One year ago, at the start of 2015 we were celebrating the conclusion of our best year ever for the bigger LPG vessels, and were speculating about the possibility that 2015 could be even better. Our conjectures were correct, and 2015 turned out to be an even stronger year, despite a record number of new-builds delivered.
The main reasons for the very tight shipping market is the new LPG export volumes coming out of USA, a product of the rapidly increasing shale gas and shale oil production in the period up to 2015. In addition, price differences on LPG between regions have made extra arbitrage available, resulting in more long-haul LPG voyages from west to east. The market peaked in July 2015, reaching a spot market at time charter equivalent of USD 4.2 million per month, and has since then been on a downward spiral, with a year-end level of about USD 1.8 million. This represents a huge drop from the peak, but still a historically strong level. The drop came as a result of closed arbitrage between west and east, as well as a record level of new-builds entering the market. A total of 35 new vessels were delivered during 2015, representing more than 20% of the existing fleet at the start of the year. With this record high growth and still achieving an all-time high market, just shows how much the LPG export volume has increased from 2013 levels.
With this record high LPG market, Solvang also increased earnings even further from 2014, and can now confirm that 2015 is the new record year for the group. This came both as a result of the strong VLGC and LGC market, but also further boosted by our three LGC new-builds entering the market on strong time charters.
The flipside of having a period of high expectations and then followed by two years of very strong VLGC market, is of course a strong interest for existing and new players to increase their market exposure. The result has been well over 50% order book, where 35 ships were delivered in 2015, 44 are scheduled for delivery in 2016 and another 27 in 2017. Needless to say this will have an effect on the VLGC market, and with the sustained low oil price and signs of falling production in USA, we feel confident we’ll see a market correction in 2016 and 2017, at least a normalization to more historic levels.
In the midst of exciting and challenging times, I am very proud of what we have achieved. We have a stable operation and technical management, with little or no turnover onshore, and our organization is capable of handling any technical issue without using external expertise. As a matter of fact, our in-house expertise is often requested by the shipping industry players in Norway to give advice and join development projects.
The very tight shipping market and a large new-build fleet in order, put a lot of pressure on retaining our sailing crew as well as office staff. So far, we have been able to keep a high retention rate, and we continue to focus on keeping it high through developing and empowering all our personnel.
Throughout 2015, we delivered outstanding performance on all key success factors; HSE, Quality, CSR and Financial.
- We have zero LTI or serious personnel incidents and now stand with only 4 LTI in the past 8 years. Smaller potential incidents happen every day though, so we will never let our guard down on safety.
- We have record low number of seafarers becoming unfit for duty after medical check.
- Our environmental footprint is improved with 6 vessels now running a full scale exhaust cleaning system.
- Our Quality statistics / vetting results are among the best in our segment.
- We continue to support a SOS Children´s Village in the Philippines, as well as other local welfare causes. We are a supporter and member of MACN (Marine Anti-Corruption Network) and comply with the good corporate practices in the maritime industry as described in the network´s operating charter.
- All-time high financial results, with improved contracts from a strong market, but also from reduced opex levels, while maintaining the highest possible quality in operations.
In 2015, we took delivery of three new LGC vessels from Hyundai Heavy Industries in South Korea. These vessels are designed and purpose-built for a certain niche of the gas segment, and represent yet another great step forward in terms of fuel efficiency and emission control. All three vessels perform according to expectations, including a smooth new-build delivery process and timely start-up of contracts.
With the expected change in the market condition, the Solvang group has initiated some key structural changes, by consolidating ship-owning companies, refinancing and generally enabling us to exploit opportunities arising over the next couple of years. Solvang ASA has a strong position, both in the market place and financially. We believe that the future looks bright, and we continue to focus on excellence in operating our ships and in high quality service-delivery to our customers.