2024 Capital Link Corporate Presentation Series. In this series, company management highlights the company's current operations, business development, growth prospects, and sector outlook. We have with us today the senior management team of Dorian LPG, Mr. John Lycouris, CEO of Dorian LPG (USA) LLC, and Mr. Ted Young, the Chief Financial Officer. Dorian LPG is a liquefied petroleum gas shipping company, and a leading owner and operator of modern, very large gas carriers. Its fleet currently consists of 25 modern, such carriers, including four dual fuel LPG vessels. Dorian LPG has offices in Stamford, Connecticut in the U.S., Copenhagen, Denmark, and Athens, Greece. The company is listed on the New York Stock Exchange under the ticker symbol LPG. Now, in terms of logistics, we will begin with a company presentation, followed by a Q&A.
Please note that participants can submit their questions through the Q&A button on your screen during the webinar. Your questions will be answered during the Q&A session. Also, you can email your questions at webinars@capitallink.com. Before we begin our webinar, kindly note that this discussion is strictly for information and educational purposes and should not be relied upon, and the webinar does not constitute an offer to buy or sell securities or investment advice or advice of any kind, and Capital Link bears no responsibility for the content. Now, let's begin our discussion. I would like to pass the floor over to John and Ted.
Thank you, Nicolas.
Thank you, Nicolas. Good morning.
Good morning. We're pleased to be here. So quickly, the normal SEC health warning. We will make some forward-looking statements here, so please note the cautionary statements here. So I'm Ted Young, Chief Financial Officer. This is John Lycouris, CEO of Dorian LPG (USA). Nicolas already gave us a nice introduction, but I will quickly pick out a few highlights. In addition to having a fleet of 25 vessels, we also jointly own and operate the Helios Pool, which in which our partner is MOL Energia, which is a subsidiary of of MOL, the large Japanese player. They have an operation in Singapore, and it gives us a virtual presence there.
They then, as a result, have a virtual presence in Copenhagen, where we do our post-fixture operations, and it gives us quite a strong commercial presence, and one we think from, that we've benefited from over the years. Nicolas touched on the composition of our fleet. Not only do we have four dual fuel VLGCs in our fleet, three of which are time chartered, and one of which is our own, that we took delivery of in March of 2023. We also have scrubbers on a number of our ships, 15, which has generated some fuel savings for us, and it's been quite a profitable investment for us. John may touch on that a bit more in his remarks as we go into the presentation.
Our average fleet age is still quite young compared to the global fleet, which, for those of you who are shipping investors know, is a pretty important metric. Stepping back, I know we have a mix of participants on the call today, so we thought we'd just give a quick primer refresher on LPG. LPG is obviously distinct from LNG. LPG is a byproduct. No one has ever produced a metric ton of LPG on purpose. It comes about from the gas processing or the refining process. It's split out through a fractionation process, and it's sold in its component parts. Predominantly propane and butane are the main parts of the natural gas liquid stream, but there are some other smaller components.
But for the purposes of today, we're focused on propane and butane, and they're effectively interchangeable for the purposes of our business. What is it used for? It is significantly used in heating and cooking for both residential and commercial settings. And just about 50% of world consumption goes into heating and cooking, which we think is pretty important because it establishes some very stable base user demand, regardless of the economic climate. Obviously, no matter what the economic environment is, you need to be warm and you need to eat. The next largest consumer of LPG is in the petrochemical sector, and petchem really has two branches to it.
One are the classic steam crackers, and the steam crackers are able to substitute a portion of their feedstock slate, which is typically predominantly or exclusively naphtha, for a portion. Depending on the technology, 10%-15% of their feedstock slate can be swapped for LPG. They do that when LPG is cheap relative to naphtha. Naphtha is an oil derivative, so it's obviously very closely tied to the price of oil. The other piece of LPG petchem demand comes from PDH plants, and PDH is the acronym for propane dehydrogenation, which is a on-purpose way of turning propane into propylene, which is one of the key building blocks in the plastics value chain.
