Singapore-based BW LPG has the world’s largest LPG-carrier fleet. Chief executive Martin Ackermann outlines the opportunities and challenges that BW faces, in a market where growing demand is offset by surplus tonnage.
Can you update us on the BW LPG fleet, how many ships are live and on order, where these operate and on what terms they are fixed?
We own 40 very large gas carriers (VLGCs), with an average age of seven years, and operate nine chartered-in VLGCs with an average age of eight years. This will reduce to seven VLGCs by year-end as two VLGCs redeliver to their original owners in the next few months.
We also own four liquefied gas carriers (LGCs) with an average age of 19 years.
We will take delivery of two chartered-in VLGCs from Mitsubishi Heavy Industries in the first quarter of 2020.
At the end of the first quarter this year, we had contract coverage of 24-32 per cent – consisting of time charter and contract of affreightment (CoA) days and depending on CoA uptake – at around US$34,000/day remaining for 2017. We also had 9 per cent contract coverage at around US$32,000/day for 2018.
How do you expect global LPG supply and demand to change in the short, medium and long-term; what implications does this have for shipping in general and for BW LPG in particular?
We expect global LPG trade to grow by a mid-single digit percentage over the medium to long term. The US and, to a lesser extent, the Middle East will be the drivers of export growth.
Asia – in particular China and India – is expected to be the main import growth region. This bodes well for the continued development of the long-haul VLGC trade that developed and burgeoned from 2013 onwards.
What are your expectations for fleet growth in the short, medium and longer term; what impact will this have on shipping rates?
Looking past 2017, for which we expect gross VLGC fleet growth of around 11 per cent, the forward VLGC orderbook stands at 16 VLGCs for the 2018- 2020 period. We have recently seen three new VLGC orders being placed, and we believe that future ordering will be VLGC freight rate-dependent and partly driven by fleet-renewal efforts.
How has BW adjusted to the imbalance in LPG fleet supply and demand?
VLGC trade grew by 7 million tonnes, or 12 per cent, in 2016. Unfortunately, the VLGC fleet grew by almost two times the level of growth in demand, adding 43 VLGCs, or an increase of 22 per cent.
Our goal has always been to maintain a balanced charter portfolio consisting of spot, time charter and CoA exposure, and we entered some of our VLGCs and LGCs into time charters at the end of 2015, in anticipation of weakening freight rates.
The market was much weaker than we, or anyone, expected in 2016. However, we also used this market weakness as an opportunity to invest counter-cyclically and to expand our fleet by nine modern VLGCs.
We also embarked on a significant cost-savings programme that has kept our operating expenses flat on an absolute basis while our fleet expanded. We will continue to seek fixed contract coverage with high-quality counterparties as part of our commercial strategy.
What are your immediate and longer-term priorities, having taken the helm at BW LPG?
Our immediate priority is to prepare the company – operationally and financially – for a scenario in which the VLGC market is weak for a prolonged period. To that end, we are evaluating refinancing options for some of our debt facilities maturing in the next 12 months, while also talking to our clients about contract renewals or altogether new contracts.
Our longer-term priority is to be best on water, providing safe, reliable seaborne LPG transportation services to our clients with minimal impact on the environment, and generating positive, through-the-cycle returns for our shareholders.
How likely are we to see new consolidation in the global LPG carrier fleet; what role might BW play in this?
We continue to monitor and evaluate all potential investment opportunities.
How have you absorbed Aurora LPG into BW?
We completed the acquisition and integration of Aurora LPG and its nine vessels in the first quarter of this year. We have also opened offices in Oslo and Houston to broaden our market presence and service offering to our customers, many of whom are based in the West.
As the largest LPG shipowner, what is your LPG fleet-growth strategy; where do you see opportunity to expand?
Our fleet-growth strategy has always been to grow counter-cyclically through market downturns and to renew and/or expand our fleet at below-median asset values.
When we launched our IPO in November 2013, our VLGC market share was around 20 per cent. This reduced to around 16 per cent as the massive VLGC orderbook delivered over the following two-year period.
However, following our acquisition of Aurora LPG, our market share reverted to 20 per cent and this is a level at which we feel comfortable operating, for the time being.
What are the main challenges facing the LPG shipping business, and your business in particular?
The main challenge is very weak crude oil prices. In the short term, the resumption of US LPG production growth to a mid-high single-digit percentage will be crucial in supporting VLGC freight rates, as it will lead to a renewed surplus of LPG available for export without pressuring domestic US LPG prices upwards, making US LPG uncompetitive for placement in international markets.
Name: Martin Ackermann
Based in: Mapletree Business Centre, Singapore
Education: INSEAD, China Europe International Business School, Oxford Princeton Programme, Copenhagen Business School
Professional accreditation: Member of the Institute of Chartered Shipbrokers
Career path: Martin Ackermann became chief executive officer of BW LPG in August 2015. Before that, he was chief executive of Evergas and managing director of Eitzen Gas and B-Gas, where he rejuvenated the former Eitzen Gas fleet. He has also worked at Sigas Kosan and at Lauritzen Kosan.