FLEX LNG Ltd (FLNG) 2019 Q4 法說會逐字稿

Ladies and gentleman, thank you for standing by. Welcome to today's Flex LNG Q4 2019 Earnings Presentation and Investor Day. (Operator Instructions) I must advise you that this conference is being recorded today, Wednesday, the 26th of February 2020.

I would now like to hand the conference over to your speaker today, Øystein M. Kalleklev. Please go ahead, sir.

Thank you, and welcome, everybody. Nice to see that so many people have taken the time to join us here and also at Felix Conference Center, despite energy stocks now being at the lowest level since the Pearl Harbor attack in December 1941, according to SDS today.

Since we have a physical presentation, maybe worthwhile mentioning the fire exits, 1 in the front, 1 in the back. And also, we have a warning from the lawyers, here, with the disclaimer, and the full disclaimer is available in the presentation.

We have a pretty big agenda here today as we have our 2020 Investor Day in addition to the regular quarterly reporting. We will kick off with the regular financial reporting together with a market update, and then we will go to a couple of themes in the LNG space, which we will dig a bit deeper into today.

The regular part of the session will be followed by a Q&A session, and then we will have a couple of teams after the coffee break. First, we have Lars Pedersen, who is the Chief Technology Officer in Frontline, and also the Managing Director of Flex LNG Fleet Management, our in-house ship management company. He will spend some time describing some technology perspectives and how we are running our ships, both in the group and also in Flex LNG. Then afterwards, we were pleased to have our external speaker, Torleif Madsen, who is the CEO of Compact Carbon Capture. And the company he runs is focused on capturing carbon from fossil fuels. And the company he is heading has also won a lot of awards and prices during the last year or so and I will mention a couple of them. Energy Innovation Pioneer at CERAWeek 2020 in Houston, 1 of 4 technologies presented at the OGCI Investment Day in Chicago, and I will come back to the OGCI a bit later in the presentation. Also the top 6 at Green Tech Festival in Berlin as well as participation in the Repsol acceleration program. Torleif is also a board member of the Norwegian CO2 Handling Association, and also part of the Norwegian Ministry of Industry and Trade Export group for making strategy for decarbonizing the process industry. So we're very much looking forward to this.

Some might wonder why we are including carbon capture in our Investor Day today. And it's basically because in order to meet the ambitious targets for reducing global warming, we are dependent on carbon capture in becoming a commercial success. And the good thing with LNG or natural gas is the fact that it's pretty clean hydrocarbon. It's the clean hydrocarbon, which reduces the local pollutions significantly compared to the other fossil fuels. And combined with carbon capture, you are virtually hating hydrogen, and that's also why the natural gas is, of course, the majority feedstock for hydrogen today.

Lastly, I would like to thank all the banks participating here today. We've signed $629 million ECA financing yesterday, and we'll have a small signing celebration of the -- following the Investor Day. So let's jump to the highlights for the quarter.

We delivered revenues of $52 million for the quarter. This is up from around $30 million in Q3 and in line with the guidance we presented of somewhere between $50 million to $55 million. The TCE rate was $94,000 per day compared to $58,000 in third quarter. And actually, compares very favorable also to the TCE achieved in Q4 '18, when we achieved $95,000 per day at the strongest LNG shipping market ever. So we're very pleased with the trading results for the quarter.

Adjusted EBITDA, net income, best ever, also at around $42 million and $24 million, respectively, for the fourth quarter. And this gives us an earnings per share of $0.44 for the quarter. The Board decided to pay out a dividend, similar to Q3, of $0.10, and this will be payable at the end of March. We have had some feedback that the dividend is a bit below expectation. I think consensus expectation on the dividend was $0.16. The median estimate was probably a bit higher, maybe $0.20. And the reason for being a bit prudent on preserving cash at this time is because of the disruptions, both in the physical market, where we have seen some disruption, especially in China because of the coronavirus and then also in the financial markets as I mentioned briefly in the beginning with energy stocks really tumbling all around the world at new lows.

As I mentioned also, we signed $629 million ECA financing yesterday, according to plan. And during the last couple of months, we also added significant backlog to the company, 7-year in total, 1 year each for Flex Ranger and Flex Enterprise; and then 5-year for the newbuilding, Flex Artemis with Gunvor, with start-up early Q3 2020.

