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spk04: Hi everybody and welcome to fourth quarter results presentation for FlexLNG. It's February 14th, Valentine's Day. So I'm Øystein Kalle Klev. I'm the CEO of FlexLNG Management and I will be joined by our CFO Knut Rohr Holt 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, the best question this round will get the original Flexington Bedlin set for two people. So I hope you can provide some questions either by sending us an email on ir.flexlng.com or just use the Q&A button in the webcast. So before we begin, I just want to remind you about our disclaimer related to forward-looking statements. We do provide some non-gap measures and of course the 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. Net income and adjusted net income came in at 41 and 55 million respectively, where the main difference is we realized gains of 14 million on derivatives during Q4. Earnings per share and adjusted earnings per share was 0.78 and $1.02 respectively. 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. Knut will tell you today that we have finalized our balance sheet optimization program. He is presenting refinancing of three last ships in our fleet. And altogether, the balance sheet optimization program will have released 387 million of cash. For next quarter, Q1, we expect revenues to be in the region of 90 to 93 million as we are doing our first scheduled dry docking of Flex Enterprise at the end of Q1. And altogether this year, we will dry dock four of our ships. Nevertheless, we do expect revenues to increase regardless of that or fire. Revenues expected to be in the region of $370 million for the year driven by higher time charter equivalent earnings, where we expect average time charter equivalent earnings to be about $80,000 compared to $72,800 for 2022. EBITDA numbers are also expected to increase with a similar amount compared to 2022. So with a healthy backlog, a very sound financial position, we are again declaring an ordinary dividend of 75 cents, but also a special dividend of 25 cents, bringing the dividend per share to $1. and for the full year 2022 that means dividend of 3.75 dollars 200 million dollars of dividend and that implies a dividend given the share price level today of around 11 percent yield which could should give you investors are attractive yields being invested in flex lng So let's review our contractual backlog portfolio. As I mentioned, we did three ships we extended in November with Chenier. This was Flex Endeavor, which was extended until end of 2030, added altogether 5.6 years. Flex Vigilant added 6.4 years, also bringing that to 2030. Those two ships have options to 2033. And then the last ship we extended with Chenier was Flex Ranger, another of the two optional years, bringing that ship until early 2027, which we think is a very attractive position to be in. This is a time where we will have a lot of new LNG coming to the market. And the deliveries today are incredible. earliest 2027 and even into 2028 so we are competing against much more expensive ships with the current yard sticker price today of around 250 million dollars in in 2027 we also have flex constellation fully open this ship is firm until 2024 but the charters has the option to extend the ship up to three years bringing it uh re-delivered to us in Q2 2027 at the latest. So these are the two ships we are marketing for longer term contracts today. And we are upbeat 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 Flex Rainbow for 10 years, and she just commenced her new 10-year charter in February. And we also extended Enterprise and Amber by seven years starting July last year until 2029. We also have some other ships in the portfolio. Flex Freedom, earliest re-delivery 2027. There's a two-year option on this ship until early 2029. We also have two more ships with Chenier. Flex Aurora, Flex Volontaire, earliest re-delivery 2026. Also have two-year options, bringing them to 2028 potentially. And then we have two more ships on this 3++2 structure, Flex Courageous and Flex Resolute. earliest re-delivery 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. Constellation are already covered, and Flex Artemis is the one ship we have on variable hire contract, which had boosted revenues in Q4, as I mentioned in the highlights. So, looking at our guidance in a bit more detail, you can see our revenues in EBITDA the last couple of years. As we have taken deliveries of ships in 2018, 2019, 2020, 2021, the last ships, of course, our revenues have increased and also the market has improved. For next year, despite, as I mentioned, dry docking of four ships, we do expect revenues to grow by about 20 million and similar for adjusted EBITDA. Looking at our dividend, earnings belong to our shareholders, and I think we have demonstrated that today with a $1 dividend. bringing it to $3.75 in total for the fiscal year 2022, which compares to earnings per share of $3.54, or adjusted earnings slightly below that at $2.83, as we had significant gains on derivatives, which has been unrealized during the year. When it comes to the decision factors for a 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. Our liquidity position, we ended up with a cash position of 332 million, and this will be further boosted by the refinancing, as Knut will shortly explain. Covenants flying with green colors. We don't have any debt maturities before 2028. CAPEX liabilities are limited to the dry docking of the four ships we have this year, but 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. 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%. 0.9, 99.8 and 100% uptime on our ships, despite, you know, 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. Here also we are measuring very favorable to the LNG data from Intertanko with LTIF of 0.33, 25% lower than LNG. the industry standard, and even better when it comes to total recordable case frequencies, despite a bit uptick in that for 22 for all parts. So with that, I give it to you, Knut, and you can do a review of the financial, and I will come back and go through the market. Thank you.
