Industry Market Trends

Natural Gas Boom Spurs Demand for Chemical Tankers

Nov 21, 2013

This surge in natural gas output has significantly increased the need for specialized chemical tankers that can move product between the U.S. and Asia, where demand is strongest. Long manufacturing lead times present a challenge for shippers that is difficult to skirt around. 

A nearly 25 percent boost in American natural gas output during the past decade has cut costs for chemical producers, increased the export of materials that use these chemicals, such as paint and plastics; and improved the fortunes of the railroad, trucking, marine shipping, and airline industries that transport the chemicals.

The chemical and product tanker market, which had been in a slump recent years, is rebounding as a result. Heightened chemical production is beginning to outpace capacity for the global fleet of tankers, which is driving up demand for the specialized ships as well as freight rates. This shortage is expected to peak in 2015.

Analysts estimate that rising U.S. exports of chemicals such as ethylene, which is a basic component of plastics and textiles, will drive a 5 to 6 percent annual uptick in global demand for chemical tankers through 2015. During the same time, chemical tanker tonnage is expected to grow by less than 0.5 percent. The industry is somewhat insulated by a surplus of tankers built during the last decade.

Still, fleet use is expected to reach 90 percent of available capacity by next year, and continued growth in output of chemicals could squeeze tanker availability further. Dr. Jürgen Sorgenfrei, director of consulting services for IHS Supply Chain Solutions, told IMT that the shipping market has not yet reacted to this trend.

While this increased demand represents great opportunity for marine shipping companies, shortages won't be easy to resolve. Chemical tankers are more complex than their oil-carrying or bulk-shipping sisters. They require up to 50 reinforced compartments to segregate smaller volumes of potentially hazardous materials. Few shipyards have the expertise to build these vessels, nor can other types of tankers be retrofitted to carry chemicals.

"Chemical tankers and to some extent product tankers are built with design specifications that are required for the carriage of many chemicals," Brian Cleary, head of research and business development for SPI Marine (USA), told IMT. "Most ships trading today that are oil tankers cannot be converted into chemical carriers. The growing demand for chemical transportation will have to rely on new ships being ordered."

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A chemical tanker ordered today would be unlikely to be delivered before 2015, Cleary said. Shipping companies with a strong need would be smart to order multiples, he suggested.

"You can improve upon the two-year period when you place an order for a multiple number of identical ships," he said. "The first one will take two years, but subsequent sister ships can be produced in less time when all are built at the same shipyard."

Shipping companies such as SPI Marine, which acts as an intermediary between shippers and carriers, and Norway's Odfjell, the largest chemical and liquid transportation company in the world, are reporting more business and higher earnings. Companies paying to move chemicals will feel the squeeze. Shortages may attract newly developed companies that would likely have a relatively easy time gaining financing through traditional banking institutions or private equity funds, Cleary said.

New designs in chemical tankers will enable shipping companies to improve their efficiency. New tankers, such as those to be manufactured by South Korea's Hyundai Mipo Dockyard for d'Amico International Shipping S.A., feature a combination of modern hull design and efficient engines that can reduce fuel consumption by six to seven tons per day. They also reduce emissions, which will become critical when new EU and International Maritime Organization (IMO) regulations take effect.

Sorgenfrei confirmed that future opportunities for chemical tankers lie in better efficiency.

"The biggest challenge is to react on the dramatically changed structure of operating expenses," he said. "In the past, capital costs have been a major part of the costs; today, in times of very low interest rates and enough investment capital available, this is no longer the case. Today, the cost for bunker fuel is of huge importance, and new buildings need to be more energy-efficient and need to comply with the increased environmental standards around the world fixed by the IMO."

The chemical tanker of the future, therefore, is fuel-efficient, low in emissions, and (preferably) delivered as quickly as possible.