Owners of LPG carriers can look forward to increasing trade in 2012, despite the uncertain economic environment and the dampening effect of the mild winter in the northern hemisphere.
According to Drewry’s latest LPG Forecaster , stagnant demand in Western economies has been balanced by strong domestic demand in Asian economies, which are increasingly being supplied by the Middle East.
However, the near-term outlook for the spot market is far from certain. Infrastructural bottlenecks in developing nations could pose a downside risk, but there is also a struggle over butane. Asian buyers have been demanding butane-rich LPG from the Middle East, and this trend is likely to persist in the short to medium term as India becomes the largest importer of butane-rich LPG. But increasing domestic consumption, largely from its expanding petchem producing base, means that Saudi butane exports have been declining. This has come to a head with the failure to renew term contracts between Middle East suppliers and Asian buyers. Unless contracts are signed soon, Drewry expects greater market volatility with a significant increase in spot activity for larger vessels.
In the medium term, Drewry expects the spot market in Asia to gain, albeit gradually, while the European spot markets might have to wait a little longer before achieving sustainable growth.
More than half of global LPG consumption is in the residential and commercial sector, primarily for heating and cooking in homes and businesses, and demand from India and China is likely to be the driver of trade in the years to come. This is despite the increasing share being claimed by domestic suppliers in China and the threat by the Indian government to reduce or remove fuel subsidies.
[mappress] LNG World News Staff, March 5, 2012; Image: Anthony Veder