Last, we'll also later in the presentation do some more explanation of our in-house ship management, Flex LNG Fleet. We have so far transferred 4 of the ships on the water to this new ship management company.

Furthermore, and lastly, we have also continued to strengthen our team with the appointment of Ben Martin as Chief Commercial Officer. He joins us from Trafigura, where he's been for the last 10 years, and he's done a lot of charters with (inaudible) who has been heading all the commercial side alone. So far, we are growing our fleet now from 6 to 13 ships. And I think it's good to also thanking the commercial team. And he is a perfect guy for us, and I'm sure we have actually now the strongest commercial team in the LNG industry.

When it comes to guidance. We have the following status of our ships. Flex Endeavor has been trading spot since she was redelivered from Uniper, 30th of June 2019. And of course, then benefited from a very strong market in the second half of 2019.

Flex Enterprise was taken on our variable TC, end of March 2019, and has recently been extended to end of March 2021. This is a variable time charter with a super major. And by that fact, we are exposed to the market, but eliminating the utilization risk. And as mentioned, our options are for further extensions.

Flex Ranger, also briefly mentioned, he is on a time charter with Enel. And the subsidiary of Enel, Endesa, have taken on our new time charter starting off in the middle of 2020 until middle of '21, with option for 1 more year.

We also have a variable time charter for Flex Rainbow. We have -- this is only 6 months, we have not put out an announcement on this, but we disclosed all the details there in the 20-F, and this has been extended now to Q3 2020.

Flex Constellation and Flex Courageous was delivered in July and August 2019. We took them into a very strong spot market in the second half of 2019, and they are also today trading spot. So that -- this means we have covered basically 50% of the days through contracts in Q1, also Q2, and for most part of Q3 as well.

On the newbuildings, they are all on schedule, actually a bit ahead of schedule. We have Flex Aurora, Amber, Volunteer and Vigilant, which is our X-DF ships. They are a bit ahead of schedule, and that's why we have this order books next to them, where we have target date and then also the contractual date on this. So we will see whether we will be growing our fleet by actually 6 or 5 ships this year. Based on the fixtures we've done to date, we expect and anticipate the TCE for Q1 to be close to $70,000. This is, of course, subject to and of no disruptions, and the ships being fixed in the spot market, they're able to meet the next [Laycan] but $70,000 is the number, which we are pretty happy with. Cash breakeven is less than $50,000. So we should be generating a fair amount of free cash flow also in Q1.

So if we look at back of the envelope calculation of financial returns. It's a bit important to take into consideration that most of our assets are still at the yards. We raised all the equity we needed. We have raised around $840 million of equity, and about half of this is employed. So we have 6 ships on the water, 7 are still at the yard, generating 0 income. The average book value for the ships in operations is around $190 million. The average gross debt is around $130 million. That leaves around $60 million in equity contribution, each ship. And we have $130 million of cash at the end of the year, which is equal to around $10 million per ship. There's still some equity contribution to be made for the newbuildings in 2020 and 2021. So that's why we are holding more cash than necessarily needed. Our cash covenant at the end of the year is around $35 million. And working capital in LNG shipping is fairly minimal. All voyages in LNG shipping are TCs. They are not voyage charters. So this means you are getting paid in advance, which limits your need for working capital. And usually, 4 ships are on contracts. Their working capital is actually negative.

So if we kind of split the cash, $10 per ship, that means that each ship has $70 million in equity contribution, and that leaves around $420 million of our equity today being employed in operating assets. So this is around 50% of our book equity. If you then take this $24 million net income, which is actually also a similar number to the free cash flow. So if you look at the operating cash flow adjusted for WC, the working capital, which tends to fluctuate from quarter to quarter, and then the debt -- ordinary repayment of debt, you also come to a similar number. That gives the annualized return on employed equity of around 25% for the quarter.

Once we are fully invested, based on our capital structure, a TCE of around $65,000, which is about the number we had in TCE for 2019, will give our equity return of around 10%. At $75,000 per day, the return jumps to 15%.

So just one last slide before heading over to Harald for the financial numbers. Just to summarize our fleet, we have 6 ships on the water. We have the initial ships where the equity contribution was $210 million. We've raised $257.5 million of debt on these ships. We raised $329 million of equity in 2017 for those 4 ships we acquired. And we have raised $550 million of debt on these ships. This is a $250 million debt financing -- bank financing we did last year as well as the $300 million Glovis lease. Then we raised $300 million of equity in 2018, and those 7 ships, we have no lease financing for the 5 ships with delivery dates in 2020, and this is the $629 million ECA financing we signed yesterday and announced the commitment at November for our third quarter presentation.

