The International LPG Seminar 2022

Navigating through extreme volatilities in the VLGC market.


In a presentation titled “Navigating through extreme volatilities in VLGC market”, Niels Rigault talks about the VLGC market, the challenges lying ahead of us and the ways we can tackle market challenges at an online event held on 1-2 March 2022.

Date: 1-2 March 2022
Event: The International LPG Seminar 2022

Key Highlights

What are they key challenges facing shipowners and operators?

Ship owners and operators are facing increasing number of market challenges from all aspects. Market has become extremely volatile, and it is becoming extremely challenging for ship owners and operators to forecast the market developments and make the right commercial decisions. Increased shipping inefficiencies has become the new norm, causing high scheduling and operational risk for both our clients and us. A high orderbook certainly puts uncertainties and negative sentiments on the freight rates ahead, and where size matters, the VLGC market is highly fragmented. Environmental policies have also become more severe with various regulations targeting the shipping industry.

What can we do to mitigate these challenges?

One of the options is to increase fixed coverage in the time charter market. This will help us generate stable cash flow, high utilisation. However, there are limited long term time charter opportunities available in the market, and we must accept discounted TC rate due to increasing market inefficiencies. Another option is to make use of derivatives. However, the FFA paper market is relatively small, making it difficult to hedge the whole position and you need credit lines to hedge your position. We can also take more risks and increase our spot exposures. This will enable us to capture the upsides during the strong market and allows more flexible voyage planning and positioning compared to time charters. However, earnings can be highly volatile and commercial utilisation could be low during extremely weak market.

Pooling – Stronger Together

Pooling is a good option compared to other alternatives. By pooling the vessels together, we form a wider fleet base. This provides higher diversification versus locking in individual fixture in a highly volatile market. Pooling enables worldwide presence and broader coverage. This gives exposure to premium markets and reduces operational risk through efficient scheduling. Through economies of scale, we also optimise bunker cost and boost voyage earnings. Pooling gives shipowners the flexibility and optionality to allocate the right ship for the right cargo. This reduces carbon footprint and address environmental regulations while maintaining commercial utilisation.

To tackle tomorrow’s market challenges and to better serve the LPG clients, BW LPG has established a spot pool and we inviting other shipowners to join as partners to better meet the future. Firstly, we have the largest spot pool in the market with 28 ships including 14 LPG dual-fuel VLGCs. This makes our pool the most environmental pool with the lowest CO2 emissions in the whole industry. We have currently over 20% market share in the US and 11% in the Middle East. Secondly, being public listed BW LPG upholds responsible and transparent business practices. Our Pool will, ensure the prompt and transparent communications with our pool partners. We offer flexible pool structure with absolutely no exit barriers and zero hidden fees. Pool participant has the full freedom to choose their desired risk profiles.

BW LPG have an interesting commercial setup with offices in Houston, Oslo and Singapore to serve the market 24/7 and Product Services which ensure we have high fleet utilisation with low risk. In addition, our analysts make sure we have good data enable us to make good commercial decisions. We also bring in cost efficiency through the collaboration with our sister company Hafnia on bunker procurement. Hafnia has supported bunkering of more than 750 ships. This allows us to get bunker at competitive prices. Therefore, BW LPG spot pool we believe is perfectly designed to navigate through the extreme volatilities in the VLGC market and the challenges ahead us. And we welcome our peers to join our pool.

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Keywords: Business, Very Large Gas Carrier, Liquefied Petroleum Gas, LPG, Volatility, Commercial, Pool, ESG, Oslo-listed, Safe, Reliable, Shipping, Energy, Maritime