Dynagas LNG Partners LP (DLNG) 2018 Q2 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Dynagas LNG Partners Conference call on Friday, 27 July 2018 Second Quarter 2018 financial results. We have with us Mr. Tony Lauritzen, Chief Executive Officer; and Mr. Michael Gregos, Chief Financial Officer of the company. (Operator Instructions) I must advise you that this conference is being recorded today.

At this time, I would like to read the safe harbor statement. This conference call and slide presentation of the webcast contains certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, which may affect Dynagas LNG Partners' business prospects and results of operations. Such risks are more fully disclosed in Dynagas LNG Partners' filings with the Securities and Exchange Commission.

And now, I pass the floor to Mr. Lauritzen. Please go ahead, sir.

Good morning, everyone, and thank you for joining us in our second quarter ended 30 June 2018 Earnings Conference Call. I'm joined today by our CFO, Michael Gregos. We have issued a press release announcing our results for the said period. Certain non-GAAP measures will be discussed on this call. We have provided a description of those measures as well as a discussion of why we believe this information to be useful in our press release.

Moving to Slide 3. On April 20, 2018, the Ob River matured her contract with Gazprom and delivered in direct the continuation into her 10-year contract with the same charterer. The rate of hire on the latter contract was relatively lower reflecting the longer duration of the contract as well as the prevailing market conditions at the time. The Arctic Aurora completed her 5-year special survey in May 2018 in Ferrol, Spain. The dry docking and maintenance work was done in a very efficient manner, counting only 12 days.

After having served a spot and short-term markets since 3rd April 2017, the Clean Energy delivered into her approximately 8-year contract with Gazprom on 13th July of 2018. We believe that Yamal LNG project is progressing very well. And on 1st of July 2018, Yamal narrowed down the delivery windows for the Yenisei River and the Lena River to the earliest possible as allowed by their respective 15-year contracts.

Our adjusted EBITDA for the period was reported at $24.4 million with corresponding adjusted income of $4.5 million. The partnership reported a net income of $0.4 million and distributable cash flow was reported at $8.7 million.

Our quarterly cash distribution for the second quarter of 2018 of $0.25 per common unit was paid on 19th July 2018. And since our IPO in November 2013, we have paid a total distribution for common unit in the amount of $7.29. The partnership is expecting to pay on 13th August 2018, a cash distribution of $0.5625 for each of its Series A preferred units for the period from May 12, 2018 to 11, August 2018.

Distributions of the Series A preferred units will be payable quarterly on the 12th day of February, May, August and November at an equivalent of $0.5625 per unit, provided the same as declared by the Partnership's Board of Directors. I will now turn the presentation over to Michael who will provide you with further comments to the financial results.

Thank you, Tony. Moving on to Slide 4. We are pleased with the results of the quarter, which exceeded our expectations as operating expenses and the dry dock of the Arctic Aurora were below budget.

For the quarter, we generated $8.7 million in distributable cash flow and $24.4 million in EBITDA. We are pleased with our operating performance for the quarter with 97% utilization and vessel daily operating expenses, which came in at $10,800 per day per vessel for the quarter versus $13,700 per day per vessel for the corresponding period of 2017. In addition, the cost of the dry dock of the Arctic Aurora ended up at $2.6 million, which was $850,000 below budget.

For the quarter, average gross time charter hire on a cash basis amounted to $61,500 per vessel per day, whereas our cash breakeven, excluding our distributions to preferred and common unitholders and our dry-docking cost amounted to about $38,700 per day. Including our cash distributions to common and preferred unitholders, our cash breakeven amounted to about $58,500 per day per vessel.

Moving onto Slide 5, in this slide we see the progress of our distributable cash flow since we went public and this provides the rationale for our Board of Directors' decision announced on April 18 to reduce our quarterly distributions to common unitholders by 41% to $0.25 per quarter in order to properly reflect the new free cash flow-generating capacity of our fleet as we transition to the longer-term contracts providing for the long-term cash visibility and lower risk. The realigned cash contribution reserved an annual cash savings of $24.5 million and provides the greatest ability and sustainability of distributions to our equity holders. The realigned distribution is also in line with our strategic focus to preserve cash in order to enhance our credit profile.

