Q4 2022 FLEX LNG Ltd Earnings Call
Speaker 1: Hi everybody and welcome to
Speaker 1: For what the results presentation for FlexLNG, it's February 14th Valentine's Day. So I'm Ethan Kalle-Klev. I'm the CEO of FlexLNG Management, and I will be joined by our CEO , KnewTrowHolk, who will give you some more details on the numbers a bit later in the presentation. The presentation will be concluded with a Q&A session, and as you might recall, best question this round will get the original FlexSync Badline set for two people. So I hope you can provide some questions either by sending us an email on.
Speaker 1: IR at flexlindy.com or just use the Q&A button in the webcast. So, before we begin, just want to remind you about our disclaimer related to forward-looking statements. We do provide some non- GAAP measures and of course...
Speaker 1: detail level we can provide here is limited given the time. So with that, let's review the highlights. Revenues for the quarter came in at 98 million in line with previous revenue guidance of 95 to 98 million where our numbers this quarter was boosted by our index chip in a booming spot market.
Speaker 1: Net income and adjusted net income came in at 41 and 55 million respectively were the main differences where realized gains of 14 million on derivatives during Q4.
Speaker 1: Running special and adjusted earnings special was 0.78 and $1.02 respectively.
Speaker 1: In November last year we announced the extension of three ships with Chenier where we added a minimum of 14 years of contractual backlog to an already rather sizable backlog.
Speaker 1: Knut will tell you today that we have finalized our balance sheet optimization program. He is representing refinancing of three last chips in our fleet and altogether the balance sheet optimization program will have released 387 million of cash.
Speaker 1: For next quarter Q1 we expect revenues to be in the region of 90 to 93 million as we are doing our first schedule dry docking of flex enterprise at the end of Q1 and all together this year we will dry dock four of our ships. Nevertheless we do expect revenues to increase.
Speaker 1: Regardless of that of fire, revenues expected to be a region of $370 million for the air driven by higher time-chotter equivalent earnings, where we expect average time-chotter equivalent earnings to be about $80,000 compared to $72,800 for 2022. Our everyday numbers are also expected to increase with a similar price.
Speaker 1: of $3.75, $200 million of dividend and that implies a dividend given to the share price level today of around 11 percent yield which should give you investors are attractive yield being invested in flex LNG.
Speaker 1: So, let's review our contractual backlog portfolio. As I mentioned, we did three ships we extended in November with Chenier. This was Flex and Deva, which was extended until end of 2030. Added all together 5.6 years.
Speaker 1: Flex vigilant at the 6.4 years also bringing that to 2030. Those two ships have option to 2030. And then the last ship we extended with Chenier was Flex Ranger, another the two optional years bringing that ship until early 2027 which we think is a very...
Speaker 1: attractive position to be in. This is a time where we will have a lot of new LNG coming to the market and he all the deliveries today are early as 2027 and even into 2028 so we are competing against much more expensive ships with current job sticker price today or for
Speaker 1: to 2027 at the latest. So these are the two ships we are marketing in for a longer-term contracts today and we have a bit about the prospects given the higher term rates as I will explain later in the presentation. Last year we also extended more ships, we extended the Flex Reign for 10 years and she just commenced her new 10-year charter in February .
Speaker 1: And we also extended enterprise and amber by seven years starting July last year until 2029.
Speaker 1: We also have some other ships in the portfolio. Flex-free them, early-street delivery 2027, there are two-year option on this ship until early 2029. We also have two more ships with Chenier, Flex-erora, Flex-volunteer, early-street delivery 2026. Also, here, two-year options bringing them to 2028 potentially.
Speaker 1: And then we have two more ships on these 3 plus 2 plus 2 plus 2 structure flex Thor FLEX Corriatures & Flex Tru and Solut.
Speaker 1: early 3rd level 2025, but this is very likely that these ships will be extended given the contract structure, so we don't expect to get these ships back before 2029.
Speaker 1: The constellation is already covered and Flex Optimus is the one ship we have on variable higher contract which had boosted revenues in Q4 as I mentioned in the highlights.
Speaker 1: So, looking at our guidance in a bit more detail, you can see our revenues in the EBTR Alaska Plough Yes. As we have taken the liveries of ships in 1820-21, the last ships, of course, of revenues have increased and also the market has improved. From next year, despite, as I mentioned, 3 docking of 4 ships.
Speaker 1: We do expect revenues to grow by about 20 million and similar for just the EBITR.