We've seen significant growth in these facilities in China over the years, as China strives to be polypropylene independent from the world over the next five to 10 years. That's obviously been great for our business, but it's not just China. Other parts of the world, Turkey, Korea, even in the U.S., which of course, isn't great for our business, have also invested in PDH. PDH is an old technology that really became profitable once the U.S. became a significant exporter of LPG in the world market. To put that in context, just for a second, and by the way, the petchem accounts for about 25%-30% of world demand.
You know, the other segments are a mix of various applications that we won't delve into, but I would like to come back and talk about the growth of LPG and the significance of the United States becoming a world exporter. So in 2013, the United States exported about 4.5 million metric tons of LPG and imported about the same amount. You know, for the coming year, we expect the United States to export somewhere between 55 and 60 million metric tons of LPG. So obviously, we've seen significant growth in the last 10 years, and that's really driven the growth of the VLGC sector around the world.
But more importantly, if you look at how the two main export basins stack up with each other, the Middle Eastern price, and the Middle East was obviously historically the main exporter. It's the price there is set by the Saudis. It's the Saudi contract price they posted monthly, and they have a certain number of acceptances, whereas the U.S. price is set daily by traders in the market. And historically, the Saudi CP has been consistently several hundred dollars a metric ton more expensive than the comparable U.S. price. The product's the same, no difference in chemical or virtually no difference in chemical composition. But obviously, if you can buy a cheaper product, you're gonna buy it in the United States.
That's obviously gonna be quite. That's gonna be your goal. As a consumer, you're gonna get the best price you possibly can. And what we've seen is significant growth and of U.S. cargoes. Also, in 2017, the Panama Canal opened its new locks, which then allowed for the transit of VLGCs, which shortened transit times from the U.S. Gulf to Asia from 40 days-50 days to about 25 days, one way. So, that's been quite significant. John will touch on what we've all read about in the press about the drought and the reduction in transits. Also, as we're all aware, there is activity in the Red Sea, which is forcing more vessels to consider going the long way around the Cape of Good Hope.
All of that combines to create fleet length, and John will discuss that a bit more. Turning back to some of the fundamentals, one of the big drivers that we've seen over time has been obviously not only the growth in U.S. production, but the growth in U.S. inventories. U.S. consumption of LPG is structurally flat or in decline. Most folks in the U.S. are aware that natural gas has taken market share all over the place for many different applications, particularly in residential and commercial. As new housing developments come up, folks are either being supplied directly or indirectly with their energy needs through LNG, which of course is like LPG, an environmentally cleaner alternative than oil, diesel, and those derivatives.
Those high inventory levels mean that the export market is the way for inventories to clear, and that's done a nice job of maintaining that price differential that I touched on earlier between the Saudi posted price and the market price here in the U.S. So here we give you some additional statistics, seeing how the associated gas production has really driven the increase in production here in the United States, and hence inventories and hence export volumes. That brings me to sort of the core of our business and what drives it. We live and die by two arbitrages. One is the East-West arb, and the other is the LPG naphtha arb.
So what we show you here in, on the top, is the comparison of the prices between the Far East Index price, which is the price in the landed price in Asia, and the CP price shows the. Sorry, the MB price is the Mont Belvieu price in the U.S., and you can see that's a very healthy arbitrage. So essentially, between those propane differentials, that offers plenty of room for freight.
The freight, you know, quoted in $ per metric ton. You can see that the profit margin there is forecast to be on the top, the top bar, in excess of $250 per metric ton for most of the time. That corresponds to pretty healthy freight rates in our business, and you know, much of which you've seen in our published financial results over the last year, 18 months. And again, that's driven fundamentally by cheap U.S. LPG, which is a function of oil and gas demand, which does continue to grow as many of us are aware.
The other main driver, which has not been in our favor as much recently, has been the LPG naphtha spread. So you can see that, you can see here on the chart that, you know, in 2023, we've enjoyed some, we've enjoyed, you know, a decent spread, but we need to see it usually a bit stronger. But right now, if you look at the current market, what we're seeing is that, LPG is not preferred to naphtha right now. So there's been a little bit of a slowdown in China, but again, that's only from the crackers, from the steam crackers. And again, that's only a portion of the overall demand.
