Drewry: Stronger US-China Ethane Trade to Boost Demand for VLECs

Demand for very large ethane carriers (VLECs) is set to increase in the next three years as ethane trade grows on the U.S.-China route, according to shipping consultancy Drewry.

The first VLEC cargo on the U.S.-China route was transported by the 84,000 cbm JS Ineos Marlin, which loaded from both the Marcus Hook and Morgan Point terminals in July 2019. The development marked a new era in gas trade, which has the potential to become a major trade in the future, Drewry said.

These countries have traded ethane before on smaller semi-refrigerated vessels but the trade was sporadic, depending on the feedstock used by Chinese steam crackers. However, upcoming ethylene facilities in China have been based on supplies of cheap U.S. ethane and in theory, this trade “should support the rise in demand for ethane over the forecast years.”

Ethane trade on the U.S.-China route has the potential to create demand for about 30 VLECs, according to Drewry.

There are currently seven VLECs in operation of which six are co-owned by Reliance Industries and MOL, while one is owned by Evergas.

With the VLEC model proven to be successful, orders for new vessels have increased in 2019.

Zhejiang Satellite Petrochemical placed an order for six 97,000 cbm VLECs to transport ethane from the Orbit terminal in the U.S. to China. Five of the vessels are scheduled for delivery in 2020 and one in 2021. In addition, Jaccar Holdings also has one 85,000 cbm VLEC under construction backed by a contract with SP Chemicals in China, and MOL has recently signed an MoU with the ABS Group for technical consultancy on designing and constructing seven VLECs.

Modern VLECs use similar technology as LNG carriers and have the ability to transport ethane or propane. However, Drewry expects that the new generation of carriers will focus only on ethane as designs are pending for ultra large ethane carriers (ULECs) with capacities in excess of 150,000 cbm. Such vessels cannot be accommodated by any of the existing LPG terminals.

“With the number of ethane carrying vessels increasing, this niche segment in the gas shipping sector seems to be ready to break out on the main stage. The long-haul route between the U.S. and China will increase the tonne-mile demand in the sector as well as bring more advanced technology and bigger vessels into the arena.”