Speaker 1: Looking at the dividend earnings belong to our shareholders and I think we have demonstrated that today with a $1 dividend.
Speaker 1: bringing it to $3.75 in total for the fiscal year 2022, which compares to earnings pressure of $3.54 or adjusted earnings slightly below that at $2.83 as we had significant gains on derivatives.
Speaker 1: which has been unrealized during the year. When it comes to the decision factors from for dividend, I think I've covered this in great detail in the past, but of course it's linked to our earnings which are strong. The market outlook which is also strong, we have a very sizable backlog as I just demonstrated. All liquidity position we ended up.
Speaker 1: with a cash position of $332 million and this will be further boosted by the refinancing as Knut will shortly explain. Covenant's flying with green colors. We don't have any debt material, this before 2028. Capac's liabilities are limited to the dry docking of the four ships.
Speaker 1: We have this year where we do expect the dry docking expenses to be at around 18 to 20 million dollars in total. Other considerations, I don't want to jinx it, putting this also fully green, so we keep it light green for now.
Speaker 1: and that's kind of the highlights for our assessment of the dividend. In terms of safety and quality performance, this is something we care deeply about. We do have a lot of repeating customers coming back and of course they are doing so because we have very reliable uptime as you can see here 99.
Speaker 1: 99.8% and 100% uptino on our ships despite quite challenging operation during COVID. And regardless of that, we keep our ships and the propellers turning. Also in terms of safety, the two most relevant benchmarks are the lost time injury frequency and the total recoverable case frequency.
Speaker 1: parts. So with that, I give it to you Knuth and you can do a review of the financial and I will come back and go through the market. Thank you.
Speaker 1: Thank you, Eisten. And let's have a look at the key financial figures for the fourth quarter and 2022 full year.
Speaker 1: 2022 was the first year where we had the full fleet available for the whole year as we had three deliveries of new buildings in 2021.
Speaker 1: If we look at the time-shutter earnings per per day, we achieved 82,000 in Q4 and 73,000 for the full year.
Speaker 1: OPEX per day, slight improvement, where Q4 ended up at 13500 per day and for the full year 13400.
Speaker 2: Moving on to the revenues.
Speaker 2: The Ford Cauter delivered 98 million in revenues for the year and reflect higher earnings under the variable time charter for the Flex Artemis.
Speaker 2: For the full year we ended up at 348 million. If we look at net income and adjusted net income, 41 million for the quarter and adjusted net income of 55 million for the quarter.
Speaker 2: The difference here is the realized gains on the termination of derivatives that were done in October in 2022.
Speaker 2: Net income for the year 188 million and adjusted net income of 151 million for the full year.
Speaker 2: If we look at the cash flow, cash increased by 61 million in the quarter and we ended up with a record high cash position of 332 million. This is mainly driven by the net proceeds from financing where we concluded the refinancing of the flex.
Speaker 2: in December and we dimensioned the realization of derivative swaps which were terminated.
Speaker 2: In addition, we raised 14 million from our ATM program.
Speaker 2: And as a reminder, amortization in Q4 is slightly lower than Q1 and Q3 due to the semi-annual repayments under the ECI facility.
Speaker 2: As we will announce later on, this ECA facility will be refinanced in full, so for the coming quarters and what the stations should be most muted out, quarter by quarter. As we will highlight later on, we are also completing our refinancing program and for Q1 we are estimated to release net proceeds of 200.
Speaker 2: That gives a book equity ratio of 34%.
Speaker 2: It should be noted that book values reflected these vessels were acquired at historical attractive prices which is Where the replacement cost is materially higher than this?
Speaker 2: Moving on to our interest rate portfolio, which is we have had an active hedging strategy on, adding long term swaps when the interest rate market was low. And as we see in October , we terminated the 100 million 10-year swaps.
Speaker 2: which gave us a cash gain on 14 million.
Speaker 2: In the quarter we also amended a hundred million ten years swap where we had unrealized gains of 15.5 million, which we used to enter into a new shorter interest rate swap of two and a half years, but increasing the notion of value to 181 million.
Speaker 2: which was then entered at an attractive level of 0.9%. Further, in January , we added another 50 million of a 10-year swap, which gives us a total swap portfolio of 741 million, and the entered attractive levels.
Speaker 2: which gives us now a forecasted head ratio of about 54% in the coming quarters.