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spk03: Thank you, Øystein. And let's have a look at the key financial figures for the fourth quarter and 2022 full year. 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. If we look at the time charter earnings per day, we achieved 82,000 in Q4 and 73,000 for the full year. OPEX per day, slight improvement, where Q4 ended up at 13,500 per day, and for the full year, 13,400. Moving on to the revenues, the fourth quarter delivered 98 million in revenues for the year and reflected higher earnings under the variable time charter for the Flex Artemis. 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. The difference here is the realized gains on termination of derivatives that were done in October in 2022. Net income for the year, 188 million and adjusted net income of 151 million for the full year. 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 Resolute in December. And we mentioned the realization of derivative swaps, which were terminated. In addition, we raised 14 million from our ATM program. And as a reminder, amortization in Q4 is slightly lower than Q1 and Q3 due to the semi-annual repayments under the ECA facility. As we will announce later on, this ECA facility will be refinanced in full. So for the coming quarters, amortization should be more smoothed out quarter by quarter. As we will highlight later on, we are also completing our refinancing program and for Q1 we estimated to release net proceeds of 204 million, adding to our already solid cash balance. So for the balance sheet, it remains clean and robust. Strong cash position of the mentioned 332 million. And we have a book equity of 907 million. That gives a book equity ratio of 34%. And it should be noted that book values reflect that these vessels were acquired at historically attractive prices. which is where the replacement cost is materially higher than this. Moving on to our interest rate portfolio, which 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, which gave us a cash gain on 14 million. In the quarter, we also amended 100 million 10 years swap, where we had the unrealized gains of 15.5 million, which we used to enter into a new shorter interest rate swap of two and a half year, but increasing the notional value to 181 million, which was then entered into the net rate 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 entering into attractive levels, which gives us now a forecasted hedge ratio of about 54% in the coming quarters. And the hedge ratio has improved as we are now announcing new financing where we are increasing our RCF capacity. But then on a net basis, the hedge ratio improves. Which takes us then 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 under that program. Last quarter we announced the financing of the enterprise as completed and with the Resolute and Amber to be completed. Today we announced that all of these are documented. Resolute was completed in December. Amber in early February and Artemis is shortly due to be refinanced. All of these are documented and signed. Today, we also announced a new lease for the Flex Rainbow. It's with a nation-based lease provider, and it's a back-to-back financing with her 10-year contract. 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. And then today we're finaling the balance sheet optimization program with the $290 million bank facility of where $150 million will be structured as a Bullard RCF. And with the completion of the final financing, the full 629 facility will be refinanced in full. And as we also highlight there that once we now complete this, we're also pleased to see that all of our priorities from the outset has been met. We are stretching our repayment profiles. We're significantly improving our margins. This is a comparison with the on-balance bank loans and lease financing in Q4 2021. We're increasing maturity dates. We are freeing up nearly $400 million and we have a flexibility with the $400 million RCF for cash management and reduce the utilization during, in particular, high interest rate environment. So we are pleased and grateful for the trust and commitment we have from our banks and lease providers. And with this, in Q1, all of the financing shall be completed. 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're having significant cash available. And that is 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. And with that, I hand it over to Aston.