So all together, we raised $840 million of equity, which is the equity needed to run our business, and it's also the number you will find in the balance sheet as the book equity. And then we have raised so far about $1.4 billion of attractive long-term debt financing with maturities from 2024 to 2032.

So that's it. I will come back a bit later to present some market status outlook and some themes. Okay, Harald.

Okay. Thank you, Øystein. Starting out with the income statement. We delivered revenues of $52 million in the quarter, in line with our guidance and up from $29.8 million in the previous quarter. Adjusted EBITDA was $42 million, up from $22 million in the previous quarter.

Vessel operating expenses were a bit up in the quarter, mainly due to planned maintenance on the vessels and also training on the vessels as well as the full quarter with 6 vessels on the water. Overall, for the year, vessel OpEx came in at around $12,500 per day per vessel, so that's in line with the budget.

Administrative expenses were down in the quarter. This is mainly due to some one-off costs in the third quarter in connection with the U.S. listing. While interest expenses were up in the quarter due to a full quarter of interest on the $250 million facility, where we drew down the last tranche in August, the $125 million for Courageous, and also a full quarter of interest on the $300 million in the Glovis lease financing, which we closed in July.

We had a positive mark-to-market on interest rate swaps of $1.6 million. This is noncash, compared to a loss of $900,000 in the previous quarter. So overall, this gave a net income of around $24 million or $0.44 per share, up from $500,000 or $0.01 per share in the previous quarter. For the full year '19, we reported net income of $17 million or $0.31 per share.

Moving on to our balance sheet. We had a strong liquidity, as Øystein mentioned, of $129 million at year-end. We had no vessel deliveries in the quarter. And assets consisted of 6 vessels on the water with a book value of around $1.15 billion. The vessel purchase prepayments of $349 million relates to the 7 newbuildings under construction, and that represents the prepayments we've made on these. I'll come back to that.

Total debt at year-end was $779 million, of which $35 million is due over the next 12 months. And total equity was $839 million, giving a strong equity ratio of 51%.

Looking at the cash flow. We had operational cash flow of $37 million for the quarter, up from $8.4 million in the previous quarter. We did not take delivery of any vessels, but had scheduled loan installments of $8.5 million and also paid a dividend of $5.4 million. We also did a drawdown of the $49 million under the revolving tranche under $100 million facility for Ranger. So overall, we had a net cash flow of $72.5 million for the quarter and ended the year with $129 million in liquidity.

Looking at the full year, the operational cash flow was $51 million. The newbuilding CapEx relates to Constellation and Courageous and the final payments there upon delivery. While the proceeds from long-term debts is mainly the $250 million for Constellation and Courageous; the $300 million sale and leaseback with Hyundai Glovis for Endeavour and Enterprise; and $100 million refinancing Ranger. And we also prepaid our sort of initial $315 million facility upon drawdown of these other tranches, also getting rid of some restrictive covenants.

As mentioned, it was an active year, 2019, on the financing side, raising $1.3 billion in new financing, basically returning over most of the financing portfolio. At the same time, we also diversified our funding base with lease financing, traditional bank financing, and also most recently, the ECA facility, which we signed yesterday.

We also expanded our relationship on the banking side, which now includes 14 of the leading international financing providers, and also demonstrates our ability to raise financing at attractive terms in a market where many struggle to raise financing at all.

Moving on to the funding of the company and the remaining CapEx. With the financing secured for the 5 newbuildings delivering this year, we have limited remaining unfunded CapEx. As mentioned, we prepaid a CapEx of $349 million, which represents 30% on 5 of the vessels and 20% on 2 of them.

The net remaining payments on the 5 newbuildings this year is around $11 million per vessel, which is internally funded from our available liquidity. The $629 million facility we signed yesterday also includes a $50 million upsize option in case of long-term charters, acceptable to lenders. So that may also be something we utilize for that if we attract longer-term charters.

For the 2021 newbuildings, the remaining CapEx is $126 million per vessel. And that's pretty much in line with the recent bank financings we've done and well below the $150 million Glovis sale and charter back.