Speaker 2: And the hedge ratio has improved as we have now announcing new fine and thing where we increasing our RCF capacity, but then on a net basis the hedge ratio improves.
Speaker 2: We will take us down to the balance sheet optimization program, which we now announced will be finalized. We will, with the remaining financing we are announcing today, we will then release 387 million of cash on that program.
Speaker 2: Last quarter we announced the financing of the enterprise as completed and with the resolute an amber to be completed. Today we announced that all of these are documented. Resolute was completed in December , amber in early February and after May.
Speaker 2: is shortly due to be refinanced. That all of these are documented and signed.
Speaker 2: Today we also announce a new lease for the FlexRainbow. It's with an Asian-based lease provider and it's a back-to-back financing with her 10-year contract.
Speaker 2: The Flex Rainbow was refinanced under the 375 facility. So we will replace her under that financing with the Flex Aurora, which was then taken out of the 629 million ECA facility.
Speaker 2: And then today we're finally the Balanced Sheet Optimization Program with the $290 million bank facility of where 150 million will be structured as a bullet RCF.
Speaker 2: And with the completion of the final financing, the full 629 facility will be refinanced in full.
Speaker 2: And as we also highlight there that once we now complete this, we are also pleased to see that all of our priorities from the outset have been met. We are stretching our repayment profiles, we are significantly improving our margins. This is a comparison with the on-balance bank loans and lease financing.
Speaker 2: in Q4.21. We're increasing maturity dates. We are freeing up nearly 400 million dollars, and we have a flexibility with the 400 million dollar RCF for cash management and reduce the utilization during, in particular, high interest rate environment.
Speaker 2: So we are pleased and grateful for the trust in the commitment we have from our banks and lease providers and With this in Q1 all of the financing shall be completed
Speaker 2: So then last quarter we named it fortifying the balance sheet. We now rename it to fortress balance sheet. Our contract backlog gives us stable cash flow. We have now refinanced and we have a significant cash available. And that is
Speaker 2: for cash management purposes we can use the RCF which then has a cost of 70 basis points. And all of this gives us the commercial flexibility to continue the flex journey.
Speaker 2: And with that I hand it over to Aistem.
Speaker 1: Okay, let's review the LNG product market. Product with my exports were up 5% last year, driven by US up 9%, despite the outage on free port, which removed about 112 cargo from the market, equivalent to 8 million tons.
Speaker 1: Freeport has been up exporting cargos again this weekend, so that will add to growth of US volumes this year. Russia despite all the sanctions, sanctions don't apply to LNG, Russian exports were up 9% 3 million tons in total. Malaysia also recovering up 11% and then other countries up 2% bringing the total export market.
Speaker 1: for 2022 to 400 million tons. On the import side we had some major shifts in trade flows given the high prices of LNG and the economic downturn in China caused by the zero COVID policies.
Speaker 1: imports in China was done are whopping 20% in 2022. Which was a very welcome relief for the European market. The European buyers have been struggling getting access to natural gas, given the curtailment of Russian flows and European imports were up.
Speaker 1: 45 million tons or 54% in total.
Speaker 1: Looking at the import nations, you can see here 6.
Speaker 1: Top import gainers last year were all Europeans dominated by France.
Speaker 1: UK, Belgium, Spain, Netherlands and Italy. So just like in 2019 when we also had a weaker market in China, we saw the European buyers at that time buying up LNG cargos because the price was low.
Speaker 1: this time they are buying up cargo because of the containment of Russian flows. And on the other side here you see China, Brazil, and also some developing countries where the price of LNG has been so high that buyers in Pakistan, India, Bangladesh has been struggling to
Speaker 1: We are able to pay such a high price for LNG. And as we see here, coming soon is Germany. Germany is becoming and also a LNG import nation. Rapidly ramping up regasification capacity.
Speaker 1: Looking at storage levels, which has surprised everybody. Storage levels have been on the top level of historical average. Despite the energy crisis in Europe , this has been caused by a couple of factors, which I will come back to. The demand for abortion is also milder.
Speaker 1: start of the winter, which has driven up LNG inventories, which is now being reduced according to the seasonal norm. So if you look at the pipeline flows from Russia, they are now down by about 90% compared to the level in 2021.
Speaker 1: In 2022, you saw a development with sliding pipeline flows from Russia, Q1, and then Q2. And then when you had the explosion on the North Stream, pipeline volumes fell on to very low levels in Q3, even less in Q4, and they have been staying steady at these kind of levels.