spk04: Okay, let's review the LNG product market. Product exports were up 5% last year, driven by US up 9%, despite the outage on Freeport, which removed about 112 cargoes from the market, equivalent to 8 million tonnes. Freeport has been up exporting cargoes again this weekend, so that will add to growth. of U.S. 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 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. imports in China was down a whopping 20% in 2022, which was a very welcome relief for the European market. European buyers have been struggling getting access to natural gas given the curtailment of Russian flows and European imports were up 45 million tons or 54% in total. Looking at the import nations, you can see here six top import gainers last year were all Europeans, dominated by France, UK, Belgium, Spain, Netherlands, and Italy. So just like in 2019 when we also had a weaker market in Europe, In China, we saw the European buyers at that time buying up LNG cargoes because the price was low. This time they are buying up cargoes because of the curtailment 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 have been struggling to be able to pay such a high price for LNG. And as we see here, coming soon is Germany. Germany is becoming now also an LNG import nation, rapidly ramping up re-gasification capacity. Looking at storage levels, which has surprised, I guess, 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. It's the demand subversion, and it's also a milder 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. 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 down to very low levels in Q3, even less in Q4, and they have been staying steady at these kind of levels. This means that Europe has been tapping the LNG spot market to replace Russian pipeline flows. 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. 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 slumps, it's mostly about industry. 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 Russia, it's about building out new re-gasification capacity, and the easiest way to ramp up capacity is through the use of EFSA use, where we do see here Germany, as I mentioned, Netherlands, Italy are rapidly ramping up re-gasification capacity in order to substitute Russian pipeline flows with LNG imports. The arbitrage, you know, the American market, Henry Hub, 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, but still the arbitrage versus Henry Hub to Europe and the Asian market is still massive, which will support further expansion of U.S. export capacity. Looking at prices going forward, we are now at a level where European and Asian prices are fairly similar, slightly higher prices in Asia. Also, the spread between pipeline gas, or the TTF, and the LNG price, which we call the North West Europe, has also been reduced significantly. This spread between the pipeline gas prices and the The LNG prices were at close to $30, and it's come down now 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 LNG in Europe and Asia will to some extent decide where the cargoes will be flowing. 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 around 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 The freight market became incredibly tight 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 LNG prices now coming down to earth, we have seen a liquidation of LNG on water, 4 million tonnes less LNG on water now than on peak, which then results in about 56 ship equivalent less ships with floating storage. And that also very well explains why freight market has been softening from the peak in the middle of November. So if we look at the headline, Maggie, 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 storage, they started to slide from November, been sliding down now to around $100,000 per day, which is still a pretty big good level at this time of the year. And actually now in week seven, we do see a small uptick in the spot freight rates. So usually the spot rates tend to bottom out in week seven to 11 and then usually following a tighter market throughout the year. And here we are putting in the dotted line on the left And the forward assessment 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 fixtures. The spot market was very liquid in 2020 into 2021. And then we saw from spring of 2021, a lot of the charters being very active in the term market, pulling in chips into their portfolio and the liquidity of the spot market has been decreasing. So from a a peak of above 30 fixtures a month. 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 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 Knut mentioned on our balance sheet, we have ships booked at the bottom of the market when prices were at around 180-185 million per ship. That price today is about 250 million dollars for delivery 2027 even into 2028. Another driver is of course 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 now 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 backlog for the two 2027 ships we are today marketing. And let's look 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 grow around 4%. There's very limited new liquefaction capacity coming to the market this year. We will have about 8 million tons from US, mostly due to Freeport restart. Trinidad and Tobago have been able to get their feed gas level up and we expect two million tons from Trinidad and Tobago. The LNG plant here in Norway started up last year, so we do expect an annual increase of about two million tons. Mozambique, they have a FLNG, which will be producing for a full year this year. End of the year, we will have a new FLNG in Mauritania, adding some volumes and some other 2 million tons from other projects, bringing the market to 416 million 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. As you can see here, 95 million rest of the world. Of course, 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 if we look at the project under construction and those who have been given the green light to start construction, we are ending up at a volume of 583 million tonnes. However, we also expect more investment decisions to be made, especially in America, as I highlighted on this arbitrage, where Henry Hub prices are very low compared to international prices. So the project we see here, highly likely I will come back to this, 73 million tons more in the US, 46 rest of the world, which can bring this market to 700 million tons by 2030. 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 next decade and Port Arthur, quite sizable projects. We do expect FID to be imminent. They have also signed offtake for a 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 Calcius Pass 2, CP2, from Venture Global, which Venture Global have had an excellent track record on getting offtake for the project and building them in a very short time to market. And then it's the Lake Charles from Energy Transfer, which is also closing in on FID date. So with that, I think we will conclude today's presentation. Just to remind you of our highlights, revenues 98 million in line with guidance, strong earnings 41 or 55 million respectively for net income and adjusted net income, which gives earnings per share and adjusted earnings of 78 cents and $1.02 respectively. We have continued building our backlog with the contract we announced for Chenier in November. We are upbeat about the prospects of adding further backlog to our company. Knut has finalized the balance sheet optimization program. We still have some loans to be executed during Q1, which will bring the total net proceeds from this refinancing of all the 13 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 for dry dockings. And this is driven by higher time charter equivalence earnings of about $80,000 per day expected for 2023. And with a strong backlog, strong financial position, great outlook, we are today paying out our $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 a Q&A, just a reminder. You can win the Flexington Bedlin kit for the best questions. So Knut and I will now start the Q&A round. Thank you very much.
