The Legacy Continues: Dorian LPG

Named after the Dorians, who swept across Greece around 1000 BC and left behind a legacy that included the classic Doric column, Dorian LPG is making a similar impact on the fast-growing and lucrative business of transporting liquefied petroleum gas (LPG), used by half the world for cooking and heating and in more advanced economies for transportation and the production of high-value petrochemicals like propylene and polypropylene (think plastics).

The company will take delivery of no fewer than 16 VLGCs this year, bringing its total to 22 and catapulting it into the top ranks of LPG carriers. And these are no ordinary ships. They’re eco ships, boasting enhanced fuel efficiency, lower operating costs and environmentally friendly features. It’s an amazing story, and its origins go back centuries.

A Seafaring Tradition

It all begins with the Hadjipateras family, who come from a long seafaring tradition. John Hadjipateras, Dorian LPG’s CEO, likes to tell the story of his great grandfather, who was orphaned at the age of 12 and yet managed to buy his first ship just ten years later. His great great grandfather was a shipowner as well, and the values of hard work, modesty, quality service, fair dealing and respect for the customer were handed down from one generation to the next.

This was in the 19^th century and the Ottoman Empire ruled Greece. But it made no difference. The Hadjipaterases, like many Greek families, were seafarers, and their success depended on maintaining what Hadjipateras calls “family values.” And succeed they did.

In 1906, long after the age of steam had arrived, the family bought its first steamship, the Marrieta Ralli. It bought and sold other ships over the years, moved from one trade to another, survived the fall of the Ottoman Empire, the Great Depression and World Wars I and II. By the early 1950s, under the umbrella of Orient Mid-East Lines, it was pioneering sailings from the Middle East to the Great Lakes.

When John Hadjipateras entered the family business in the late 1960s, he says many of the company’s ships were still manned by members of the same family or extended family – uncles and brothers and cousins from a single island town or village in Greece – a tradition that dates back centuries and nurtures those all-important family values like hard work and taking responsibility for one another’s safety and well-being and protecting the customer’s assets that Hadjipateras considers essential to business success.

From VLCCs to VLGCs

In 1959 the company entered the crude oil business with its first tanker. It continued to expand and adopted the name Dorian Hellas in 1973, thereafter christening new tankers with names like Athenian, Corinthian and Macedonian in honor of ancient Greek city states. Various fleet renewal programs followed, and as late as 2000 the company was still taking delivery of new VLCCs.

Then a new opportunity arose. The small but growing business of LPG transportation beckoned. It was similar in many ways to the VLCC business but not as crowded and not as cutthroat. Under Hadjipateras’ leadership, the company dipped its toe in the water with the purchase of two small pressurized carriers in 2002. Four more acquisitions followed in the next 18 months, and by 2005 the company had sold its last VLCC and placed its first orders for newbuild VLGCs from Hyundai Heavy Industries in Korea.

It was a complete transformation. Dorian’s move from crude to gas hit the sweet spot as global warming and CO₂ emissions were becoming mainstream issues and gas was being hailed as the environmental fuel of choice due to its low cost, safe-handling and clean-burning characteristics compared to other power-generation sources including nuclear. Moreover, newbuildings were cheap at the time. Demand was growing, and the new vessels were quickly fixed on profitable time charters with MOL and Statoil.

In 2013 Dorian LPG was formally established and the company ordered its first three eco VLGCs from HHI. Last year it went public on the New York Stock Exchange under the symbol “LPG” at $19/share.

Eco Carriers

What makes Dorian different? A lot of things, including the “family values” mentioned earlier that Hadjipateras considers so important, especially in a newly public company faced with a myriad of regulations and deadlines. Another is its fleet. When fully delivered, the company will be the largest owner of eco VLGCs in the world – 19 – out of a total of 22. There are roughly 160 VLGCs in the global fleet, so Dorian is making a major impact.

And best of all, the newbuilds are fully funded as a result of the $761 loan package Dorian put together earlier this year. Among the major lenders was the Korean Export/Import Bank, which committed upwards of $500 million.