Speaker 1: This means that Europe has been tapping the LNG spot market to replace Russian pipeline flows.
Speaker 1: So looking at the European gas demand, as I mentioned, demand subversion, you could say demand destruction, but we do think that the gas demand will come back and that's why we're also using the word demand subversion. With European gas consumption down 12% last year, driven by the extremely high prices we have seen.
Speaker 1: This is not all good news because the beneficiary of these high gas prices has been coal, which was up 14% in 2021 and grew another 6% in 2022. So if you look at where we have had the demand slump, it's mostly about industry.
Speaker 1: like ammonia producers, but also households where high prices have resulted in people consuming less and also because the winter this year has been very mild in Europe . Looking at how Europe is adapting to less pipeline flows from palm Russia.
Speaker 1: It's about building out new regasification capacity and the easiest way to ramp up capacity is through the use of FZUs, where we do see here Germany, as I mentioned, Netherlands, Italy are rapidly ramping up regasification capacity.
Speaker 1: order to substitute Russian pipeline flows with LNG imports. The arbitrage, you know, the American market, Henry Hubb, you will see fairly low prices. European and Asian markets have been up and down here as you can see. We have now come to more reasonable levels for the LNG prices.
Speaker 1: but still the arbitrage versus Henry Hope to Europe and the Asian market is still massive, which will support further expansion of US export capacity. Looking at the prices going forward, we are now at a level where European and Asian prices are fairly similar, slightly higher prices in Asia.
Speaker 1: Also the spread between pipeline gas or the TTS and the LNG price, which we call the Death Northwest Europe has also been reduced significantly. This spread between the pipeline gas prices and the TTS.
Speaker 1: the LNG prices were close to $30 and it's come down to $1 or $2 which is a more normal market. So going forward it will be a tug-of-war for the marginal cargo. We do see more shift of flow into Asia and of course the prices of the...
Speaker 1: LNG in Europe and Asia will to some extent decide where the cargos will be flowing.
Speaker 1: Looking at a peculiar thing with the LNG market this year, we saw a rapid increase in floating storage. This autumn, if you look at the August numbers, we had about 16 million tons of LNG on water. And this increased to a peak in the middle of November of the year.
Speaker 1: 21 million tons of LNG on ships. So you have more than 5 million tons increase in LNG on water, and this is equivalent to about 72 ships. So that's one of the main reasons why the freight market became incredibly tight.
Speaker 1: at the end of the year because a lot of ships were tied up on floating storage either because of congestion in Europe but also to somewhat extent because of a contango in the gas prices in the October-November range. With energy prices now coming down to Earth.
Speaker 1: We have seen a liquidation of LNG on water, 4 million tons less LNG on water now than on peak, which then results in about 56 ship equivalent less ship with floating storage. And that also where well explains why freight market has been softening from the peak in the middle of November .
Speaker 1: So if we look at the headline MEGI XDF spot rates, as you can see, these rates went up to about half a million dollars a day at the peak in October-November. As we had less floating stovers, they started to slide.
Speaker 1: from November , been sliding down to around $100,000 per day, which is still a pretty good level at this time of the year. And actually now in week seven, we do see a small uptick in the spot rate. So usually the spot rates...
Speaker 1: tend to bottom out in week 7 to 11 and then usually following our tighter markets throughout the year. And here we are put in the dotted line on the left hand. Therefore, the assessment.
Speaker 1: for freight rates where we do see that the forward market is pricing above $200,000 of spot market rates again for Q4 this year. Another thing to pay attention to is the liquidity of the spot market also varies quite a lot. On the right hand side here we do see the numbers of spot fixedures. The spot market was very liquid.
Speaker 1: in 2020 into 2021 and then we saw from spring of 2021 a lot of the chargers being very active in the turl market, pulling in ships into the portfolio and the liquidity of the spot market has been decreasing. So from a peak of above 30 fixtures
Speaker 1: months, we have now been down to about five fixtures a month. And most of the fixtures being done are being done by charters themselves, re-letting ships out in the spot market, and there's been very few independent owners active in the rather illiquid.
Speaker 1: spot market and less liquidity is also driving up freight rates. Term rates, however, have been ultra firm the whole period. This is driven by higher building prices. We have definitely seen inflation on new building prices as
Speaker 1: Knut mention on our balance sheet we have ships booked at the bottom of the market when prices were at around 1885 million per ship. That price today is about 250 million dollars for delivery 2027 even into 2028. The other driver is of course...