Moving on to Slide 6. For the quarter, our distributable cash flow available to common unitholders was $7 million and we paid $8.9 million in cash distributions to our common unitholders, resulting in a distribution coverage ratio of 0.79x. For the quarter, we had a cash coverage of 1.13x, with cash coverage representing adjusted EBITDA less interest, loan principal and preferred equity dividends divided by the actual distributions to common unitholders.

This year has been a transitional year as the last 3 out of our 6 vessels complete their 5-year mandatory class special surveys in dry dock and other LNG carriers gradually deliver into their previously entered into long-term contracts with the process being completed with the commencement of Lena River and Yenisei River Yamal contracts next year.

The 2 remaining vessels to be dry docked are the Yenisei River and Lena River in Q3 and Q4, respectively, which are expected to cost $3.5 million per vessel with 25 off-hire days for each vessel, both of which will take place upon the expiration of their current contracts.

As previously advised, we expect to operate at the common distribution coverage of below 1 for the remainder of the year. However, the partnership has adequate liquidity, which is supported by a predictable operating cash flows and cost structure in order to fund the [cash]distribution to common unitholders of $0.25 per unit per quarter.

Moving on to Slide 7, our simplified debt structure is composed of the $475 million Term Loan B, which is amortizing annually and has a floating interest rate and $250 million notes, which mature in 2019 and which we expect to refinance in advance of their maturity given our solid track record as a repeat issuer in the debt capital markets.

We have a best-in-class LNG fleet that provides significant asset coverage over our total debts with a contracted backlog that is close to 2x our total debt and which significantly outruns our debt maturities.

At the end of the quarter, we have liquidity of $88 million, including sponsor revolving capacity and a pro forma net debt for the last 12 months EBITDA of 6.4x. Capital structure is very important to us and longer-term focusing on improving leverage metrics will be a top priority. That concludes my part of the presentation. I will pass the presentation over to Tony.

Thank you, Michael. Moving on to Slide 8. Our fleet current accounts 6 high specification and versatile LNG carriers with an average age of about 8 years in an industry where expected useful lifetime is 35 years. Our fleet is able to operate across the globe, including icebound areas and under the harshest weather conditions. These high vessel specifications are appreciated by global energy companies, and we have developed a diversified customer base with oil majors and traders.

Our fleet has in the past been employed by companies like Shell, Qatargas, RasGas, Marubeni, Woodside, KOGAS and several other major oil and gas companies. Today, we have a long-term contracts with Gazprom, Equinor, formally known as Statoil and Yamal Energy, which the latter is a joint venture between TOTAL, CNPC, NOVATEK and the Silk Road Fund. Our contracted backlog is about $1.44 billion, and our average remaining charter period is about 10.1 years, which compares favorably versus our peers.

Moving on to Slide 9. Our strategy is to enter into long-term contracts that provide cash flow visibility to stakeholders and allows us to effectively eliminate market volatility and the cyclicality of the shipping industry.

Since inception, the Partnership's average remaining term of contract increased from approximately 4.5 years to more than 10 years. We believe that the excellent characteristics of our fleet have been instrumental in helping us secure long-term contracts and cash flow visibility. Our long-term contracts with Gazprom, Equinor and Yamal LNG serve well-established LNG export projects in harsh weather and icebound areas. Our clients have entered into long-term offtake agreements with LNG users and our vessels are vital to their efforts to monetize the production of natural gas.

On 13th of July 2018, the Clean Energy delivered into her approximately 8-year contract with Gazprom after serving the short-term and medium-term markets since 3rd of April 2017.

The Yenisei River completed her 5-year charter with Gazprom on 21st July 2018 against a notional payment from Gazprom to the Partnership, reflecting the vessel's positioning to Singapore where the vessel will undergo her 5-year special survey, which is expected to commence on 29th July and complete in mid-August 2018. After completion of the special survey, she is expected to be employed on the short-term markets until she commences her 15-year contract with Yamal LNG.

