Lauritzen Kosan
President Jan Kastrup-Nielsen
In 2005 EBITDA was USD 33.0m, up from USD 27.1m in 2004. The improved earnings were due to enhanced market conditions for ocean transportation of liquefied gasses leading to better contract and spot rates as well as reduced waiting time. Vessel days were down 9% on 2004 due to the sale of vessels as part of the ongoing modernisation of the fleet.
Ordinary result before tax was USD 32.0m compared to USD 14.7m in 2004. The result included gains from sale of vessels of USD 9.4m up from USD 4.9m in 2004. The result also included income of USD 6.2m from associated companies (also including gains from sale of vessels) compared to USD 2.5m in 2004. These results were very satisfactory and a further indication of the turn-around of the gas carrier activities accomplished in recent years.
Main events
At the beginning of 2005, options for securing two additional newbuildings from the INP Yard in Korea were taken up, thus increasing Lauritzen Kosan’s newbuilding portfolio of 8,000 m3ethylene gas carriers to a total of six units for delivery in 2006-08. The newbuilding programme marks Lauritzen Kosan’s entry into the fast growing ethylene segment of the gas carrier market. The ethylene carriers will among other features comprise an improved safety system for bunkering and a dual fuel auxiliary engine.
Lauritzen Kosan’s partner in the fully pressurized (F/P) gas carrier segment, Exmar NV, decided to terminate its engagement in small gas carriers by selling its fleet of fully pressurized vessels, as well as its shareholding in Exmar Kosan Ltd to Othello Shipping, the Schulte Group and Sloman Neptun Schiffahrts-Aktiengesellschaft (i.e. Unigas). Exmar Kosan Ltd subsequently changed its name to Unigas Kosan Ltd on 31 October 2005. The new partnership continues to operate as before with a fleet of 20 fully pressurised gas carriers in the Far East.
In the small gas carrier segment (vessels below 3,000 m3carrying capacity), Lauritzen Kosan continued its successful partnership with Camillo Eitzen in Sigas Kosan.
Lauritzen Kosan was very active in the second-hand sales market and was involved in the sale of six vessels, three of which were jointly owned with partners.
During 2005, one of Lauritzen Kosan’s vessels was involved in a collision in the Port of Amsterdam and another vessel lost its propeller at sea shortly after a scheduled dry-docking. No environmental damage or personal injuries were caused by the two incidents. For environmental and cargo safety reasons, it was decided to completely renew the cargo piping system on yet another vessel. Off-hire including scheduled dry-docking thus amounted to 5.9% compared to the expected 3.2%.
Market trends
The market for small gas carriers remained tight during most of 2005, although there was significant volatility, particularly in the Far East market (mainly fully pressurised gas carriers), but also in the North West European market which is primarily for semi-refrigerated (S/R) gas carriers.
One noteworthy development was that for the first time ever, spot market freight rates in the Far East overtook the market in the West, testifying to the growing importance of this market for small gas carriers, cf. Figure 9, p. 17. Period rates followed the same trends and also levelled out during Q3/ 2005.
Demand for gas carriers
Prices for petrochemical gasses increased throughout 2004 and peaked early in 2005. As the Asian market became oversupplied in early spring, a window for arbitrage with Europe opened up creating demand for long haul voyages with petrochemical gases, mainly ethylene and propylene. As European prices inched downwards in reaction to the extra supply of petrochemical gasses, European petrochemical production fell. By Q3, European prices had started to recover, thus strengthening demand for small gas carriers.
The market for butadiene was tight in 2005 leading to shortages. This also created opportunities for ocean transportation throughout the year.
A pick-up in European petrochemical production towards the end of 2005 had a positive impact on the European spot market.
Tonnage supply
During 2005, only two semi-refrigerated gas carriers (both of approximately 4,000 m3) were delivered into the small gas carrier segment (1,600-23,000 m3). Two small fully pressurised gas carriers, both less than 2,000 m3, were demolished as were six semi-refrigerated vessels, all below 5,600 m3, and one fully refrigerated gas carrier of 20,000 m3.
Demolition activity was fairly evenly spread over the year. The average age of the scrapped gas carriers was slightly more than 30 years.
Orders for new vessels in the 1,600-23,000 m3segment more than doubled compared with 2004, cf. Table 3.
At year-end 2005, the fleet of small gas carriers comprised 569 units with a total capacity of 3.3m m3. Order books amounted to 0.67mm3equivalent to about 20% of the existing fleet.