Speaker 1: inflation has also driven up interest rates. So in order to kind of defend such an investment, you need a higher term rate. And the five-year term rate has no stabilized at around $135,000, which is a pretty high level. And it's also one of the reasons why we are pretty confident about being able to build more attractive backlogs.
Speaker 1: for the two 2027 ships we are today marketing. And let's look at the back to the product market then, as I mentioned in 2022, we had a growth of the market of 5% this year will be slightly less. We expect the market to go around 4%.
Speaker 1: This was very limited, new liquefaction capacity coming to the market this year. We will have about 8 million tons from the US, mostly due to free pot restart. Trinidad Tobago has been able to get a feed gas level up and we expect 2 million tons from Trinidad Tobago. Ellen Diplanteri Norway has started up last year, so we do expect...
Speaker 1: as estimate for 2023. Looking forward however there's plenty of new projects coming to the market especially around 25, 26, 27 when as I mentioned we are marketing ships. We have a lot of projects under construction.
Speaker 1: As you can see here, 95 million rest of the world, of course the Qatar is the big driver here and then some projects in North America like Golden Pass and LNG Canada. We also have some projects being already reached FID, so we've looked at the project under construction and those who have been given the green light to start construction, we are ending up at the
Speaker 1: a volume of 583 million tons. However, we also expect more investment decisions to be made, especially in America, as I highlighted on this arbitrage, where Henry Hubb prices are very low compared to international prices. So the project we see here, highly likely I will come back to this.
Speaker 1: 73 million tons more in U.S. 46 rest of the wall will scandering this market to 700 million tons by 2020. 30.
Speaker 1: So let's look at the big contenders for FID or green light of new projects. We have in Texas two projects, Rio Grande from Nextec Ed and Port Ahtel, quite sizable projects. We do expect FID to be imminent. They have also signed off take for
Speaker 1: our vast majority of the volumes being produced. And then we also have two projects, which is closing in on FID in Louisiana. It's the Calcios PAS 2 CP2 from Ventio Global, which Ventio Global have had an excellent track record on getting off-take for the project.
Speaker 1: with guidance. Strong earnings 41 or 55 million, just respectively for net income and adjusted net income, which gives earnings per share and adjusted earnings of 78 cents and $1.02 respectively.
Speaker 1: We have continued building our backlog with contract renounce for January . In November we are upbeat about the prospects of adding further backlog to our company. It's been a finalized balance sheet optimization program. We still have some loans to be executing.
Speaker 1: during Q1, which will bring the total net proceeds from this refinancing of all the third-in-ships to 387 million, which as he has highlighted will give us a very strong cash position. Revenues for next year is expected to increase by about 20 million to 370 million, despite us carrying out forward.
Speaker 1: $1 per share dividend, which gives a very attractive yield, we think of 11%. So with that, I think we conclude today's presentation. We will be doing our Q&A, just a reminder. You can win the Flexington Bedley and Kit for the best questions, so Knut and I will know.
Speaker 1: start the Q&A round. Thank you very much.
Speaker 3: Wait on your bed Lin set
Speaker 3: With the new Bedlin set sound let's go
Speaker 2: and the last quarter, and now also Chris Wohne, what is the key strategic priorities for management and main objectives going forward? Yeah, and at home, of course, it's too close, for now it's too close, there current financing during...
Speaker 1: The first quarter releasing this $204 million of cash, a longer term. I think I highlighted it in the charting strategy. We have two ships now open, 2027, which we are marketing in our market where the term rates have gone up.
Speaker 1: So of course our key priority is to
Speaker 1: try to secure some attractive long-term contracts for those ships and thereby increasing our backlog and hopefully also improving the earnings profile to higher term rates on those ships. We also have two ships coming open early 28, which I also think will be finding a marketing window during the year.
Speaker 1: It's mostly about building more backlog. I think the financing process is done for now. As we have highlighted in the past and I also mentioned, new building prices are quite stiff, so we rather focus on building more backlog for existing ships, which are the same type of technology.
Speaker 1: And let's see, we have a strong balance sheet, so we can always act on opportunities quickly. 400 million dollars revolving credit line available for us in case we see opportunities. I think we can easily scale the company. As I mentioned here, we have fantastic.
