Here we go, another year starts and it’s 42 years since my first New Year in the LPG industry, how time flies when you’re having fun! In 2024 we’re going to see elections in countries that make-up over half of the global population, some are free, some are not and I’m sure some will be contested by the losers once the results go against them. I’ll let you decide where in the world that might be. We are likely to have an election here in the UK at the end of 2024, Russia’s also having one, the largest democracy India is voting, and of course the U.S. Presidential election will probably run one eighty-year-old against another, well just about. There’ll be municipal and local elections in Brazil and Turkey, there’s the election of the European parliament to boot. In fact, it will be a year where more people will have voted than in any other year, at least since I joined the LPG world.
But about half of those elections will be hybrid governments where democracy is mixed with a fair amount of authoritarianism, but it’s not really fairness we will be looking at, it will be the impact on the world, its economy and the bearing it has on global energy, maybe even directly on LPG. Certainly, if Prime Minister Modi keeps office, and there’s a very good chance he will, we will see change in the PMUY scheme, the role and efficiency of PSU’s and the future of government subsidy/ influence in the domestic LPG market. But we’re also due to have an election in Taiwan this month that’s bound to shape the island’s position vis-à-vis mainland China. Of course, the more regionalised LPG players will have an eye on Algeria, Ghana, Pakistan and South Africa, but the big commotion will centre in and around Washington. Despite being way off the ratings of his likely opponent ex-President Trump, it looks as if Joe Biden will run again and will lose, unless of course Donald Trump somehow fails to get the Republican endorsement, or at least the ability to be voted in as the Republican Presidential candidate. His position on climate change, the oil patch, and China will significantly impact our world, and that’s not just LPG. You better mark your X very carefully this year!
There was a New Year message delivered by OPEC’s Secretariat, thanking OPEC members and those aligned non-OPEC producing countries, for re-affirming their “steadfast commitment to the shared objectives of unity and cohesion”. They feel that their action supported the global economy to overcome the “many challenges” it has faced. In their minds “supported” basically means “stability” and they refer how other commodity markets are anything but stable. I guess it’s a take on what’s happening!
But still for the energy, and especially the LPG industry, we face transiting issues, whether it be through the Panama Canal, Suez and ultimately the Red Sea. Whether we will add the Straits of Hormuz soon, I hope not, but I cannot guarantee that. The land to the sides of the Panama Canal is usually submerged at this time of year, but are instead a dry, parched land, evidence of why the waterway itself is not in good shape lying nearly 2 metres below the normal water line. Thoughts of artificial lakes, and cloud seeding are years away if at all. There was some rain in November, but with only 24 ships transiting a day, it’s a long way off the previous 38 ship capacity. And now were entering the dry season, or should I call it the even drier season, so don’t expect any natural or man delivered solution before May at the earliest. It’s going to be at least 6 years before any dam can be built with a pipeline into Lake Gatun, the canal’s main reservoir. But back to getting elected, dams are not popular with voters, even in Panama elections!
Certainly, the start to the LPG year is again focused on what’s going to happen in the shipping world. A year ago, we all knew VLGCs of the neo variety were going to be slotted further and further to the rear of the Panama Canal queue. Ship owners had already started ordering Panamax sizes as well as larger and more economical 90,000 CBM+ VLGCs, anticipating longer voyages via Suez, or around the Cape. Then came the news that due to water shortages even fewer VLGCs would be able to transit as less ships generally would be able to pass through the canal. So off sped the VLGCs to Suez and the Red Sea, to Asia. Then the Houthi rebels did what a lot of us expected they would do, fire upon ships using this route. Hey presto, ships are now heading via the Cape in their droves. So, we’re not surprised rates topped $270/ Mt for this tortuous route, to Asia and back, at the start of 2024, and it is winter to add, but maybe we could have expected rates to be even higher, yet the market has that feeling it needs to see some form of rebalancing, especially as rates dropped back to $260/ Mt, at best, by Fridays close.
You see, the ARB is actually shut. And that’s important. It’s been a while since we’ve been able to say that, as the ARB just kept itself slightly ajar. First day back in the office and the ARB was still hovering around $310/ Mt for a February loading out of the U.S., but by Friday it had already fallen below $275/ Mt, so even with freight levels in the $260s/ Mt there isn’t enough room to squeeze any export terminal fees, let alone margin.
There are certainly pockets of cold weather around, whether it’s in Asia, Europe or the U.S., but we need to see prolonged periods of chilly weather, not short bursts, of even extreme, icy temperatures. In fact, even the approach of Chinese New Year has dampened demand aspirations rather than fuelling them. The window is still in negative territory, albeit lower than the monthly paper spreads might be suggesting, emphasizing the separation in months between first and second half, in the so-called peak winter months. But again, negative means weak in my book while others prefer to say subdued, to try and give the market a better feel.
The U.S. market appears more balanced, with the stock draw of just over 2 MM Bbls being what we would expect at this time of year. Although Product Supplied (aka demand) did edge down a little but is around average at over 1.35 MM Bbls/d, which the same could also be said for exports, slightly down but again coming in above 1.7 MM BBls/d, despite ship arrival dates appearing to retreat. Production is also holding firm above 2.6 MM Bbls/d. Despite the ARB being closed we still have bids in excess of 5 c/g and offers above 8 c/g, but nothing’s passing the deal litmus test.
With auction fees for spot Panama Canal transits slipping quickly down to the few hundred thousand dollars, way below pre-Christmas times and a couple of VLGCs securing passage via the 1A system, which was felt more onerous only a few weeks ago, there might still be room for rates to reduce, driven by better cost management, but whether this will re-open the ARB, well that’s anyone’s guess.