So, as we look out, we expect China to be strong this year. We don't expect as much growth, perhaps, as we saw this year, but we still expect to see growth. There's a need to fill up those PDH plants, and depending on what happens with oil, we can see some additional demand from the traditional steam crackers if LPG becomes the preferred feedstock compared to naphtha. So with that, I'm gonna turn it over to John, who's gonna delve further into some of the parts of our trade.
Thank you.
You want me to do it?
Yeah. Thank you, Ted. Yes, well, there has been a big development in the end of October, when Panama Canal administration realized that the level of the water levels in the Panama Canal lakes were significantly lower due to very low rainfall. And they produced this a kind of decreasing kind of stage of ship transits, where a reduction of ships transiting was kind of laid out over the months of November, December, January, and February, reducing from 35 typically transits down to 18 in February of 2024. So that caused a huge backup for cargoes.
There was a bidding process where people would have to bid for those transit slots if they did not have already been able to book something in advance. Bookings for LPG ships are usually allowed about seven days out, not earlier than that. So there was a big rush into those transit slots. Rates went sky high for the bids to go through, for those cargoes that needed to go through. But it also caused a lot of other people to rethink the need to go through the Panama Canal, and they started thinking of alternative routes to go to the Far East, which typically is where most of these cargoes go.
So we had many people deciding to go through the Suez Canal, and also some of them through the Cape of Good Hope. The difference between the one and the other is not significant. Between Suez Canal and Cape of Good Hope is about 3-3.5 days more by going via the Cape of Good Hope rather than the Suez Canal. But it also means that you have to pay the Suez Canal tolls for going through the Suez Canal. So that kind of balances out the extra three to four days that you're gonna have to go through the Cape of Good Hope.
So these charts show you how we have seen an increase, first of all, on the right-hand side, when the ships are loaded, we have seen an increase of ships going via the Cape of Good Hope and Suez. And then, on the other hand, the ballast one, we have seen an even higher increase of ships going via those routes to avoid paying the high tolls of Panama Canal and the cost of the bidding for a transit, unless it was necessary. Yes.
John, give us an indication of where canal fees got to. What was the high point, and where are they now?
The high point, yeah, the high point in November. Thank you, Ted. Yeah, the high point of that was almost $2.8 million per transit for a ship in November.
Compared to what we used to pay was?
Compared to paying,
400, 500.
Yeah, 400 and 500 is the cost of a typical transit, $500,000 per transit, per ship. Then they had to pay over and above that, $2.8 million to get that transit slot a few days hence. Now, the next month, it kind of went down to about $1 million-$1.5 million. It will range. In December, I'm talking about. Now in January, we're seeing, as a result of ships having amended their sailing plans and voyages, we have seen those kind of bids lowering down to the low hundreds of thousands rather than millions of dollars.
But still, you have to pay $500,000 for the transit, + $200,000-$300,000, depending on where the bid goes and if there is a lot of competition for that particular transit day. So it is an interesting dynamic that has caused a lot of ships to go through the Cape of Good Hope. And now we have seen, of course, the Suez Canal being not a preferable route. I'm sure you have all read it in the newspapers, in the news. There is continuous attacks. They do mention that the attacks are related to Israeli-related cargos. However, we have seen attacks on many container ships which carry cargos for everybody, for the whole world.
It is not a preferable route for most of the people, especially if you're going in ballast. In laden, it is subject to the charter's decision. Armed guards have to be on board. We have to abide by the rules of the force that controls the U.S.-led protection force that has been organized. And we try to go through nighttime to avoid any problems from drones, attacks, et cetera, and also natural attacks.
Also, the distances are quite significant, right? We're talking about 40+ days to go from Asia around the Cape of Good Hope to the U.S. versus 25 days, if you can get through the canal. So that's created quite some fleet line.
That's correct. And that is causing a lot of fleet shortage because there's just not enough ships to service-
Correct.
the exports for the United States-
Yeah.
which is the next thing I want to talk about.
Yeah.
Um.
Yeah.
And now, what we can see is that the United States has been increasing their share of their exports. They have been increasing their market share. And we have seen that in 2023, we hit another record of exports. And you could see it with those bars, share, comparing 2021, 2022 and 2023. Those numbers indicate the amount of exports. It is really quite important to understand why the United States has so much export capacity. Because it is produced as a byproduct, as Ted said, of natural gas and also crude oil exploration. And so, and also the export terminal capacity is being continuously improved and increased.