Speaker 1: uptime and quality on the service we are delivering. So, nothing right big for the moment. I don't think it's the time to rush to the odds, but keep building the business step-by-step like we don't last couple of years now. And there's a number of questions here about fleet.
Speaker 1: building contract where you have a lead time of close to four years today. So kind of the alternative return on that money which you're tying up in...
Speaker 1: I have pre-installedments, you have zero return on that capital, that means that I think a price of 250 million is suddenly approaching 278 million when you are kind of taking into account the alternative.
Speaker 1: return on that morning you are tying up in that investment. So I think it's not really attractive for us of course, if there is a tender where there are long-term contracts given the high elevated new building prices I think you need to see 10, 15 years contract in order to
Speaker 1: kind of defend such an investment, which I think makes it a very good window for us to fix our existing ships. So we're always open for consolidation, the Sea Tankers group of companies, Frontline, Golden Ocean, SFL. We have always been open to consolidate. We don't have any big egos there.
Speaker 1: We want to do what's best for the shareholders. So we always have the door open for consolation, but only if it's good for our shareholders, not necessarily for us's management.
Speaker 2: Good, then moving over to capital and we have this 8-dem program and a number of questions is you can give some color on the background, the Russian all for it and how to use the proceeds.
Speaker 1: When we started thinking about listing this company in the US, it was 2018 and one of the things we did then was to change our accounts from IFRS to US Cap already in 2018. Capital markets in 2019 for LNG shipping companies were pretty poor so what we did was a direct listing and we listed the company in the US.
Speaker 1: June 2019 when we did a direct listing that meant we we never issued any shares in the US market So it took a while before the liquidity of the stock became To a level where it's today At the same time when we had a slump during COVID in in 2020 or
Speaker 1: stock price was negatively affected by that and we bought back stock and 980,000 shares we bought back in that period which we are still in already to there so so the ATM is kind of a way of us improving the liquidity of the stock since no stocks have ever been issued in the US so basically we are
Speaker 1: We have brought back in order to create a bit better flow in the stock. We don't have any immediate capital requirements for discussion. Also one of the reasons why we are paying out a special dividend today of 25 cents on top of the 75 cents.
Speaker 2: Give stainless steel a good time on well-made tanks. Moving a bit over to more shipping related and the contract portfolio. The question is about termination risk in case if natural gas prices fall down. How do you look at...
Speaker 2: I think we had the ability for the charters to amend the contract.
Speaker 1: I think you had a super stress test on this in 2020 during COVID when LNG price in Europe went below $1.00 per million bit here. It was up as I mentioned in the presentation. They're in August above $100 per million bit here. And Asian price as well as low is 1.8.
Speaker 1: I've never seen, I don't think I've ever seen a termination of this contract ever since the Allenging Industry started 50 years ago. These are hell of high water contracts. Usually the people who are shipping they...
Speaker 1: It is also a cargo, it is a new to ship. And of course the cost of the freight is usually quite low compared to the value of the cargo.
Speaker 1: It's not something we have ever seen and we didn't see it in 2020 even though people were losing money Even though a lot of cargos in the US were cancelled and a lot of ships were idling We still saw that everybody honored We still saw that everybody was in the US and we didn't see it in 2020 even though a lot of cargos in the US were cancelled and a lot of ships were idling We still saw that everybody honored We still saw that everybody was in the US and we didn't see it in 2020 even though a lot of cargos in the US were idling
Speaker 1: LNG is the big boys game. If you think about the supermagears, they're size in the oil market. Where is small compared to all the traders and the national oil companies? In LNG, it's mostly the supermagears and it's the big national oil companies like Katagas.
Speaker 1: So it's not a lot of shady contemporaries, it's a good contemporaries and that also makes it a reliable partner's past to do great.
Speaker 2: Yeah, you mentioned LNG is a big boys game. There's a question here if Flex can start buying and trading LNG and not only transporting it. Yeah. Yeah.
Speaker 1: If not LNG. Selling in buying LNG is incredibly complex. You need a totally different organization for doing that. You need to have master sales and purchase agreement with all the relevant buyers and sellers and, of course, keep in mind the cargo values. Can be substantiial with cargo values.
Speaker 1: going to $200 million. So you need a lot of working capital to finance that type of activity. And all the point is, of course, we would be competing against our customers for kind of spot cargo, which I would think that some of the chargers would...