We believe the Yamal LNG project is progressing very well. And on 1st of July 2018, Yamal narrowed down the delivery windows for the Yenisei River and Lena River to the earliest possible as allowed by their respective 15-year contracts. It is expected that the Yenisei River will commence her Yamal LNG contract between 1st of January and 3rd of March 2019. The exact date that she will be delivered to Yamal within this window is now in our choice.

The Lena River is on charter to Gazprom until late September, mid-October 2018 and will thereafter perform her special survey dry docking. She has been employed on a multi-month contract with a large gas producer for the period commencing after the completion of her special survey until her expected delivery into her 15-year contract with Yamal LNG.

It is expected that Lena River will commence her contract with Yamal LNG between 1st of July 2019 and December 2019. Our fleet is 85% contracted in 2018, 99% in 2019 and 100% in 2020, assuming that the Yenisei and the Lena River will enter their long-term charters at the earliest dates in their delivery windows.

We are now actively pursuing opportunities for the availability that we have on the Yenisei River, which is supported by a relatively active LNG shipping market.

Moving onto Slide 10. Our sponsor, Dynagas Holding owns a fleet of 9 LNG carriers. They are all on long-term contracts. 4 of those LNG carriers are Arc-4 type, which are of similar specification as the vessels in our fleet. These 4 vessels are all chartered to Yamal for minimum 15 years employment each, plus extension options. Prior to the commencement with Yamal, these vessels are employed on the short-term and medium-term markets. The remaining 5 LNG carriers are Arc-7 type and are 49% owned by our sponsor and 25.5% each by Sinotrans and China LNG Shipping, 2 state-owned Chinese entities. These 5 vessels are charted to Yamal LNG for between 26- and 28-year contracts each. All vessels on the water and in the order book are fully financed and funded. The 9 vessels have contracts in place amounting to a multibillion-dollar contract backlog. And these optional vessels are dropdown candidates to the partnership.

Moving on to Slide 11. We have a unique fleet. 5 out of the 6 vessels in our fleet have ice class 1A notation. The fleets can handle shipping in conventional open water areas as well as operate in icebound and subzero areas. This means that we are able to and have been successful in pursuing business opportunities in 2 different markets, namely conventional LNG shipping and the unique market that requires ice class LNG carriers. The initial capital expenditure for an ice class vessel is somewhat more expensive than conventional carriers. However, the operating cost between our ice class type carriers and conventional carriers are very similar. The partnership, together with our sponsor, has the market share of 82% for vessels with Arc-4 or equivalent ice class notation. And to our knowledge, there are only 2 other LNG carriers in the world with equivalent notation, which are chartered out on long-term contracts.

We view the ability to trading in icebound areas as an important advantage due to the current and ongoing construction of LNG production terminals within icebound areas and in particular in Northern Sea routes where Yamal LNG has recently commenced production.

We also expect further projects to be developed in that region. We view the ability to perform niche operations as an important driver in securing attractive long-term charters going forward. Further to that, our fleet is optimized for terminal compatibility, which is of significant importance in a market that is changing from a fixed-route trade to a worldwide trade, and the fleet consists of groups of sister vessels that provides for overall relatively better economics and efficiencies.

Let's move to Slide 13. In summary, we are experiencing substantial growth of LNG production from new projects primarily in U.S., Russia and Australia. The world LNG carrier fleet appears too small to carry those additional volumes in the long term, and there are too many small and old technology vessels. There appears to be sufficient demand for the new LNG from existing and new importers with floating regasification projects accelerating demand. The LNG shipping market is maturing with increased fixture activity, increase in LNG production and a growing LNG carrier fleet. The current LNG world fleet and order book, including FSRUs and FSUs, totals about 604 vessels. The order book counting 95 vessels is about 19% of the world fleet. Although about 50% of the world fleet is steam driven, as much as 30% of the world fleet is below 140,000 cubic meters and aged.