We expect more capacity to come online next year, this coming year, actually, 2024. And that will allow inventories to stay high and exports to maintain, to be maintained, to go out of the United States.
Move on this.
Yes. Here we have the Middle East exports. Middle East has been steady. It's really a reflection of the, you know, the cutbacks that we have seen in exports from the Middle East. I'm sorry, we have somebody blowing outside, and they're making a lot of noise. So, yeah, we have seen that these have been steady, and we expect that they're not going to increase any further for the first few months of this year. It's really mainly to the cutbacks.
That does not mean that Iranian exports are not significant, and that, you know, they will probably maintain their exports as they don't usually abide with those cutbacks as much as the Saudis and the Qataris, the United Arab Emirates. However, we will see a good supply from those countries, you know, in the next few months.
Sure.
Yeah. Thank you. China is just one of the countries that we highlight here.
But it's large, but it's large important.
It is one of the largest countries that import LPG and they have been a steady demand because of their PDH plants, which continue to be built. We had a number of plants built in the past year. In 2023, there were about seven plants that came online, and we expect more plants to come online in 2024. So we expect that the demand in China is going to be maintained. There is more...
Even though polypropylene as a byproduct, as a product of PDH plants is becoming cheaper, and there's quite an abundance of it, we still see that there are more plants coming online, finding new ways of selling that polypropylene. So we do not see any cutback on the demand from China. And it is, as Ted said, one of the largest consumers of LPG after India. India is
Number two.
Yeah, number two, and then it is Japan, number three. These are the mainstay. Those three countries take probably more than 50% of the world production of LPG. So we can go to the next.
I did it. Sorry.
Thank you.
Early.
Yeah. Here's India. This is the second country, as I mentioned. Their demand has also been mainly household related. It has to do with the government subsidy scheme. They have managed to help a lot of households get LPG in instead of using other fuels like kerosene. And it is the residential increase has been significant in India, and, you know, you could see it from those bars from the demand that we see from India on LPG. So we expect that it will continue, it will widen, because they will also increase their industrial demand for LPG for other products.
We don't see any reduction in LPG demand for this country.
Thank you.
Thank you.
So, thank you, John. So, you know, sort of turning to the highlights, because we thought we'd allow some time for questions. Turning to some of the highlights, again, we're excited about what's going on in our business because it is fundamentally. Well, all the fundamentals are lined up for us, really well right now. U.S. production continues to perform, you know, in spite of cutbacks that we've seen in the Middle East. Obviously, the U.S. has continued to grow, and it's probably worth noting that U.S. oil and gas is just much gassier than what they have in the Middle East.
So each barrel produces sort of 2 to 2.5 times as much natural gas liquids in the U.S. as it does in, say, the Middle East. That continues to support the East-West arbitrage, which drives freight rates. As John touched on, you know, the drought in the Panama Canal, the problems in the Red Sea have really increased ton miles by forcing people into different trade routes. And so the result is, as ship owners, as a sector, you know, we're seeing less crowding in certain basins because you know, there just simply isn't enough ships to be in all the basins with the same time limits that they were. That gives us a bit more pricing power in this environment.
Again, from a fundamental perspective, we still see strong pull-through demand in China and India. China, as John touched on, is largely driven by petchem demand, but also supported by residential commercial demand. India is 80+% driven by residential commercial demand. Again, John, I think, touched on the fact that the Modi government continues to subsidize canister purchases. It's an income-linked subsidy, and so we've seen continued growth in the number of households reached, and we expect to see that continue going forward, particularly in this election year in India. All that sums up to a highly attractive freight environment.
You know, as the followers of the stock have seen, you know, rates right now are well over $100,000 a day, and that's obviously an attractive environment. It costs our company about $25,000 per day to run our ships. That's all cash. That's operating expense, G&A, interest and principal. So as you can appreciate, that allows us to generate some pretty healthy free cash for the shareholders. So, you know, turning to the investment highlights, again, we think we have a great fleet. Yes, it's a great environment, but again, when fuel efficiency matters, so as we talked about, we have scrubbers. That saves us some money on fuel.