Speaker 1: maybe shy away from Challing our ships if we are competing head-on-head with them So we allow the focus on on the on the transportation the side of the business which is our shipping business Which we find a good and attractive business and where we can run our lean organization Doing that activity which we couldn't have done
Speaker 1: on the LNG trading site. Done more shipping specific. How many days does the ship use to cross the Atlantic? Yeah.
Speaker 1: Usually US, Europe , 5, 6, mostly 6,000 nautical miles. It's fairly simple to calculate this. So in natural boil of speed we are at 18 knots, it's 24 hours a day. That means you are traveling 432 nautical miles in a day. That means 14 days US.
Speaker 1: Europe you need some time for the loading you need some time for the discharging so basically can do one cargo a month that translates into 12 cargos a year and then you are listing
Speaker 1: 900,000 tons, give or take. Of course, if you're going into Asia, it's a longer distance than it's 10,000,000 nautical miles through Panama. And if the Panama Canal gets clogged, which usually happens from time to time, then you have to go through Cape of Good Hope and you have 15,000 nautical miles. So that means...
Speaker 1: When cargo is flowing from US, the long way either to Panama or Cape of Good Hope or Suez, to Asia, that usually tightens the LNG shipping market because ships are able to transport less cargo a year.
Speaker 2: Then there's a number of questions of decarbonisation and environmental impacts and focus that on the regulator side and on politicians. How would that impact LNG shipping and flex in particular?
Speaker 1: I think, you know, my competitor is cold. And I say, show you now, the graph here. Cold consumption is up a lot in Europe . It's not only up in Europe , it's up a lot in China. 2022 peak, cold consumption in the world. And actually we see people are expanding more on the cold side as well because it's affordable.
Speaker 1: And of course if you are a developing country, maybe you are not able to pay the price for LNG. The price of LNG will come down. Actually in Europe today, we are at such low prices on the natural gas or LNG that we are getting into the territory of coal to natural gas switching, which is a long time we have seen.
Speaker 1: Because in Europe you have carbon prices as well and if you're burning coal it's twice as much CO2 emissions and you need to buy more of these carbon permits which is costing close to 100 euros per pond. So with lower prices we actually prefer lower prices because that stimulates demand and usually stimulates demand more in Asia.
Speaker 1: 85 to 99 percent. So that is also a side factor of it. Another element is CO2 pricing, which I mentioned in Europe , that will also now start soon for shipping. That means ships calling European ports will have to pay CO2 price for their emissions.
Speaker 1: for that voyage. And of course all ships are much more efficient than the oldest team generation of ships of CO2 footprint compared to older ship is done by about 60%. That means that if you're shipping a cargo on all ships into Europe you have less CO2 tax on it and that will improve further.
Speaker 1: competitive advantage towards older generation of ships. And I would think that eventually the CO2 prices will spread to all the parts of the world and just Europe . And I also Europe is signaling that if other countries are not doing this, they will then start to collect their tax for the full voyage and not just half of the voyage which has so far been.
Speaker 1: suggested. Then there's a question of our revenues are sensitive to the LNG commodity price. No, we have 12 of our ships are on fixed higher rate, so the rate is fixed, it's not linked to the commodity. One ship is on variable higher. Contract is not linked to the commodity price, it's linked to the spot rates.
Speaker 2: for freight. So no, that's not the case. There's a final question if we are having a balance sheet optimization program phase three. Maybe I can take it. We've done phase one and two and now we introduced the 2.1 so you can say it's phase three. But now we've refinanced the
Speaker 2: all of the 13 vessels and long-term maturity dates and we're pleased with what we have so we'll will pause on that for now.
Speaker 1: That's good. So that concludes the Q&A round and then the big question is who is the winner? Who is going to sleep well at night? It's going to be a wolfbomb. Thank you for the questions. You're not the only sent question today but I've been getting questions from you for the last two years or so and really...
Speaker 1: really like your engagement by sending us questions in the middle of the night U.S. time so we will send over some flexing from the battle in kits to you and also to to T-shirts so you can enjoy that as well and sleep even better. So that concludes today's presentation. Once again I would thank you for
Speaker 1: Joining I would like to thank all finances providing about two billion dollars of new financing I would like to thank all you investors and not least I would like to thank all onshore and offshore personnel making this possible making the propeller turn every day despite all the challenges we have had with COVID as I've shown today We have perfect
Speaker 1: uptime and quality records. So thank you very much and we wish you a very good round of time today and we will be back for more updates in May when we're doing our Q1 presentation.