Capital Product Partners CEO pinpoints LNG segment as ‘particularly interesting’ for growth

Greece-based shipping company Capital Product Partners L.P., which is engaged in the seaborne transportation of natural gas, containerized goods and dry cargo, has set sights on exploring further growth in the LNG space.

Speaking in a recent webcast on the company’s strategy moving forward Jerry Kalogiratos, CEO & Director at Capital Product Partners, said that the LNG market was ‘particularly interesting’ for asset acquisition when looking at the market fundamentals.

At the moment the shipowner is finalizing the acquisition of four vessels, announced a year ago. As informed, one vessel remains to be acquired.

To remind, the acquisition included three containerships and one LNG carrier worth a total of $597.5 million.

The LNG carrier is a 174,000 cubic meters X-DF vessel, named Asterix I, built by Hyundai Heavy Industries, while the three 13,278 TEU containerships, include Manzanillo Express, Itajai Express, and Buenaventura Express. These vessels are fitted with hybrid scrubbers and are being constructed by Hyundai Samho Industries. Hapag-Lloyd has entered into firm ten-year charter agreements for all three containerships.

The acquisition of vessels remains a priority, and the company anticipates exploring further growth opportunities in the second half of the year.

The fundamentals of the LNG industry are strong, with an anticipated increase in the supply of LNG and growing demand for liquefaction capacity. Additionally, the role of LNG in energy security and the energy transition further supports the positive outlook for the LNG industry in the long term.

The increasing demand for LNG, coupled with environmental regulations and the preference for advanced vessel technologies, presents a positive outlook for the LNG shipping market.

The global LNG shipping market witnessed steady growth in 2022, defying short-term seasonal pressures in the spot charter market. Demand for LNG continued to rise, supported by ongoing energy security concerns and robust long-term charter rates. Furthermore, the earnings premiums for new-generation LNG vessels remained notable, driven by a tight market and a high LNG price environment.

Term charter rates for LNG carriers remained firm throughout the year, with the 1-year time charter (TC) rate for a 174,000 cubic meter unit reaching $175,000/day by the end of April, underscoring the structural tightness in the market, Capital Product Partners said.

The United States played a significant role in driving LNG trade growth, with exports projected to increase by 9% to 85 million metric tons (mt) this year. The resumption of operations at Freeport LNG (14 million metric tons per annum) contributed to this growth. The expanding US LNG exports have had a positive impact on the demand for LNG carriers.

Despite a robust 2022, LNG carrier contracting activity has slowed in the first quarter of 2023. While a record-breaking 184 vessels were ordered in 2022, only 19 newbuilding orders have been placed in the first quarter of this year, significantly lower than the 42 orders during the same period last year. Nevertheless, the orderbook currently stands at 50.3% of the total fleet, with 326 vessels on order, data from Clarksons shows.

Newbuilding prices for LNG carriers continue to rise and are currently estimated to exceed $255 million per vessel. This increase in newbuilding prices reflects the strong demand for LNG carriers and the limited shipbuilding capacity in the market.

“If you look at the demand that will be coming online for LNG transportation in terms of liquefaction capacity, we have seen recently two major projects taking final investment decisions (FIDs),” Kalogiratos said.

“Then, if you look at the order book it it looks like the current order book might not be enough to cover the demand.“

According to Kalogiratos, the latest generation of two-stroke vessels in the LNG space is experiencing a multi-year upcycle. As explained, looking at the importance of technological change which is very sizable when it comes to LNG carriers, and the strong preference of charters for two-stroke vessels, Kalogiratos is convinced that this would probably push steamships and, to a certain extent DFDE vessels, in a two or three-tier market and potentially some of the steamships into the scrap yard.

Having all this in mind, Kalogiratos believes that the LNG shipping market might be in a deficit of capacity by 2027.

“The fundamentals of the LNG market are unique both in terms of the demand and the supply factor and this is without even talking about the impact of the environmental regulations. If you look at the potential impact of the EU ETS or FuelEU, EEXI, and CII on older technology ships there will be a substantial impact. Since many of these vessels could be trading into the European Union as the EU has become a very significant player in the LNG market, which was not the case two years ago, all this will create incremental demand for two-stroke latest generation ships, making older steam ships more obsolete,” he said, adding that all of these factors paint a positive picture for the market moving forward.

Jerry also touched on the containership space, acknowledging the challenges in the market, which has experienced fluctuations in charter rates. However, he noted that the regulatory impact, especially concerning environmental regulations, could significantly affect the market. Increasing demand for modern ships and stricter regulations might lead to opportunities for owners with modern fleets to take advantage of vessel acquisitions in the future.

For the first quarter of 2023, the company reported a net income of $10 million, when compared to $25 million for Q1 in 2022. During the quarter, the company took delivery of M/V Itajai Express, a 13,312 TEU container vessel and LNG carrier Asterix I, which has secured a 7-year charter with Hartree.

In addition, the partnership has a total of ten vessels that have been unencumbered after prepaying $23.4 million of floating rate debt. The company said that all of its vessels are now employed, with the first charter expiration set for Q1 2025.

Regarding the company’s current unencumbered ships, CPP CEO highlighted the flexibility and financial strength they provide. He mentioned the possibility of leveraging these assets for cash if an acquisition opportunity arises, emphasizing that the company is in no hurry and has sufficient liquidity at present.