Touching a bit more upon each of the financings. The ECA facility we announced in November, and are happy to announce that it was signed yesterday. The facility was substantially oversubscribed with commitments from KEXIM and 11 of the leading shipping banks. Total facility is $629 million, $125.8 million per vessel. KEXIM will provide $379 million in direct loans and guarantees, and there's also a commercial bank tranche of $250 million. The KEXIM commitment, that's for up to 12 years, while the commercial bank loan has a term of 5 years from the final delivery, which is scheduled for November 2020. Average repayment profile, 20 years; and average margin of 2.2%, including the KEXIM premium we pay upfront, which gives a very attractive all-in cost of below 4%. We've also actually hedged $275 million of the interest rate exposure already at -- for 5 years at the average of 1.36% per annum.

Financial covenants, that's our standard covenant package on the bank financings, only linked to the balance sheet, which we think is important. And roll down of this facility is expected upon delivery of each vessel in 2020.

Then over to the $300 million lease financing with Hyundai Glovis, which we executed in July last year and freed up over $100 million in liquidity. The structure has a 10-year sale and time charter transaction, whereby we sold the vessels to Hyundai Glovis for $210 million per vessel, with a net consideration of $150 million per vessel, a net of $60 million seller credit per vessel.

The charters, they have 6 monthly payments, which gives an annuity-style repayment profile and an all-in cost of around 6%. We have annual repurchase options from the third anniversary. And there's also a put-call structure at $75 million per vessel at the expiry of the charters in July 2029. So this gives a 20-year repayment profile or 21.5 years if you age adjust it. There are no financial covenants in this and also no requirement for firm employment, which is also the case under the ECA exit.

The second lease we have is an Asian lease, more traditional sale and leaseback on a bareboat basis. We did this in July 2018. It's also a 10-year lease at LIBOR plus 3.5% and with a 20-year repayment profile. Here, we have annual repurchase options from the second anniversary, so starting this year. And there's also a call option at $78.75 million at expiry of the lease in July 2028, which -- and the only financial covenant on this is max borrowing of 75% of total assets for Flex LNG and also no requirement for fixed employment of the vessel.

The $250 million term loan facility, we -- for Constellation and Courageous, we did in July last year, that was quite an active month. There's interest at the LIBOR plus an attractive margin of 2.35% per annum, has a term of 5 years from final delivery, which was in August '19. A 20-year repayment profile. Also no requirement for fixed employment. Same standard financial covenants linked to the balance sheet. Here, we also hedged $125 million of the interest rate exposure at 2.12% per annum, which gives us an attractive all-in cost of around 4.5% currently.

Moving on to the $100 million term loan and revolving facility. This was also executed around July last year. It's split into a $50 million term loan and a $50 million revolving facility, which gives us good flexibility in cash management, saving interest if we repaid a revolver. It's priced at LIBOR plus 2.25%, so also a very attractive margin. Has a tenure of 5 years and a repayment profile of 19 years. There's also no requirement for fixed employment. And again, I could use the standard covenants linked to the balance sheet. Here, we've entered into interest rate swaps for $50 million at 1.39%. And this one matures in July 2024.

So that brings us to the last slide, which is an overview of the debt maturity schedule. We have secured long-term funding with our first maturity due in July 2024. We've also created a staggered debt maturity profile, which mitigates the refinancing risk.

And with that, I will hand the word back to Øystein, who will give us an update on the markets.

Okay. Thanks. We'll then head into the short-term outlook for the markets, just to do a review of the last couple of quarters here. We started off with our markets we took off in August, September 2018, driven by very strong demand from Asia, and particularly China. This was also a time when you had extremely strong ordering prices on the LNG, hitting close to $12 in Asia and also hitting close to $10, eventually in Europe.

The strong demand from Asia, the big netback from U.S. to Asia and the arbitrage spread between Europe and Asia resulted in back of high charter rates hitting well below -- well above $200,000 per day.

