Structural Shifts and VLGC Oversupply Create Unique Challenges for Medium Gas Carriers

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Mfame Editor
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Medium Gas Carriers (MGCs), despite being a relatively small portion of the global LPG fleet (9%), have historically been crucial for seaborne LPG and ammonia trades. However, since early 2025, MGC shipping rates have notably diverged from the VLGC market, showing a negative correlation, a phenomenon not observed since the 2015 market collapse. This indicates significant structural headwinds impacting MGCs.

Structural Headwinds Facing MGCs

  1. VLGC Oversupply and Ripple Effect:
    • Rapid VLGC Expansion: A rapid expansion of the Very Large Gas Carrier (VLGC) fleet, with 25 vessels delivered since January 2024, has led to an oversupply in this segment. This is exerting downward pressure on VLGC time charter (TC) rates.
    • Displacement of MGCs: The influx of new VLGCs has a “knock-on effect” on the MGC segment. Older VLGCs, offered at discounted rates, are increasingly preferred by charterers, displacing MGCs on their traditional short-haul and mid-haul routes.
    • Shadow Fleets: The rise of “shadow fleets,” particularly for the Iran–China LPG trade, has intensified competition for MGCs. These fleets, often comprising aging VLGCs, are deployed for ship-to-ship (STS) operations and short-haul voyages, further eroding MGC market share.
  2. Shifting Trade Fundamentals and Tonne-Mile Demand Impact:
    • India’s Changing LPG Landscape: India’s LPG demand, once a significant driver of tonne-mile demand for MGCs, is showing signs of plateauing. India’s LPG imports declined 4% year-on-year in the first half of 2025.
      • Upgraded port infrastructure in India (e.g., Pipavav terminal) now favors VLGCs, and cargo swaps due to the US–China tariff war have established a long-haul US–India trade route.
      • Overall, India’s strategy to diversify its LPG supplies away from the Middle East increasingly supports VLGC deployment over MGCs for longer-haul voyages.
    • Stagnation in Ammonia Trade: The global seaborne ammonia trade, predominantly carried by MGCs, has been stagnant, negatively impacting MGC vessel demand.
      • While there is optimism and new MGC orders driven by the potential for green ammonia trade, the slow ramp-up of new projects is constraining immediate growth.
      • Of over 370 proposed green ammonia projects, only a handful (aggregating 8 million tonnes per annum – mtpa) are deemed realistic, with operations likely to commence by 2028. This slow progress, combined with competition from older VLGCs and limited ammonia demand, is impacting MGC employment and earnings potential.
  3. Rising Newbuild Prices:
    • MGC newbuild prices have increased by 24% since 2023, averaging $80 million in Q2 2025. This rise, coupled with declining TC rates and the slow development of green ammonia projects, has deterred new orders in the MGC segment, raising concerns about future fleet expansion.

Long-Term Outlook for MGCs

Despite the current challenges, the long-term outlook for MGCs is not entirely bleak. Several factors suggest that MGC rates may stabilize relative to VLGCs, where vessel surplus is more likely to erode earnings:

  • Rising Southeast Asian LPG Imports: Rapid urbanization, population growth, and supportive energy policies in countries like Indonesia, Vietnam, and the Philippines indicate increasing LPG demand. Furthermore, the expansion of the petrochemical sector in Vietnam and Thailand and the growing prominence of regional hubs (e.g., Singapore, Batangas, Map Ta Phut) are expected to drive MGC demand.
  • Growing US–Europe LPG Flows: As European markets increasingly opt for direct US LPG imports over ARA (Amsterdam-Rotterdam-Antwerp) re-exports to reduce reliance on Russian supply, MGC employment opportunities on Transatlantic routes are expected to rise.
  • First Segment for Green Ammonia Trade: While growth is slow, the ammonia trade will remain a core pillar for MGCs. Limited new merchant capacity (projected 2.5–3.0 mtpa by 2028) will favor MGC deployment on intra-regional and US–Europe routes through 2032, even as VLAC (Very Large Ammonia Carriers) deliveries commence. MGCs will likely lead the initial phase of green ammonia adoption due to project timelines and cargo parcel sizes.
  • Limited Fleet Size and Higher Utility: The MGC fleet comprises only 140 vessels, significantly smaller than the VLGC fleet. This smaller size allows the segment to adapt better in the event of a vessel surplus. Additionally, MGCs, with their size (30-50 kcbm), offer flexible solutions for ports with draft restrictions or limited infrastructure, allowing them to be specialized for ammonia or ethane/ethylene trades.

In summary, while MGCs are navigating a challenging short-term environment marked by VLGC oversupply and shifting trade dynamics, their inherent flexibility, role in emerging green ammonia trade, and regional demand patterns offer a more optimistic long-term earnings potential.

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Source: Drewry