We have dual fuel LPG carriers, so when LPG is cheaper than conventional diesel, we're able to burn that. We have a great commercial presence. We're one of the largest operators. We're present virtually globally through our partners in Singapore. And you know, again, we really feel that we're at the center of what goes on in the market and are important participants in the market. Finally, from a shareholder perspective, we're very proud of what we've done in terms of capital allocation over time. You know, we have maintained very low leverage. We have very attractively priced debt. Currently, our all-in cost of debt is around 4.6%. We just completed an amendment that we announced over the holiday break.
that provided for increased availability under our revolving credit facility, as well as a standby quote, unquote, accordion facility for $100 million, which gives us obviously additional potential firepower if we find opportunities. But I think first and foremost, from a shareholder perspective, through this rate environment, because we've maintained a healthy balance sheet, we've been able to return a significant amount of money to our shareholders, predominantly through dividends, but also through stock buybacks, both self-tender offer that we did for $113 million in February of 2021, as well as open market repurchases.
The centerpiece of our capital return program has really been the dividends, which have been some in excess of $400 million, $450 million that we've paid out over time. Obviously, it shows that our board is committed to shareholder returns. It's committed to returning cash when the market allows it. Obviously, it's been a significant portion of the driver of our total shareholder return, which is really what this management team and our board remain focused on over the long term. With that, we're gonna conclude our formal remarks, and we're gonna look at the Q&A. Let's see here. I'll do the, we have a question here.
Can we expect dividends to be adjusted in a function of higher cash flows and positive outlook? Another question in similar vein is, do we expect to maintain our current dividend payments? It's probably a good opportunity for me to remind everyone that we have an irregular dividend policy. We've been very clear about that from the beginning. We think VLGC rates are irregular, and therefore, our dividend policy must also follow those. You know, we will continue to evaluate with our board as we do every quarter, and ultimately it's our board's decision. We evaluate every quarter what the outlook is, what our bookings look like, and the board then reaches a conclusion as to what to pay out, if anything.
But obviously in the current environment, the board has felt very comfortable continuing to pay $1 share in dividends. What that means for this quarter and the future, we really can't say, but be assured that our board takes its commitment to shareholder value creation extremely seriously, and is constantly balancing risk and opportunity, and dividends, of course, in making that decision every month or every quarter rather. Sorry. John, you wanna talk about the Cape of Good Hope at all?
Sure. I see there's a question about the weather and the Cape of Good Hope, and if it affects the transits. Sure, there is weather-related issues. Sometimes they do affect it, but it's just like going on the North Atlantic. The North Atlantic also faces similar kind of weather issues and also the North Pacific. It is something to consider. However, don't forget, if you're asking it as a current question, Cape of Good Hope now is in summertime mode. We are in wintertime mode, they are in summertime. The weather is a little bit milder and better during the winter months in the Northern Hemisphere.
So they would be seeing better weather for most of the ships in the, in the Southern Hemisphere. Having said all that, though, I understand that the big picture, and yes, there are weather issues every day with the ships, and we manage to, we manage them according to weather situations, and we guide masters how to navigate with the weather situation ahead of them, and always discuss how they can best avoid terrible weather conditions in front of them. So it is always a consideration wherever we go.
Yeah. And I think, maybe picking up on that and some other questions, you know, one of the drivers, as John talked about, is, you know, charter desires. You know, when the ship is laden, and we obviously make the decision as the owners, what to do when the ship's empty, when it's ballasting. But one of the considerations is insurance. We continue to have very good insurance availability for what's called additional war risk insurance. You know, we've seen modest increases, but modest increases means 15 basis points on the hull values, which are in excess of $100 million, to maybe 30 basis points.
So yes, it's an increase, but it still is a proportion of the total voyage cost, not a huge number, and usually there's an arrangement with our charterers as to who pays or how much of that cost is shared between the parties. So, again, we haven't seen it have a significant impact on the availability of insurance, have an impact on transits or on choosing routes. Similarly, we've You know, to give sort of a broader overview of, you know, what proportion of ships are using the Cape of Good Hope, it's really hard to say that. It's very dynamic as people can probably appreciate.