Then we had a very warm winter in China, especially in Asia, due to El Niño in the Pacific. Additionally, the Chinese bought too much LNG with the memory of the winter season, '17/'18, in the back of the head. So this resulted in liquidation of the floating storage and plummeting charter rates in the beginning of 2019. We then saw a strong growth over the summer due to a lot of volumes coming on stream, especially from the U.S. And volume growth in 2019 altogether was around 36 million tonnes, slightly higher than the volume growth seen in 2018. So with also more cargoes shifting to Asia, sailing distances started to increase in third and fourth quarter of '19. And with the contango, a big contango in the gas prices, this was one of the main themes we had last year. We started talking about this early in 2019, that we were bullish on the second half of '19 because spot prices for LNG was very low, while future prices were much higher. So there was -- during the summer, you could buy European gas TTF at around $3 and Asian futures was close to $8. And what tends to happen then is people will buy volumes for storage, and that's what exactly what happened. And the buildup in floating storage at similar levels seen in 2018 resulted in the market basically being sold off in October, the rates hitting around $150,000 for the modern formation, not the same level as 2018, given the fact that gas prices and demand was much more supportive, but still pretty good markets.

Additionally, we had some Middle East tension and uncertainty around sanction, especially with regards to the COSCO ships, and this really took off with the market in, I would say, September, October, November, before the market started tapering off because of backwardation in the gas prices as well as the settlement of the COSCO sanctions as well as also a very warm winter, once again, which I will also come back to.

Then we have had a further leg down recently. January, we had the warmest January on record. And then we had the coronavirus outbreak in China, mostly from February, driving demand down with the extension of the Lunar vacation.

If we look at the flows. So the flows are pretty interesting here. We tried to kind of summarize them in a quite easy way to -- for you. And as mentioned, in 2018, it was all about Asia. So of the 31 million tonnes production growth, 30 million tonnes went to Asia. So we could see here from the graph that the American volumes and the rest of the world volumes as well as all the inter-Asian volumes and the drop in Asia, and we also had reload volumes growing to Asia. So we had 3 million tonnes of European volumes being reloaded, going to Asia, and that was the main driver for a very strong market at the end of 2018, and also resulting in increased sailing distances by around 3.4% to slightly above 4,000 nautical miles.

So with weaker demand in Asia in 2019, we've seen a shift in trading patterns, which we have talked about previously. But you see the North American volumes, mostly hitting Europe; the rest of the world volumes, mostly, this includes the Qatari volumes, also hitting Europe; no reloads to Asia, and Europe ending up with 34 million of the 36 million tonnes of production growth in 2019. And again, this resulted in sailing businesses being shortened. Sailing distances from Gulf of Mexico to Europe is about half of the sailing distance to China or Korea.

Despite this, actually the shipping market tightened in 2019. The tonne mile increased higher than the fleet, only around 38 ships for delivery in 2019. So the market was structurally tighter, and we expected it actually to be much tighter, but the sailing distances and the trading pattern kind of made the market a bit weaker in 2019 than 2018.

So if we look at where the volumes are going, and it's quite a surprising graph to the left, where actually 8 of 10 biggest absolute growth markets in 2019 was European based. And you have a country like United Kingdom with about 60 million inhabitants in the midst of a Brexit contraction -- or not contraction, but at least a fairly low GDP growth of less than 1.5%. They are growing in absolute volume, stronger than China, which has about 1.4 billion before and growing at around 6%, 6.5% in 2019. So this is a bit surprising. And of course, it's also related to the graph to the right, and it's about low gas prices. Gas prices are fairly cheap. And also you have the added stimuli in Europe and the U.K., especially, with carbon pricing. And that's the main reason why U.K. have gone from having 40% of the power generation being linked to coal as recently as 2012, and last year, coal share was only 2%. So gas is basically pricing out coal from U.K., and the same is going to happen in some of the other European countries. It's already happening. So gas and renewables is pricing out coal from Europe.

If we look at the [prior] product markets, these are the kind of the achieved rates, and they are not all necessarily the same as the future growth. So if you look at the graph here now, you wouldn't really see a big contango in the gas prices in 2019. But early in 2019, the future prices was totally different than the graphs shown here. But what it explains is that you still -- you have this contango, end of '19, and now recently we've been in backwardation. So it doesn't really -- it's not really supportive having floating storage when you have a backwardation, and LNG is cheaper in the next months. And the backwardation will last now until around April, which tends to be at the bottom for the LNG market before we're heading into contango again when we're starting approaching autumn and winter season. But still pretty low prices. But also bear in mind that the kind of the spot prices here are only 30% of the market. 70% of the markets are still linked to oil. And this could be Brent oil. Usually it's linked to the Japanese crude cocktail, typically at 13% slope, and that gives you a price of around $8. And if we look at the cargoes we are discharging, which are high (inaudible), where we are able to declare heel, those prices tend to be in that area.

