Capital Link hosted a presentation by the senior management of Dorian LPG on Thursday, January 12, 2023. During the 45-minute session, John Lycouris, Dorian LPG USA CEO, and Ted Young, Dorian LPG CFO, provided an image of the growing LPG market and VLGC sector as part of Capital Link’s Company Presentation Series.
LPG has risen in prominence as an alternative to gasoline, coal, and oil due to its low cost, abundant supply, and portability. While it is a fossil fuel, LPG is also cleaner than many other energy sources, as it produces less air pollution and carbon emissions.
The war in Ukraine has greatly impacted the price of LNG, particularly in the Far East, where it has increased significantly. As Russia did not export a significant amount of LPG before the war, and what it did export was transported largely by rail and mid-size vessels (MGCs), the war and resulting sanctions did not impact the VLGC sector much directly. It did, however, create additional LPG exports from other oil and gas producing countries, thereby bolstering the VLGC sector ton-miles.
“Global demand for LPG is about 330 million metric tons, about one third of that is traded over the water” on VLGCs, Ted Young, CFO, stated. North America and the Middle East are the largest production centers for LPG, while the major end-user markets are mainly located in the Far East. The USA has become the biggest seaborne exporter of LPG, with the Middle East following close behind. In 2022, 45% of global LPG exports came from the US, and 36% from the Middle East.
The EIA forecasts that production of LPG will increase by 5 to 6% in the US in the next two years, while LPG exports are expected to increase by 16% in 2023, and by 8% percent in 2024.
Scrubbers, Green Technology Integral to Future of Sector
Ted Young noted that the company has “made a significant investment in scrubbers,” as 13 of its vessels are scrubber-fitted, a move which “has paid big dividends.” Without scrubbers, the ships would have to operate on highly expensive low-sulphur fuel oil in order to follow the 2020 IMO regulations on sulphur emissions pollution. However, ships fitted with scrubbers can operate on lower-cost, standard fuel oil, since the scrubbers remove the offending pollutant.
John Lycouris, noted that Dorian LPG were “leaders” in terms of installing scrubbers on their vessels since delivery, back in 2015, “way before it was mandated or regulated to have low sulfur emissions.” The company saw back in 2015 that scrubbers would become attractive in providing cleaner emissions and thought it was “a great opportunity to build its vessels retrofit ready for this technological advance and by installing scrubbers in two of its vessels to pilot the technology”.
This early experience with scrubbers convinced the company to retrofit more of its vessels with scrubbers and has even pushed the company to seek out solutions towards the next generation of green technology. “We believe Carbon capture will be the next thing to look at,” John Lycouris said.
Unlike many other shipping sectors, the VLGC orderbook is quite large, with 70 ships on order from now until 2025, 45 of which are expected to be delivered this year alone. While such a large orderbook could be a cause for concern, there are a number of factors at play that may mitigate some of the market risk. He also noted that 60 vessels on the water—18% of the global VLGC fleet—are due for drydocking and special surveys in 2023, meaning that they will be “out of commission” for four to six weeks.
Additionally, a significant portion of VLGCs on the water are ageing out, with 17% of the global fleet aged over 20 years, meaning that a significant number of vessels will have to be significantly renovated or scrapped in order to remain economically viable, particularly in terms of IMO regulations.
Since its initial public offering in 2014, Dorian has returned almost $500 million to shareholders.
The company has refinanced its remaining debt facility into a seven-year facility, as compared to the standard five-year facility in shipping.
Dorian has bought back a large amount of its stock—the company had around 56 million shares outstanding when it went public, and currently has around 40 million shares outstanding.
Dorian LPG is a leading owner and operator of very large gas carriers (VLGCs). The liquified petroleum gas (LPG) company’s modern fleet consists of 19 ECO VLGCs, one modern VLGC, and two chartered-in VLGCs. With an average age of 8.5 years, Dorian’s fleet is younger than the global VLGC fleet, which has an average age of 11.3 years.
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