But suffice it to say that we are seeing generally among ourselves and our peers much greater use of the Cape of Good Hope, when I'd say it was much, much, much more infrequent in the past. So again, it does allow those in the industry to be mindful of when they see cargoes coming, and to sort of time their arrival into the Houston Ship Channel or markets like potentially on the East Coast. But again, it's something that we continue to see as a trend.
Well, there is a recent report that says that at least 43 vessels are currently considered to be going via the Cape of Good Hope back to the United States, so back to Houston.
Okay, that's global fleet of 370 ships.
This is an Argus report that came out yesterday.
Yeah.
Just a guidance.
Yeah. And, you know, and so I think there, you know, I think over the longer term, you know, we're mindful of it being important for our customers to make money as well as us. You know, we, we don't see in the near term, this lack of fleet availability creating any sort of tension, in the, you know, in, in, in terms of making U.S. LPG less competitive. There's such a significant price delta between, the U.S. and, and the Middle East, that, it would really take a much different set of trade dynamics to affect that, from our perspective.
So, you know, we from our perspective, it's obviously something to keep in mind, but it's not something that we see as a near-term, near-term issue. Again, you know, US gas prices, $2.5 to maybe $3 a million BTU, that's not so expensive. Oil in the $70s, that's not so crazy. That's tend to have been a bit of a sweet spot. So again, we will continue to watch what happens with geopolitical tensions and of course, weather in Panama to see how it drives freight. But, we're mindful of balancing all those things, but in the near term, we don't necessarily see that as a near-term threat to VLGC rates.
We've been asked to comment about the rumors that we placed an order for a VLGC with ammonia capability at Hanwha. We'll discuss that more on our earnings call, but yeah, we did indeed do that. And we're excited about it. We think it shows that, you know, we're looking ahead. You know, we do see ammonia is a big part of the future, but we're also very fundamentally happy with how the VLGC trade continues to develop. And our plans to increase the order where we won't comment on at this point. Let's see here.
This is just a question about the export capacity from the United States. As we mentioned, there's going to be more export capacity coming in in this 2024 from Enterprise and Energy Transfer in their terminals. That's going to give more of a ceiling, more of a ability to export more cargoes out of the United States. It's something that has been steadily increasing. We have been seeing 95 cargoes going out of the United States every month, which is a significant increase over the years. So it's just, I think we in March we hit over 100 ships to get out of the United States loaded with cargo.
So that shows the strength of the U.S. market and the, and, and the strength of the export ability of the United States with the terminals continuously being improving their, their throughput of ships. One more thing that we have not talked about is emissions, reduction of emissions, improvements, which is something that we focus quite significantly in reducing our emissions by doing technically improving the vessels by adding energy-saving devices that improve their performance with less power needed by the engine.
And secondly, with operational performance improvements, where we adjust the speed of the ships to the best, the optimum speed to arrive in time, not to you know kind of overconsume when there is weather-related issues, and then how to speed up and take advantage of weather conditions when that is possible. So all these have been helping us improve these vessels' performances by over 15%. This is significant, I know, but the energy-saving devices can save 7%-10%, and then operational performance can improve 5%-7%. So we do have a really good number to kind of see for improvement in emissions by reducing our consumption.
So this is a very significant thing. Also, we are looking into biofuels. Of course, LPG is considered a transition fuel, as good or better than LNG. And I think it is important to understand that these fuels, these gas fuels, as they're called, LPG and LNG, are an improvement because they have less carbon emissions and are more efficient than regular fuels. So in a way, we are gonna be seeing more and more ships having dual fuel engines and looking into not only LPG and LNG, but as you have seen, methanol and ammonia engines, when the ammonia engines come sometime in 2026 or 2027.
Thanks, John. With that, we're at the limit of our time. We appreciate everyone's time and interest. Thank you also to Capital Link for sponsoring this. We appreciate the support. Thank you.
Thank you.
Thank you very, very much, John and Ted, for joining us. It's been a very interesting presentation. We had a lot of questions. A number of them still remain to be replied, indicative of the interest in Dorian and the sector. So I would like to thank also everybody for joining. It has been a very well-attended presentation, and please note that this webinar will soon be available for access upon demand on Capital Link's website at www.capitallinkwebinars.com, and also on Capital Link's YouTube channel. So thank you very, very much.
Thank you.