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Awilco LNG Looks Towards Improving LNG Shipping Market

The Awilco LNG Group (Awilco LNG or the Group) reported net freight income of MUSD 8.4 (MUSD 10.4 in Q4 2018) and EBITDA of MUSD 5.0 (MUSD 7.1 in Q4 2018).

Vessel utilisation of 90 % compared to 84 % in Q4 2018 (excluding off-hire from scheduled drydocking).

Consolidation initiative with other ship owners high on the agenda.

Freight income for the quarter was MUSD 9.4, down from MUSD 11.1 in Q4 2018 due to muted demand in the Far East combined with seasonal effects. Fleet utilisation for the quarter ended at 90 %, compared to 84 % in the previous quarter (excluding scheduled off-hire). Voyage related expenses amounted to MUSD 1.0, compared to MUSD 0.7 in Q4 2018. Operating expenses were MUSD 2.2 in the quarter compared to MUSD 1.9 in Q4. Provisions for repair of damage to machinery on the WilForce was increased by MUSD 1.1 in Q1 2019, and a MUSD 0.9 increase in the corresponding insurance claim was recognised as other income in the quarter. Repairs at yard commenced end-April. Please see note 4 for further information. Administration expenses were MUSD 1.0 in Q1 compared to MUSD 1.4 in Q4 2018. EBITDA for the quarter was MUSD 5.0 (MUSD 7.1 Q4 2018) and depreciation for the quarter was MUSD 3.3 compared to MUSD 3.2 in Q4 2018. Net financial items were MUSD (5.1) same as in Q4 2018. Interest expenses on the WilForce and WilPride financial leases amounted to MUSD 5.2, down from 5.4 in the previous quarter. Loss for the period was MUSD 3.4, compared to MUSD 1.2 in Q4 2018.

Book value of vessels was MUSD 358.9 as at 31 March 2019 (MUSD 362.1 Q4 2018). Total current assets were MUSD 27.1 as at 31 March 2019 (MUSD 31.4 Q4 2018), including an insurance claim of MUSD 4.9 relating to repairs on the WilForce and cash and cash equivalents MUSD 18.7 (MUSD 22.5 Q4 2018). Total equity as at 31 March 2019 was MUSD 112.2 (MUSD 115.6 Q4 2018). Total current liabilities were MUSD 273.4 as at 31 March 2019 (MUSD 277.6 Q4 2018), of which MUSD 265.9 relates to the WilForce and WilPride financial lease liabilities (MUSD 266.7 Q4 2018), MUSD 1.3 was deferred revenue relating to Q2 2019 invoiced in Q1 (MUSD 2.7 Q4 2018) and MUSD 5.1 provisions for repair of WilForce (MUSD 4.5 Q4 2018). Total deferred bareboat hire towards the financial leases was MUSD 22.7 as at 31 March 2019 (MUSD 19.9 Q4 2018), which is included in the total financial lease liabilities. The repurchase obligations for WilForce and WilPride mature 31.12.2019 plus 60 days extension option in the Group’s favour. Awilco LNG has rolling repurchase options and is actively pursuing refinancing alternatives, see note 5 for further information. Awilco LNG is considering multiple sources of capital available to refinance the vessels in due course.

A relatively warm winter in the Far East and high storage levels in China and South Korea resulted in muted gas buying interest in the quarter and the downward gas price pressure seen in Q4 2018 continued throughout Q1 2019. FE gas prices started the quarter at USD 9.0/MMBTU and ended at USD 5.1/MMBTU, whereas UK NBP started Q1 at USD 8.4/MMBTU and closed at USD 5.1/MMBTU. Henry Hub opened at USD 3.9/MMBTU and closed at USD 2.8/MMBTU. Due to weak demand and ample cargo availability Asian LNG futures prices for Q2 2019 delivery continued falling until early April, at which point buyers started positioning for the seasonally stronger summer months.

Global LNG trade including reloads is estimated by Fearnleys LNG to have increased by about 8-9 % in Q1 y-o-y, but due to lack of arbitrage between the basins, weak demand in the Far East and redirection of volumes into Europe average sailing distances fell by the same number. Shipping demand was essentially flat compared to Q1 2018 and coupled with a 10 % growth in the fleet since Q1 2018 rates suffered. According to Fearnleys LNG headline TFDE day rates started the quarter at USD 110,000 in both basins. End of March rates were assessed at USD 36,000 and USD 37,000 per day West and East of Suez respectively. LNG imports to China increased by about 21 % in Q1 2019 y-o-y.

Imports to South Korea, India and Japan decreased by 19 %, 12 % and 9 % respectively, due to temporary weather effects and restarting of nuclear plants in Japan and South Korea. A total of 44 MTPA of new LNG nameplate production capacity started up in 2018, of which 27 MTPA added in Q4 2018 is not expected to produce at capacity until Q2 2019. A further 20 MTPA of new LNG production capacity is expected to commence production in 2019, followed by 63 MTPA under construction with startup 2020 to 2024. According to industry analysts new LNG production plants with total potential production capacity of over 380 MTPA are in various stages of pre-FID planning, and market analysts assess more than 60 MTPA as likely to reach FID in 2019 including Golden Pass (15.6 MTPA) which was sanctioned in February. In Q1 2019 12 vessels were delivered and 11 vessels were ordered. According to shipbrokers the orderbook at the end of Q1 2019 for LNG vessels above 150,000 cbm (excl. FSRU and FLNG) was 106 vessels, of which about 40 are assumed available for contract. A further 27 vessels are scheduled for delivery in 2019, 35 in 2020, 43 in 2021 and 4 in 2022.

The mild winter, well stocked inventories and ample supply has translated into a weak shipping market so far in 2019. Current spot rates are about USD 35,000 – 50,000 per day, but multi-month charters with delivery in Q3 2019 are being concluded at considerably higher rates to provide for winter coverage. At current gas prices the LNG energy equivalent to oil costs less than USD 30/bbl, and with Brent at around USD 70/bbl demand for LNG is expected to increase going forward. A total of 83 MTPA of new LNG production capacity is expected to start up in 2019 to 2024 of which 68 MTPA in North America.

New US volumes are expected to increase average sailing distances, and tonnage demand and supply looks balanced the next few years. However, periods of volatility and seasonality should be expected. Several new LNG production plants are expected to be sanctioned in the next 6-12 months to meet the growing demand for gas, estimated at double the growth rate of the total global energy demand according to Shell Energy Outlook. Awilco LNG has one vessel on contract until mid-July 2019 and one vessel trading in the spot market and is well positioned in this firming market.

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Source: Awilco LNG

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