We expect that most of these undersized and aged vessels will fade out in the market and be replaced with larger and younger tonnage in the long term. 68% of the order book has been committed for employment. However, we have seen speculative ordering activity lately that is added to the order book.

According to the order book, mostly those will be delivered during 2019 and 2020, which is a period we expect increase in additional LNG production. There are only very few yards in the world that have the experience and capability to build such vessels. And if one were to order today, our guess is that the yards will be able to offer tonnage for delivering second half of 2020 at the earliest.

Let's move to Slide 14. LNG production grew by 22% during the last 5 years and is estimated to grow by 42% within 2022. We expect to see imminent production increases from Australia, U.S. and Russia. It is likely that the Far East will remain the largest buyers going forward, in particular with growing imports to China driven by coal to gas switch. We also believe we will continue to see the emergence of new niche markets in areas such as South Asia, Africa, Middle East and South America where volumes may be imported by FSRUs. We believe that there are sufficient buyers for the new LNG to be absorbed. The majority of the new LNG export volumes have sale agreements or offtake agreements in place. And we believe that, that existing import markets will continue to increasingly rely on LNG as a price competitive and Clean Energy resource.

Let's move to Slide 15. In the first half of 2018, LNG production was up 8% compared to the first half of 2017. As expected, in particular, Australia and the U.S. have been the largest incremental producers so far. The trend is expected to continue with new projects such as Yamal LNG Train 2 and Train 3, Cameron LNG, Elba, Wheatstone Train 2, Ichthys and Prelude being added. In March 2017, the industry saw the world's first cargo being produced by a floating LNG terminal, namely the PFLNG Satu. And in May 2018, we saw Golar's FLNG Hilli producing first cargo giving confidence to the FLNG technology.

Moving on to Slide 16. The Far East is still the largest consumer of LNG and demand is growing. The Far East demand is fueled by recovery in Japan, Korea and China's push to replace coal with gas. The largest incremental importers of LNG in Q2 2018 came from the Far East. While Japan and Korea have long been relying on LNG as an energy resource. China completed its first LNG import terminal in 2008 and today, have 17 completed terminals and 8 under construction. Growth in Chinese LNG imports have averaged 21% per annum in the 5 last years. And China is now the second largest importers of LNG behind Japan, and we expect the need for LNG into China to continue to grow going forward.

Let's move to Slide 17. The main U.S. producing terminals are now Sabine Pass and Cove Point. Based on shipping volumes in Q2 2018, 15% of the exports went to South America; 22% to Central America, including [Caribs]; 3% to Europe, including Turkey; 39% to the Far East; 11% to the Middle East; and 10% to India and Pakistan. Analysis indicates that it is required 1.91 vessels for every million ton of LNG produced in the United States.

Let's move to Slide 18. In the year 2000, 2% of all LNG were sold spot. In 2015 after years of substantial international investments in LNG infrastructure, this number had increased to 37%. We see a steady increase in spot and short-term fixtures. In 2016 and 2017, spot fixtures accounted for 89% and 91%, respectively. Going forward, it is assumed that the spot shipping market will be substantial and therefore we believe that niche operators like Dynagas will be better suited to conclude long-term deals.

Moving on to Slide 19. In conclusion, we're a pure-play LNG shipping company focused on owning and operating LNG carriers. Our vessels are high specification and are employed on multi-year time charter, fixed-rate contracts with international investment-grade energy companies such as Gazprom, Equinor and Yamal LNG. The partnership's ice-classed and winterized fleets enables the flexibility to pursue the best of 2 different markets, which have proven to be a strong advantage so far in securing long-term charters. Our $1.44 billion in remaining contracted revenue and over 10 years of average remaining contract life provide the partnerships with benefits of stable cash flows and high-utilization rates.

We operate in LNG shipping, which is a vital link in the global LNG value chain. And our services allow our clients global LNG companies to monetize their production of natural gas. Demand for natural gas has been steadily growing and LNG trade is expected to grow by over 40% by 2022. We have now reached the end of the presentation, and I now open the floor for questions.

