Lauritzen Kosan
President Jan Kastrup-Nielsen
In 2006, EBITDA was USD 33.5m compared to USD 33.0m in 2005. Improved earnings due to continued strong market conditions for sea transportation of liquefied gasses were off-set by changes in fleet composition and size as well as additional operational expenses. Results were better than expected and most satisfactory.
Profits before tax were USD 38.3m compared to USD 32.0m in 2005 and included USD 18.7m gains from the sale of vessels compared to USD 9.4m in 2005. Profits also included USD 0.8m results in associated companies compared to USD 6.2m in 2005.
Main events
2006 marked a decisive year for Lauritzen Kosan’s fleet adjustment strategy.
Early in 2006, Lauritzen Kosan entered into a commercial venture with Allocean Ltd., London, owners of a diversified fleet portfolio. In this venture, Allocean have placed all their gas carriers under commercial management with Lauritzen Kosan. At the same time, Allocean purchased Gerda Kosan and placed the vessel in commercial management with Lauritzen Kosan and in technical management with Lauritzen Fleet Management. Allocean also acquired two of Lauritzen Kosan’s ethylene carrier newbuildings under construction at INP Heavy Industries in Korea for delivery in 2007-08.
At the same time as selling the two newbuildings to Allocean, Lauritzen Kosan ordered two additional 8,000 m3 ethylene newbuildings with INP Heavy Industries for delivery in 2008-09.
At the end of 2006, Lauritzen Kosan entered into another venture with LGR di Navigazione S.p.A. of Naples, which will see LGR place all their future semi-refrigerated and ethylene gas carriers in commercial management with Lauritzen Kosan. LGR has two 4,000 m3 semi-refrigerated vessels under construction for delivery during 2008 and two 8,000 m3 ethylene carriers at INP Heavy Industries for delivery in 2009.
With these ventures and associated newbuildings, Lauritzen Kosan will own a fleet of six newbuildings and have four additional sister vessels in commercial management in the ethylene gas carrier segment from 2009.
Early in 2006, Lauritzen Kosan acquired a minority shareholding in Star Management Associates, Tokyo. Star Management has for a number of years undertaken technical management for Lauritzen Kosan’s fleet of fully pressurized gas carriers.
In June, the four fully pressurized vessels jointly owned with Exmar were taken over by Lauritzen Kosan.
Towards the end of 2006, Lauritzen Kosan opened an office in Shanghai, China. The office will primarily be responsible for pursuing gas business in China, including marketing the new ethylene carriers to clients in South East Asia, Japan and Korea.
During the second half of 2006, Lauritzen Kosan sold its 50% shareholding in Sigas Kosan as well as the eight vessels in the segment below 3,000 m3 carrying capacity to Eitzen Gas, its partner in Sigas Kosan. The vessels were delivered to Eitzen Gas during the fourth quarter of 2006.
Market trends
The trend for spot market rates was downwards for most of 2006 in North Western Europe, although they stayed at comparatively high levels. In the Far East, spot market rates dropped by two thirds as high LPG prices reduced consumption and eventually also distribution of LPG during the first half of 2006. In the middle of the year spot rates started to recover, leading the spot market to end 2006 only slightly below the strong market levels of January 2006, cf. Figure 10.
Period rates for fully pressurised tonnage declined slightly whereas period rates for semi-refrigerated gas carriers were fairly stable in 2006. Second-hand prices for gas carriers up to 8,000 m3 saw rises of 5-10% depending on type and age.
Demand for gas carriers
Petrochemical gas prices, being influenced by feedstock costs and the demand and supply balance, fluctuated during 2006, creating arbitrage opportunities for long haul transportation of petrochemical gasses. From time to time this added to normal balancing trades.
Table 3: Number of vessels ordered in 2006*
*) Orders may include options
Source: Clarkson Research Services, Professional register
European petrochemical plants ran at almost full capacity during the year as demand for plastics and other chemicals rose on the back of the sharp rise in building and construction in Europe.
