LPG shipping earnings benefit from cheap oil
Analyst Drewry says in its latest edition of the LPG Forecaster that LPG shipping earnings are going to remain buoyant on the back of low oil prices and the absence of fuel substitution.
So far, low oil prices have not triggered the substitution of LPG as the industry's fuel, as feared by some analysts. As a result, LPG shipping demand has remained intact and low bunker prices have supported vessel earnings.
Drewry says that it expects this trend to continue, as 60% of global consumption is residential - meaning that demand is largely inelastic to oil price change. The remainder is largely consumed by petrochemical production and Drewry estimates that only 20% of the sector’s capacity is capable of switching away from LPG fuel. Historically, LPG consumption has proven remarkably stable in spite of oil price volatility.