(Operator Instructions) Your first question comes from the line of Randy Giveans from Jefferies.

So the press release reads, our intent is to seek additional contract coverage, particularly in 2018. So first, how do you plan on doing that? And then after the upcoming dry dockings in the back half of this year, we expect the distribution coverage ratio to exceed 1, maybe 1.1x in 2019 and beyond. So as such, do you expect any changes to the current distribution level in the coming quarters and years?

Randy. No, I think, we've been quite clear that the -- and from prior conference calls that the distribution coverage is going to be below 1, but this is not relevant to the distribution levels or the distribution -- the current distribution and new distribution of $0.25 a quarter is -- we don't -- we're unaffected by the fact that we are trading below our onetime distribution coverage because if you look at the cash coverage -- on a cash coverage basis, we're trading at [below] 1x and we also have adequate liquidity to pay this current distribution.

And I'll just answer the first part of your question regarding the availability that we have in 2018. And basically, the only availability that we have is the Yenisei River. She comes out of dry dock mid-August and is then available until the end of the year. We feel very confident that we will source an employment for the vessel for that period of time.

Good answers. And then you mentioned delivery windows for the Yenisei River and the Lena river have "narrowed" the delivery windows to the earliest possible allowed. So just for modeling purposes, does that mean January for the Yenisei and July for the Lena?

Well -- so the way that it works under the contract is that there are certain windows. So yes, for the Yenisei, now the window is between 1st of January '19 and 3rd of March 2019. So we assume the earliest in that window. It is within our right to put the vessel at any given days within that window so that's why we can then model the earliest [type] so you can use 1st of January. For the Lena River, the window has been narrowed down to a 6-months window, which is basically the entire second half of 2019. So it could be any date within that window, but that is in accordance with contract.

Okay, then following up on the Yamal. I think during June and July, Dynagas removed all 3 of these vessels from the Cool Pool, the Planet, Horizon, Vision. Does that mean those Yamal contracts are now underway, have they already begun? Or is that in the coming weeks. How does that look?

That's a very good question. First of all, we are very happy with the corporation with the other partners in the pool. We enjoyed very much being part of that, and we thought it was a unique tool in the market that has an increasingly large [spot] market. But since the 3 vessels that we had in the pool would ultimately go on long-term charters to Yamal. It was in our interest to remove them from the pool so we could better manage the trading of those vessels and into their long-term charters. It was important for us to have full control over that. And what we can say now is that the Clean Planet has already commenced her term charter with Yamal. And when it comes to the Vision and the Horizon, we have sourced 2 other charters filling the entire gas until they go on charter with Yamal LNG with another large gas producer.

Excellent. And then Last question for me. Just getting an update on refinancing of the $250 million, 6.25% senior unsecured notes due next October. I think on the last call, you said that was likely to be in, 2018 event. Is that still the case?

Yes. We think it's still likely a 2018 event. Yes.

Next question comes from the line of Ben Nolan from Stifel.

So I have a little bit more of a, maybe, higher-level question or strategic question for you. So obviously, you had to cut the distributions a bit. You indicated on the call that the intent going forward is to probably, well certainly, refinance the notes, but also delever a bit, if I heard correctly. But then again, you talk about all these potential dropdown candidates, and there are a lot that have fantastic contracts on them. And I think you would probably agree that your cost of capital isn't really ideal for that. How do you envision the partnership moving forward to be able to accomplish all these things? How do you think you can maintain the distribution, grow the fleet, continue to pay down debt? I mean, there is a lot of levers to pull.

Yes. Listen, I think what we're doing is, we are taking a step-by-step approach to how we are handling things. First of all, all the 6 have been employed and they are under long-term contracts. Second of all, we are focused on refinancing our notes, I mean, that's our immediate priority. When that happens then I think we can start addressing all the questions that you are asking. Of course, you asked how do you envision maintaining the distribution. I think the maintaining the distribution, we've already achieved that with our previous distribution realignment. I mean, if you look at our cash flows, they're supported -- the distribution is supported by our current cash flow profile for quite a long time. So the cost of capital and the potential dropdowns are important questions but I think we have to focus on refinancing the notes. And then once that is done then we can focus on these very important questions.