What is an eco vessel? They’re the most advanced ships on the water, complying with all environmental regulations while delivering the most economical performance. They also command higher charter rates and go to the front of the line when competing for new bids. Hadjipateras rattles off the benefits:

• Exhaust gas heat recovery systems to enhance energy efficiency
• Variable frequency drives to increase efficiency and energy savings
• Advanced anti-fouling hull coatings
• Tail shaft seals to eliminate pollution risks
• Exhaust gas cleaning systems on selected vessels
• Type-approved ballast water treatment systems
• 25-year upgraded fatigue life
• Green Passport and Enviro notation applied for on all vessels.

The proof of the pudding is found in Dorian’s customer list – blue-chip charterers like Shell, Statoil, ExxonMobil and BP. The company’s newest ship, the eco VLGC Corvette, delivered in January, comes equipped with an exhaust gas scrubber as well, meaning it can sail in ECA zones and other low-sulfur areas without switching to expensive, low-sulfur fuel.

To enhance its marketing efforts, Dorian has teamed with Phoenix Tankers, one of the largest VLGC operators in Asia, to form the Helios LPG pool, thereby expanding its global presence and strengthening its positon in the increasingly important East Asia LPG market, including India. The company has a similar arrangement with China’s HNA Group, giving it enhanced access to and knowledge of the Chinese LPG market. China is building up its PDH (propane dehydrogenation) capacity, which requires large amounts of propane and butane to make polypropylene.

Riding the Shale Revolution   

When Dorian first began shipping LPG in the early 2000s, the center of activity was the Middle East, where virtually all of the world’s LPG was produced. It was then shipped to Europe, Africa and Asia. As the shale revolution developed in the U.S. beginning three short years ago, the dynamics changed.

The U.S. went from being a net importer to a net exporter of LPG almost overnight. The surplus of shale gas produced by fracking drove prices down and made U.S. LPG competitive with Mideast LPG. A new trade developed – from the U.S. Gulf Coast to Europe, Latin America and, increasingly, Asia. Today the U.S. exports in excess of half a million barrels of LPG daily. When the new Panama Canal opens later this year or early next year, it will be capable of handling the largest VLGCs and will reduce shipping costs to Asia by 50 percent. This will make the U.S. an even bigger exporter and the low-cost supplier to the world’s largest LPG-consuming market.

Hadjipateras views this as a golden opportunity for Dorian, especially given its U.S. base and knowledge of the U.S. market. He says the Middle East currently accounts for 43 percent of global LPG shipments while the U.S. has a 24 percent share. By 2020, if not sooner, the U.S. is expected to become the largest exporter of LPG due to the huge development of shale oil and gas production. The surplus in production has created a huge opportunity for operators willing to invest in new tonnage, like Dorian.

Among Dorian’s key investors is SEACOR Holdings, the maritime conglomerate founded by Charles Fabrikant, who has a knack for recognizing a good thing when he sees it. In SEACOR’s current annual report, Fabrikant notes that, while the company’s $139 million investment was worth $132 million on April 15, “The good news is that our timing in placing orders for our Very Large Gas Carriers (VLGCs) was fortuitous. Charter rates for VLGCs were approximately $25,000-$30,000 per day when we initially invested. In the summer of 2014, rates for short voyages soared to $100,000 per day, far beyond my expectations or dreams. Today, rates are under pressure and appear to be ‘stuck’ during a seasonal lull at a ‘mere’ $65,000-$75,000 per day. (I would be pleased to earn these rates indefinitely!)”

He goes on to note that other investors have piled into the VLGC space and raised the possibility of an oversupply of vessels starting next year. His conclusion? “For this investment the jury is still out.”

The Legacy Continues

While the jury may still be out, all indications are that Dorian is on the fast track to success. Its investment case is compelling (all-new fleet, strong balance sheet, integrated technical and commercial management, experienced team, savvy investors), and VLGCs provide a critical link in the growing LPG supply chain. They are also the most profitable part of the LPG supply chain.

But what gives Dorian its biggest edge is the family motto, honed over two centuries of hard-earned experience: Provide safe, reliable and trouble-free transportation services. If you can do that consistently, the rest will take care of itself. – MarEx  

Tony Munoz is Publisher and Editor-in-Chief of The Maritime Executive.