the promise of a surge in Middle East LPG.

Exports prompted gas carrier owners to throw caution to the wind and embark on their newbuilding spree. The paucity of shipyard building berths slots at the time exacerbated the rush to contract new vessels.

As has often happened in similar situations in the past, the bubble soon burst. On this occasion it was a particularly painful plummet back to earth. The credit crisis of September 2008 quickly gave way to a global economic slump and, in addition, the projects to develop new Middle East LPG production capacity suffered major delays. On top of this the production of crude oil, and hence LPG, went into decline.

The payback for VLGC owners came in the form of plunging freight rates as an already overtonnaged fleet was augmented by a steady feed of newly commissioned ships. These returns, which barely covered operating expenses, were to remain at desultory levels for the next 18 months. In the continued absence of sufficient cargoes four VLGCs were put into cold layup between March and May 2010.
The upswing did not come until summer 2010 when a spate of West-East arbitrage cargoes and strengthening LPG exports from the Middle East Gulf increased the call on available tonnage. Even so, the turnaround was more in the form of a modest uptick than a full-blooded rebound. The Baltic Index marker for VLGCs - 44,000 metric tonnes (mt) of LPG on the Ras Tanura/Chiba route - averaged USD 35.2 per metric tonne (pmt) in 2010 compared to USD 22 pmt in 2009.

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