Right. I didn't mean to imply that your distributions wouldn't be covered after all the contracts are in place, just that beyond the distributions, it's not as though the cash flow that is generated over and above that could both service acquisitions and debt repayment, at least not by my numbers but I understand that one step at a time, refinance and then sort out the growth. Maybe, Tony, stepping over to the FSRUs, obviously, a handful, a couple now of FSRU orders that I assume are under construction and would be part, I would think, of that pool of potential candidates to acquire at some point. Just curious, in your role on a private side, how are you approaching the employment of those? Is that standard long-term contracts? Are you kind of looking to take a little bit more of an integrated approach and be a partner in a project rather than just an equipment provider?

So the delivery of these FSRUs are not until 2021. So there hasn't been any, let's say, heavy marketing as of yet because there is some distance to go in terms of time. But these FSRUs are quite different from other standard types of FSRUs because they're really dual-purpose carriers, meaning that they can sail as ordinary LNG carriers, twin skeg, meaning 2 propellers and efficient machinery at 19.5 knots and they can also do 750 standard cubic feet a day in regas capacity. So mostly, FSRUs are handicapped when it comes to speed and consumption but these are not. They're really dual purpose. So I think that they have a wider market than the typical FSRU. And I think, therefore, they will be a very suitable for term employment with a portfolio player. So we feel very confident that the specification of these vessels are the best in the market and should be of a great interest for many different takers.

Okay. And it is fair to assume, granted years down the line, but that would be part of a potential suite of dropdown assets that might be available to the partnership, correct?

Yes. I mean, these are -- I mean, this has been discussed on a sponsor level, and we obviously cannot answer for our sponsor. Yes, that may be the case.

The next question comes from the line of Fotis Giannakoulis from Morgan Stanley.

You will excuse me if I insist a little bit on your growth plan. Since all your vessels are contracted long term, there is very little uncertainty about your cash flows. I'm still trying to find a way, how shall we think the dropdowns of the Yamal versus other [Europe] sponsors, what is that you are expecting in order to make this happen? Is it the fact the dividend yields in the MLP space narrows? Or is it the fact that this will happen after the refinancing? How much equity each of these vessels requires? Or how much debt -- how are you going to finance them? And is there any way that you're going to fund these vessels with alternative form of capital, except raising common equity at these high yields that you're trading?

Hi, Fotis. I mean, as I told Ben, I mean, these are all excellent questions. But the reality is, these are discussions and these are thoughts that we are having internally. We don't -- we're focused on refinancing our bond. All the other options that we have potentially for growing the company with dropdowns is something we are seriously thinking about. Clearly, I mean, you are concerned that how you're going to get your dividend yield down in order to be able to do drops, that's an understandable concern, but...

But I'm actually concerned trying to understand how you can bring your dividend up. I don't think that anybody worries about the level of your dividend at this point. But I am -- we are trying to understand what is the road map for a dividend increase from this level?

Listen, at this particular stage, it's premature to discuss dividend increases. What I think -- I have to repeat the same answer that I gave Ben, which is that everything, we have to take things step by step. The vessels are very long-term contracts but the dropdown candidates. So there is time. We don't -- we're not pressed to find a solution ASAP. And all these things we are thinking about. Whatever decision we make have to be the optimal decision, which will not affect the long-term financial standing of the partnership. So that's all that we can say at this particular stage.

Thank you, Michael, appreciate. Going back to the dropdown candidates, you have 4 vessels with very long-term contracts, which you fully own and other 4, 5 vessels, the ice class vessels that you jointly own. How much financing these vessels can get based on this extra-long contracts that they have?

Can you repeat, which vessels were you talking about?

I'm talking about the Yamal vessels that you fully own and the dropdown candidates, the Planet, the Horizon, the Vision but also the Arc-7 vessels, they also have extremely long contracts. How much debt can you put on these vessels when you go to your banks?

