Proposed shipping fees in the US targeted at Chinese maritime operators could significantly alter the landscape of the global liquefied petroleum gas (LPG) market and the dynamics surrounding Very Large Gas Carriers (VLGCs). Under the new proposal from the US Trade Representative, Chinese-operated vessels calling at US ports would incur an additional fee of $1 million, with costs adjusted based on the proportion of Chinese-built ships in the vessel’s fleet. This generates fees ranging from $1.5 million for certain port calls down to $500,000. This proposal emerges amidst a period of substantial growth in US exports of natural gas liquids, projected to rise from about 49 million metric tons (mt) in 2020 to nearly 75 million mt by 2024, as reported by S&P Global Commodity Insights.
Chinese operators have significantly increased their involvement in these exports, increasing their market share from 11% to 18% over the same time frame. The additional costs from the proposed fees could diminish their competitiveness, potentially prompting these vessels to shift to other markets, such as the Middle East. However, altering shipping fleets is complex and comes with considerable challenges. This process, termed “phase out and phase in,” requires operations to adapt to compliance with US regulations, retrain crews, and meticulously time these changes to avoid disruptions.
The projected departure of 55 Chinese-operated or built VLGCs from the US shipping fleet may exacerbate the existing strain on vessel availability. The anticipated rise in US freight rates, projected to increase by about 25%, may also add around $26-$37/mt in transportation costs on routes such as Houston to Chiba, Japan. This surge will likely further complicate feedstock economics in the petrochemical industry, which is already grappling with slim margins. The rising costs could harm the competitiveness of US exports and impose additional financial burdens on consumers domestically.
Market reactions have been largely negative, with concerns about potential volatility in shipping logistics and the security of future supply. Participants in the LPG market fear that reduced US Gulf Coast production could tighten global supply levels and create inflationary pressures on propane and butane prices. Overall, any policy that hampers US production is met with skepticism, raising doubts about the growth of US supply in the long run.