Tonnage supply
Deliveries of gas carriers in the segment 3-23,000 m3 increased from two units in 2005 to 23 units in 2006, five of which were ethylene carriers. Only one gas carrier was scrapped in 2006 compared to five in 2005.
In 2006 total net fleet growth amounted to 140,000 m3 or some 4% after zero growth in 2005.
In terms of numbers, new orders were down on 2005 as newbuilding prices went up and delivery times increased. Compared to 2005, there was a noticeable decline in contracting for ethylene and fully pressurized gas tankers in 2006.
Figure 10: Spot market freight rates for 3,200 cbm gas carriers 2005-2006 (USD per month)*
*) Unadjusted for waiting days if any;
Source: Fearnleys weekly
At year-end 2006, the total order book amounted to 1.1 million m3 or approximately one third of the existing fleet, cf. Table 3. New owners having entered the market over the past couple of years continued to build up fleets by acquiring existing tonnage and by ordering new vessels.
Fleet
In 2006, Lauritzen Kosan’s total number of ship days reached 18,381 for 50.4 vessels on average in line with the 18,506 days for 50.7 vessels on average reported in 2005.
Lauritzen Kosan operated a fleet of 16 semi-refrigerated gas carriers (15 vessels year-end 2005) with a total capacity of about 71,500 m3.
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 (unchanged from 2005) with a total capacity of about 72,000 m3. This partnership solely operates fully pressurized gas carriers, predominantly in the Far East.
At the beginning of 2007, Lauritzen Kosan directly and via associates controlled a combined fleet of 36 gas carriers (51 vessels at year-end 2005) of which 20 vessels were fully owned, owned through associated companies or were on bareboat charter, cf. Figure 11. The fleet decline is due to the sale of eight gas carriers in the segment below 3,000 m3 carrying capacity.
The average age of the company’s owned fleet was 11.0 years compared to 12.0 years at the end of 2005. In comparison, the average age of the global fleet in the 3,000-7,000 m3 range was 14.0 years.
Figure 11: Fleet by type of control
* Average during the year
** Beginning of the year
Fleet management of Lauritzen Kosan’s semi-refrigerated gas carriers is undertaken by Lauritzen Fleet Management in Copenhagen and by wholly-owned Gasnaval S.A, Bilbao, Spain. The pressurized vessels are managed by Star Management Associates, Tokyo. Fleet technical operations were generally satisfactory with eight scheduled dry-dockings completed during 2006 compared to 13 in 2005. Off-hire including scheduled dry-docking was 3.1% down from 5.9% in 2005.
The Lauritzen Kosan fleet operates under British, Spanish, Portuguese, Singapore, Hong Kong and Panamanian flags.
Lauritzen Kosan is highly aware of safety, health and environment issues and adheres to strict technical and operational standards for its fleet. Customer inspection and vetting of vessels are carried out with regular intervals and Lauritzen Kosan maintains close contact with customers in order to ensure that the fleet complies with customers’ standards and requirements. During 2006, Lauritzen Kosan’s fleet underwent 126 customer vetting inspections.
The “Zero Remarks Bonus Program” introduced in 2005 to heighten crew safety awareness has proved to be an effective tool and has reduced the number of vetting inspection remarks noticeably.
Prospects for 2007
Employment for gas carriers is expected to remain healthy in 2007 as demand for petrochemical gasses is forecast to benefit from continuing global economic growth.
Based on the existing order book deliveries will amount to about 9% of the current fleet in 2007. Practically all new deliveries are either fully pressurized gas tankers in the 3,500-7,200 m3 range or ethylene carriers in the 6,500-10,000 m3 segment.
During 2007, Lauritzen Kosan will take delivery of four of the series of ethylene carriers on order in Korea.
Lauritzen Kosan’s earnings before depreciation are expected to be slightly below 2006; however increased financing costs and lower profits from the sale of vessels will reduce earnings compared to 2006. The company is forecasting satisfactory profits before tax of about USD 18m.