Iranian sanctions set to drive US LPG exports growth to Asia

Credit: Southern Cross Maritime
Credit: Southern Cross Maritime

Sanctions against Iran’s oil and petrochemical industries are expected to drive US exports of liquefied petroleum gas (LPG) to Asia, a move that will increase tonne-mile demand and help lift freight rates, according to gas carrier owner Avance Gas.

“The US is the only region where the buyers of Iranian volumes can turn to for replacement cargoes. Any sourcing moved from Iran to the US will have 50% longer sailing before reaching its destination in the Far East,” the firm said in an interim report on Thursday.

Iran’s LPG exports peaked at about 580,000 tonnes in August, the highest monthly volume since 2016, when the previous round of international sanctions were eased. But they dipped to 356,000 tonnes in September in anticipation that the US would reimpose sanctions on Iran’s oil and petrochemical industries.

That happened on 5 November, as the US attempted to disrupt the US Office of Foreign Assets Control claimed was Iran’s funding of “it’s broad range of malign activities” and to stop production of nuclear weapons and ballistic missiles.

That cames as the US was preparing to ramp-up exports through its Marcus Hook terminal on its east coast.

“The long-expected Mariner East II pipeline is finally ramping-up and bringing more LPG to Marcus Hook,” Avance said. “The Marcus Hook terminal, traditionally exporting two or three cargoes a month is expected to increase by another six to eight cargoes once the new pipeline is up running.”

US energy major Sunoco, which is building the pipeline, was due to make it operational in October. But completion, which is already at least 18 months late, has been delayed further due to “regulatory issues”.

Avance also expects more LPG exports through the Gulf of Mexico next year. “Enterprise, the largest LPG exporter in the US Gulf, has announced its intention to increase its export capacity by 30% by mid-2019. This may add another 6–8, possibly 10, cargoes per month,” Avance said.

Healthy LPG cargo volumes from the US and the Middle East between August and October led to tightening ship supply, with Avance reporting timecharter equivalent earnings of more than USD20,000/day, the highest since 2015.

That came as Avance reported timecharter earnings of USD19.2 million in the third quarter. That helped trim its third quarter net loss to USD8.9 million against a net loss of USD18.4 million in the third quarter last year. Operating revenues climbed to USD36 million in the quarter, up from USD21.9 million a year earlier.

The combination of higher US exports on very large gas carriers (VLGCs), some growth in Middle East and Australia, and a potential increase from west Africa, together with increased scrapping of older ships, led Avance to expect further positive development in the LPG market.

It pointed out that six ships had been sold for demolition so far this year, while 10 are due for delivery, giving net fleet growth of 1.5% in 2018.

By comparison, a further 42 ships will be at least 20 years old by 2020, when the International Maritime Organization’s new emissions regulations come into force. These older vessels are expected to find it difficult to compete in the market because they typically have higher fuel consumption.

“Although some of these ships sit as storage/breakbulk terminals, the potential for increased scrapping is high,” Avance said.