spk03: As last quarter, Oma Nocta and now also Chris Vornheim asked, what is the key strategic priorities for management and the main objectives going forward?
spk04: Net term, of course, it's to close, for Knut to close the current financing during COVID. The first quarter releasing this $204 million of cash. Longer term, I think I highlighted it in the chartering strategy. We have two ships now open, 2027, which we are marketing in a market where term rates have gone up. So, of course, our key priority is to... 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 interesting. finding a marketing window during the year. So 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 that new building prices are quite stiff. So we are the focus on building more backlog for existing ship, which are the same type of technology. And let's see, we have a strong balance sheet, so we can always act on opportunities quickly. $400 million 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 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 yards, but keep building the business step by step like we've done the last couple of years now.
spk03: And there's a number of questions here about fleet expansion and how do you look at the new building prices and ability to go to the yard for new buildings?
spk04: I think I mentioned it already. One thing is when interest rates are zero and you are committing to a new 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 yard pre-installments, you have zero return on that capital. And that means that a sticker price of 250 million is suddenly approaching 270, 80 million when you are kind of taking into account the alternative return on that money 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 or elevated new building prices, I think you need to see 10%. 15 years contract in order to 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. 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 as management.
spk03: Good. Then moving over to capital. And we have this ATM program. And the number of questions is, you can give some color on the background, the rationale for it, and how to use the proceeds.
spk04: Yeah, it's when we started thinking about listing this company in the U.S., it was 2018. And one of the things we did then was to change our accounts from IFRS to US GAAP 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 U.S. June 2019. When we did a direct listing, that meant we never issued any shares in the U.S. market, so it took a while before the liquidity of the stock became significant. to a level where it's today. At the same time, when we had a slump during COVID in 2020, our stock price was negatively affected by that, and we bought back stock. 980,000 shares we bought back in that period. Which we have still in our treasury today. 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 selling back some of the shares we have bought back in order to create a bit better flow in the stock. We don't have any immediate capital requirements for this cash and Also one of the reasons why we are paying out a special dividend today of 25 cents on top of the 75 cents, which gives the investors a good time on Valentine's.
spk03: Moving a bit over to more shipping related and the contract portfolio. The questions about termination risk in case if natural gas prices falls down. How do you look at that? What's the ability for the charters to amend the contracts?
spk04: I think we had a super stress test on this in 2020 during COVID when LNG price in Europe went below $1 per million BTU. It was up as I mentioned in the presentation there in August above $100 per million BTU and Asian prices were as low as 1.8. I've never seen, I don't think anybody else has seen termination of these contracts ever since the LNG industry started 50 years ago. These are heller high water contracts. Usually the people who are shipping, they also have a cargo they need to ship. And of course, the cost of the freight is usually quite low compared to the value of the cargo. So it's... It's not something we've ever seen, and we didn't see it in 2020, even though people were losing money, even though a lot of cargoes in the U.S. were canceled and a lot of ships were idling. We still saw that everybody honored the contract. And keep in mind, LNG is the big boys game. If you think about the super majors, their size in the oil market is very small compared to all the traders and the national oil companies. In LNG, it's mostly the super majors and it's the big guys. national oil companies like Qatar Gas. So it's not a lot of shady counterparties. It's good counterparties, and that also makes it a reliable partner for us to do freight.
