Q3 2022 Analysis – Surfing the Energy Wave


It has been another busy quarter at BW LPG. Our acquisition of Vilma Oil’s LPG trading operation that was announced last quarter has been approved by the Spanish regulatory authority, and the transaction was completed in November 2022. We presented solid financial results, and have prepared well for the upcoming environmental regulations. Geopolitical and economic uncertainties continue to cloud the outlook of the market. We’re working hard to contribute to energy security by delivering LPG safely and sustainably around the world. With increasing demand for natural gas, we’re also seeing a growing awareness of the possibilities for LPG. In many ways, we are surfing this wave of increased production of oil and gas.

Key Highlights

Our average day rate was USD 38,200 per available days during the quarter, with 98% commercial utilisation. We have ample liquidity of USD 365 million, and a net leverage ratio of 25%. 93% of our floating interest debt is hedged at an average rate of 2.1% before margin for next half decade. We also sold and delivered one Very Large Gas Carrier (VLGC), the BW Prince in October, generating USD 44 million in liquidity with a book gain of USD 2 million.

We continue with our 75% payout policy for dividends, and we returned USD 0.25 per share for the third quarter. This brings our total dividend payments up to USD 102 million so far in 2022. For our market outlook, we continue to have a positive view of 2023.We expect strong export growth from both the U.S. and Middle East coupled with stable retail demand and recovery in demand from the Far East petrochemical industry. We also expect the implementation of the new regulations, the EEXI and the CII to reduce the effective supply of the VLGC fleet, and that certain shipping inefficiencies will continue into next year. And thus certain shipping efficiencies should continue into next year.

Expanding BW LPG Product Services

We plan for up to five of Vilma Oil’s VLGCs to enter the BW LPG pool over the coming months, which will have a consolidating effect on the freight market. BW LPG Product Services will report on their own trading book and will operate on market terms like any other player in the market, and expect to start reporting on the contribution to BW LPG’s EBITDA at the next earnings release.

When we ramp up the Product Services activities, we will add another layer to BW LPG’s commercial portfolio, which will increase our optionality and ability to adjust our exposure in the growing LPG markets. Thanks to its versatility, green profile and competitive pricing, LPG is increasingly regarded as an alternative to more cost energy sources, and we look forward to participating in this growing market with an even larger footprint than before.

A Strong LPG Shipping Market

We are currently experiencing a very strong LPG shipping market. Strong demand for natural gas in Europe has certainly contributed to the high gas prices and consequently, higher exports out of the U.S. also for LPG. The very large increase in LNG exports out of the U.S. have also contributed to longer waiting times for Panama Canal transits. Today, we are seeing in excess of 20 days. And even if there are more US originated voyages going to Europe instead of Asia, the negative ton-mile impact of this is offset by increased Middle East exports.

For the third quarter, U.S. exports were steady compared to last year. Middle East, on the other hand, grew by substantial 23% compared to the same quarter last year. This growth was led by Saudi Arabia, Iran and Emirates. The majority of these export found a home in Asia, mainly China and India. China actually increased their imports despite continued lockdown measures in place. While Indian imports were down during the quarter, we expect the full year to show growth due to the strong activity in October and November. European imports from the U.S. continued to grow, up by 143% in Q3 compared to last year.

Positive View of 2023

We continue to have a positive view towards 2023, even with the high newbuilding deliveries due to our expectation for solid growth from the LPG LPG hubs – more than 10% growth in the U.S. and more than 5% growth out of the Middle East; a recovery in Chinese LPG demand, supported by new PDH plants coming on stream with expected recovering margin; fleet inefficiencies such as the Panama Canal; impact from new regulations and heavy drydocking schedule in 2023.

As a result, we expect a firm freight market for next year. But since inefficiencies plays a large part of it, we will continue to expect a very volatile market going forward. However, with our critical mass in the spot market, we are ready to face this challenge.

We have booked 80% of our Q4 available days at an average rate of USD 50,000 per day. And that we have covered 17% for 2023 at USD 34,100 time charter days.

Business As Usual with New Regulations

Combining high-tech ships with smart operations, we are in a strong position to meet the new green regulations coming into force next year. Come 1st January 2023, it remains business as usual for BW LPG. All our vessels will be able to fulfill their commercial obligations. Our fleet remains operable and all vessels will be able to fulfill their commercial obligations. And in particular, our 15 LGIP vessels will maintain maximum service speed for the foreseeable future. 

Read More

– Read about LPG and its benefits at The World LPG Association.
– Read about the benefits of LPG propulsion.
– Read about why retrofitting of vessels makes sense.
– Read about our Sustainability Approach.

Topics: Market Outlook, LPG market, liquefied petroleum gas trends, emissions reduction, carbon reduction, decarbonization, ESG, Sustainability, environmental protection, technology, LPG