Listen, the Arc-4 vessels have already financing. We don't anticipate that they would require to be refinanced if we drop the means of MLP because the current financing arrangement has carved out the possibility of a dropdown. The debt on these vessels ranges from between $145 million to $180 million. It depends on the vessel. There is significant debt service on these vessels, which means that it probably makes better sense to wait a little while until the debt amortizes in order for the deal to be more cash flow accretive for the partnership. The Arc-7s are basically an investment. So we own 49% of the entity that own these vessels and basically, we have previously communicated that the dividend that we expect per vessel on an annual basis is about $5 million.

Okay, that's very helpful. Moving a little bit on the overall market and on the appetite of buyers for securing long-term volume. We have seen that the demand has surprised by far exceeding expectations, particularly in China. But the last few months, we have seen a lull in offtake activity. I was wondering why is that? And at what point, do you think that we will see more long-term offtake contracts? And at what point we are going to see final investment decisions for new projects since market seems to be balancing faster than most people thought before?

Fotis, that's a very good question. When it comes to long-term offtake agreements and the frequency of entering into contract, it's pretty difficult for us to say because we are not directly involved in that. But I think, it is fair to say that it's related to pricing. So I mean, at least we've seen in the past, I believe, that when pricing -- when energy pricing is relatively high, then you see the entry into offtake agreements. And when it's very low, then some offtakers rely on the spot market. So I think also this -- when it comes to China that is driving a lot of the appetite and the buying that's also potentially affected by this trade wars that we hear now. So it's difficult to say what the frequency in offtake agreements will be. I think what we're seeing in general is that, whether LNG is produced on long-term arrangements or short-term arrangement, it's all being absorbed. And I think that's the important thing.

One last question. I know this is not an immediate demand driver for a -- or major demand driver for LNG but a lot of people are talking about the IMO 2020 and the potential expansion of the use of LNG as a fuel. If we have a window of 5 to 10 years, do you have an estimate of how much demand for LNG as a fuel for bunkering we can see? Is this a meaningful amount? And have you seen projects accelerating as the date for 2020 is approaching?

Yes. that's also a very good question, Fotis. When you look at the factors where natural gas is used today, then industries and power generation is by far the leading factors and the transportation sector is, let's say, the least important for natural gas today. Of course, the oil market is by far very dominant in the transportation sector. So over time, we believe that natural gas will be able to eat into that segment. But I think it's still some distance away. Yes, we see more, more small-scale projects, bunkering projects of this type, and I think some of it will materialize certainly but it will take time until we're there. I don't think that there will be too many ships of other types than LNG that will be ready 1st of January 2020. I doubt that will be too much infrastructure around to support that. But definitely we see that this is moving in the right direction.

(Operator Instructions) You're next question comes from the line of Hillary Cacanando from Wells Fargo.

So NOVATEK's Arctic LNG 2 has been gaining momentum recently. I was just wondering, are there any opportunities for you to get involved should that project move forward, maybe, perhaps by ordering new Arc-4 or Arc-7 vessels or even at the parent level?

Thank you very much for that question. Yes so, we think it's an interesting project. We think it's a project that is a sound one given the success of Yamal LNG. The shipping requirements are not out yet as far as we are aware. So I guess, anything we can say as of today is that we think we will be well qualified for a project like that.

Are there any other projects other than Arctic LNG 2 that are currently being proposed or considered that would require ice class vessels? The only thing I could think of is Arctic LNG 2, I don't know if there's others out there that maybe lesser known?

Yes. I mean, there are and you have potential expansion of the Sakhalin project or potential renewal of fleet, and then you have the same Equinor's project up in Northern Norway, potential renewal of fleet at some point. So yes, we do believe that there are other projects than strictly those that are in close proximity to the Yamal Peninsula.

There are no further questions.

Well, thank you very much for listening in on our earnings call, and we look forward to speaking with you on our next quarter. Thank you very much.

Thank you. Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may now all disconnect.