spk03: 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.
spk04: Selling and 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 substantial with cargo values going to $200 million. So you need a lot of working capital to kind of finance that type of activity. kind of spot cargoes, which I would think that some of the charters would maybe shy away from chartering our ships if we are competing head on head with them. So we rather focus on the transportation side of the business, which is our shipping business, which we find a good and attractive business and where we can run a lean organization doing that activity, which we couldn't have done on the LNG trading side.
spk03: Then more shipping specific, how many days does a ship use to cross the Atlantic?
spk04: Yeah, usually US, Europe, five, six, mostly 6,000 nautical mile. 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. So that means... 14 days U.S., Europe. You need some time for the loading. You need some time for the discharging. So basically you can do one cargo a month. That translates into 12 cargoes a year. And then you are lifting 900,000 tons a year, give or take. Of course, if you're going to Asia, it's a longer distance. Then it's 10,000 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 are 15,000 nautical miles. So that means when cargoes are flowing from the 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.
spk03: Then there's a number of questions of decarbonization and environmental impacts and focus that on regulator side and on politicians. How would that impact LNG shipping and flex in particular?
spk04: I think, you know, our main competitor is coal. And as I've shown on the graph here, coal consumption is up a lot in Europe. It's not only up in Europe, it's up a lot in China. 2022 peak coal consumption in the world. And actually we see people are expanding more on the coal side as well because it's affordable. 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. Because in Europe, you have carbon prices as well. And if you're burning coal, it's twice as much carbon. CO2 emissions and you need to buy more of these carbon permits, which is costing close to 100 euros per ton. So with lower prices, we actually prefer lower prices because that stimulates demand and usually stimulates demand more in Asia, which is driving sailing distances. In terms of... ESG, what we're trying to do here is to replace coal with natural gas, which is reducing CO2, but also cleaning up the local air quality with SOx and particle matters and NOx, which is reduced CO2. 85% to 99%. So that is also a side factor of it. Another element is the 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 for that voyage. And, of course, our ships are much more efficient than the older steam generation of ships are now. CO2 footprint compared to older steamships is down by about 60%. That means that if you're shipping a cargo or ships into Europe, you have less CO2 tax on it. And that will improve further our competitive advantage towards older generation of ships. And we do think that eventually CO2 prices will increase. spread to other parts of the world and just Europe. And 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 the half of the voyage, which has so far been suggested.
spk03: Dan, there's a question if our revenues are sensitive to the LNG commodity price.
spk04: No, we have 12 of our ships are on fixed higher rates. So the rate is fixed. It's not linked to the commodity. One ship is on variable higher contract. It's not linked to the commodity price. It's linked to the spot rates for freight. So no, that's not the case.
spk03: Then 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 2.1, so you can say it's phase three. But now we refinanced all of the 13 vessels and long-term maturity dates, and we're pleased with what we have, so we'll pause on that for now. Yeah, that's good. So that concludes the Q&A round. And then the big question is, who's the winner?
spk04: Who's going to sleep well at night? It's going to be Wolf Böhm. Thank you for the questions. You've not only sent questions today, but I've been getting questions from you for the last two years or so. And I really, really like your engagement by sending us questions online. in the middle of the night U.S. time, so we will send over some Flexington Bedlin kits to you and also two 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 Joining, I would like to thank our financers, providing about $2 billion of new financing. I would like to thank all you investors. And not least, I would like to thank our onshore and offshore personnel, making this possible, making the propellers turn every day, despite all the challenges we have had with COVID. As I've shown today, we have perfect uptime and quality records. So thank you very much, and we wish you a very good Valentine's Day, and we will be back. for more updates in May when we're doing our Q1 presentation. Thank you.
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