While admitting rates are foul at the moment, Charles Maltby, chairman and ceo of Epic Gas, is adamant the company is looking at the markets from a long term perspective, hence now is a good time to snap up cheap new tonnage with an eye on rates improving in the pressurised LPG sector next year.
Maltby joined the Chris Buttery backed gas vehicle in 2014. He had been with Pacific Basin in the UK prior to his Singapore switch.
Epic Gas is the only owner operator focusing purely on the pressurised LPG sector with a fleet of 3,500 to 11,000 cu m vessels, the full spectrum of vessels in the sector.
After it merged with Pantheon in 2012 it controlled a fleet of 22 pressurised LPG vessels, and over the intervening years it has placed orders for 13 owned and four bareboat chartered new vessels, a total of 129,900 cu m, at Japanese yards. Some 79% of this newbuild capacity is for vessels of 7200 cu m or larger. Five ships have still to deliver by which point Epic will have a fleet of 43 ships totalling 277, 400 cu m, representing about 17% of the global fleet.
“The scale of the fleet is important,” Maltby argues, “as it enables us to globally deliver a flexible, long term business model to our customers, through time charter, COA, voyage charter relationships, at both fixed and floating rates.”
Epic Gas anticipates further fleet growth in the future.
Pressurised LPG vessels are typically involved in the movement of LPG (propane and butane) over the last mile into smaller ports within developing economies. Within Epic Gas about 75% of its volumes are LPG, whilst the balance are petrochemicals such as propylene, butadiene and VCM.
However, while global LPG trade grew by 9.8% last year, rates for pressurised LPG have been bouncing along at record lows – often below opex levels – for the smaller pressurised vessels due to overcapacity within the sector, driven primarily by record newbuild deliveries in 2014 and 2015.
The low rates have translated into tough financial times for the sector.
In addition, the evolving petrochemical demand in China as domestic PDH plants come on line to produce propylene has led to volatile demand for propylene imports, typically on pressurised LPG vessels.
“This overcapacity and lower rate environment is correcting naturally,” Maltby says optimistically, “and has assisted in reducing newbuild ordering, and also led to scrapping of about 2% of the fleet each year.”
With demand growth for LPG remaining robust, and vessel newbuild supply already reducing, and reducing significantly to below 4.4% in 2017, Maltby says he anticipates a “steady recovery” in rate levels.
Given the backers of the Epic project include the legendary pairing of Chris Buttery and Paul Over, the original creators of Hong Kong handy bulker firm Pacific Basin, a listing must be on the cards, something Maltby skirts around.
In 2014 Epic listed on the Norwegian OTC market raising $75m, and in 2015 it added a further $50m.
“Whilst there is no rush to take the company to a wider platform, we manage the business today with the assumption that we will do so when the time is right, whilst at the same time we are very focused on delivering improved profitability, consolidation and further growth,” Maltby concludes.