Bloomberg News

Shale LPG Poised to Make U.S. Net Exporter for First Year

February 14, 2013

The U.S. is poised to become a net exporter of liquefied petroleum gases for the first year ever as shale-based energy production jumps, prompting new orders for specialized ships to haul propane and butane.

Daily LPG shipments equated to a record 194,000 barrels in last year’s first 11 months, outpacing imports at 169,700 barrels, U.S. Energy Information Administration figures show. That’s the first time the country was a net exporter in records going back to 1973, according to data compiled by Bloomberg.

Total seaborne trade in LPG will come to 100.6 million metric tons this year, up about 16 percent from 2010, estimates by German transportation lender DVB Bank SE show. U.S. exports will exceed 5 million tons this year, against 3.7 million tons in 2012, before reaching 7 million tons next year, London-based shipbroker Braemar Seascope Ltd. predicts.

“After that, it’s anybody’s guess,” Nick Wright, a shipbroker at Braemar who specializes in organizing charters for gas carriers hauling LPG, said by phone Feb. 13. “Some have predicted they’ll be as much as 20 million tons by 2020.”

LPG is a byproduct from refining oil and purifying natural gas, according to the EIA. Hydraulic fracturing, known as fracking, of shale rock formations from Texas to West Virginia has boosted U.S. supplies of gas. LPG, used to manufacture petrochemicals and also for heating and cooking, is converted to liquid form for shipping by pressurization and cooling to minus 42 degrees Celsius (minus 44 degrees Fahrenheit).

More Vessels

Increased U.S. production is leading to orders at shipyards for vessels designed to transport LPG as well as other petrochemical gases including ethane, said Stephen Wilson, director of Braemar Seascope’s gas department.

“We are seeing a game-changer because of this era of shale gas,” Wilson said in a Feb. 8 interview. “The extra production planned of LPG and petrochemical gases is going to have a major impact, but nobody’s 100 percent sure of what types of ships will be needed and numbers required.”

BW Group Ltd. has 12 very large gas carriers that haul propane and butane, the biggest fleet, data from IHS Fairplay show. The Bermuda-based shipowner owns 47 gas carriers of all types, according to its website.

Billionaire John Fredriksen was among shipowners who ordered eight VLGCs in the last six months as shipyard prices fell as low as $62 million from the high of $95 million in 2006. Each vessel can hold 80,000 cubic meters (2.83 million cubic feet) of cargo.

2015 Deliveries

The fleet of 150 VLGCs will swell by 13 ships this year and a further 10 in 2014, Braemar’s Wright said. Orders for another four vessels have yet to be confirmed, he said, predicting deliveries of the carriers in 2015.

Evergas, a Copenhagen-based shipper of petrochemical gases, last month ordered vessels that can haul ethane or liquefied natural gas from the U.S., Vice President Ralph Juhl said in an interview Feb. 13. He gave no information on the order’s size.

Petrochemical manufacturer Ineos Group Holdings will charter the ships, each with a capacity of 27,500 cubic meters, under long-duration accords once they enter service starting in 2015 to transport ethane to Norway from the U.S., Juhl said.

LPG from the U.S. is cheaper than the biggest suppliers in the Middle East, which account for about 35 million tons a year of the estimated 85 million-ton global seaborne trade, according to Braemar.

Benchmark Voyage

The cost to ship 44,000 tons of LPG to Japan from Saudi Arabia, the benchmark route, advanced 0.6 percent to $40.59 a ton, according to the Baltic Exchange, a London-based assessor of freight costs. Rates gained in eight of the 10 sessions so far this month after averaging $38.75 in January, the lowest since October 2010, data compiled by Bloomberg show.

VLGCs will be able to navigate the expanded Panama Canal once wider locks under construction open in 2015, according to Braemar. Access to the waterway linking the Atlantic and Pacific oceans will shorten voyage times, in turn cutting shipping costs and reducing the expense of exporting LPG to Asia from the U.S., the shipbroker says.

To contact the reporter on this story: Michelle Wiese Bockmann in London at mwiesebockma@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net


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