Activity in the sale and purchase market was vigorous with numerous second-hand sales transactions. Second-
hand prices for modern gas carriers increased in 2005, as did newbuilding prices.
Table 3: Number of vessels ordered in 2005*
* Orders may include options
Source: Clarkson Research Services Ltd
During 2005 the small gas carrier market saw the entry of new owner and operator groups which counteracted the consolidation process that characterised the past few years. These players have brought in new capital from various sources including the stock markets.
Fleet
At the end of 2005, Lauritzen Kosan directly and via associates controlled a combined fleet of 51 gas carriers (58 vessels year-end 2004) of which 29 vessels were fully-owned, owned through associated companies or on bareboat charter.
Lauritzen Kosan operated a fleet of 15 semi-refrigerated gas carriers in the segment above 3,000 m3carrying capacity (20 vessels year-end 2004) with total capacity of about 68,000 m3.
Figure 9: Spot market freight rates for 3,200m3gas carriers 2004-05
USD 1000/month (unadjusted for any waiting time if any)
Source: Fearnleys Weekly
Sigas Kosan A/S, the 50:50 partnership with Camillo Eitzen in the small gas carrier segment operating from Lauritzen Kosan’s offices in Copenhagen, had a fleet of 16 vessels (unchanged from 2004) with total capacity of about 30,000 m3at year-end 2005.
Unigas Kosan Ltd, the 50:50 partnership with Othello Shipping, Schulte Group and Sloman Neptun operating from Hong Kong, controlled a fleet of 20 vessels (23 vessels at year-end 2004) with total capacity of about 72,000 m3. This partnership solely operates fully pressurized gas carriers, predominantly in the Far East.
The average age of the company’s owned fleet was 12.0 years compared to 12.5 years at the end of 2004. In comparison, the average age of the global fleet in the 1,600-7,000 m3range was 16.0 years (15.7 years at the end of 2004).
Fleet management of Lauritzen Kosan’s fleet of semi- refrigerated gas carriers is carried out by Lauritzen Fleet Management in Copenhagen and in Bilbao, Spain, through fully-owned Gasnaval S.A. The pressurized vessels which mainly trade East of Suez are managed by Star Management Associates, Tokyo. Fleet technical operations were generally satisfactory with 13 scheduled dry-dockings being completed during 2005 compared to 12 in 2004.
The Lauritzen Kosan fleet operates under British (IOM), Spanish, Portuguese, Hong Kong and Panamanian flags.
Lauritzen Kosan is increasingly observant towards safety, health and environment issues. Lauritzen Kosan adheres to strict technical standards for the fleet and customers of Lauritzen Kosan regularly inspect or vet vessels to ensure that carriers maintain standards acceptable to them. Lauritzen Kosan is in continuous contact with customers to ensure it always complies with their demands. During 2005, Lauritzen Kosan’s fleet underwent 114 customer vetting inspections.
Lauritzen Kosan has introduced the “Zero Remarks Bonus Programme” to heighten crew safety awareness.
The aim of this scheme is to continually improve the quality of Lauritzen Kosan’s fleet by offering vessel crews incentives directly linked to world-class performance (i.e. vetting inspections with no or only a few remarks).
Events after year-end
In February 2006, Lauritzen Kosan acquired a minority shareholding in Star Management Associates.
Outlook for 2006
Employment for gas carriers is expected to remain strong as demand for petrochemical gasses is forecast to benefit from continuing global economic growth. Small gas carriers will also be positively affected by stronger European growth and increased export availability in the Middle East.
In 2006, the global fleet of small gas carriers is forseen to increase with deliveries of 34 units, equal to 6% of the current fleet. Two thirds of deliveries are fully pressurised gas carriers. For most of 2006, trading conditions are expected to limit the incentive to scrap old tonnage. This implies fleet growth figures that are expected to lead to a softening of the market balance during the second half of 2006.
However, Lauritzen Kosan has a number of longer term cargo contracts, which limit its exposure to adverse fluctuations in trading conditions.
During Q4/ 2006, Lauritzen Kosan will take delivery of the first of the series of six ethylene gas carriers on order in Korea.
Lauritzen Kosan’s results before depreciation are expected to be in line with 2005; however income from sale of vessels is not expected to have the same effect on earnings as in 2005. Lauritzen Kosan is forecasting satisfactory results before tax of about USD 20m.