So we focused on 5 factors in September, October presentation. We were talking a lot about these factors, which would be the main drivers of the market, the winter market this year. And to summarize, we just made this graph to explain the drivers. It's, of course, related to the weather. So it's the weather in the U.S. Mild winter in the U.S. means low Henry Hub. Mild winter in Europe means -- and Asia means less demand. So these are factors driving gas demand. This is the heating demand. We also have politics, which becomes more important these days and has definitely impacted the LNG market, especially with the trade conflict between China and the U.S. It's about economics, and this is related to the price of LNG compared to the substitutes, mainly renewables, coal and oil. And then, of course, we have the events, which are a bit unpredictable. And the black swans, which are also a major driver in the short term.

So we will first look at the weather. So 2019 altogether was the second warmest year on record. Only 0.04 degrees less warm than the record in 2016. But January 2020 was by far the warmest month on record, and the record goes back 141 years out. And if you also look at the temperatures in the left bottom half, you do see that Europe is definitely heating up in December and January this year with low winter here in Oslo this year. And of course, this is affecting the demand for heating, and this has been an adverse effect for LNG demand.

If we turn to politics. There's been a lot of events this autumn and winter. We, of course, had the U.S.-China trade conflict going on for quite some time now. We had at least our first step with the Phase I signing on 15th of January, which gives a bit more optimism in, I would say, the general shipping community.

The Chinese are undertaking to buy $200 million more of European -- of U.S. exports in 2020, 2021. And of this, around a quarter or $50 million is energy.

And on February '18, the China finally announced that they will give tariff exemptions for U.S. LNG imports, which has been, of course, negative for the LNG market recently with not a single U.S. cargo going into China since '18.

We also saw this week that the Chinese governments are coming in and also reducing the gas prices. So they are going through off-season gas prices already now rather than waiting to 1st of April to stimulate the economy given the coronavirus effects.

And if we look at -- there's a lot of analysts giving different numbers on this $50 million, how they will be split. Is it achievable? What will it mean for different energy projects? We have this simulation from Bloomberg New Energy Finance. And if you look at the graph here, they assume LNG import volumes will be picking up from the U.S. And it's also kind of the signals we are seeing. And talking to the Chinese, this is something they will have to do in order to meet the targets. Right now, I think they've been too busy with lackluster demand and disruptions. But it will be interesting to see how this develops. But we do -- definitely think that more U.S. LNG will be heading to China, and it will be good for tonne mileage.

Furthermore, it's been a lot of developments on Russian pipelines. We had Ukrainian transit agreement being resolved on 30th of December, which was 1 day before the existing 10-year contract expire. This is pretty big volumes. So 2018, it was 84 bcm transiting to Ukraine. That's close to 60 million tonnes. So close to all the LNG imports in Europe. So under new agreements, Russians are undertaking -- or gas point is undertaking to transit minimum 65 bcm in 2020 and then going down to 40 bcm for the next 4 years. So flows will probably be reduced from this pipeline.

On the other hand, Nord Stream 2 has been hit by sanctions by the Americans. So this -- start-up of this new pipeline is probably going to be delayed by 1 year, and the capacity for this pipeline is around 55 bcm. We also had 2 other pipelines starting, the Turk Stream is of 2 strings, 15.7 bcm each, 1 going to Turkey, 1 going to Southeast Europe, with mostly the Turkish volumes starting to flow now.

And then we have the Power of Siberia starting in December of 2019. It's a pretty big ramp-up on this pipeline capacity of 38 bcm. We expect volumes to be only 5 bcm in 2020, heading off to 10 bcm in 2021 as they will have to complete the processing plant in Amur before they can ramp up the volumes to capacity. Also, relevant to know here, prices on this pipeline is related to oil price. So in the current environment, LNG, especially for coastal areas, are much more competitive than gas flowing through the pipeline with oil price linked tariffs.

If we look at the economics, we have the different fossil fuels. We have coal, which is Aussie coal, Newcastle Coal. We have the Brent. Brent, it's pretty easy, 1 barrel of oil is 5.8 million btu. So if you are at $10, you are talking about $58 per barrel of oil. And right now, usually LNG has been traded to a slight discount to Brent. Right now, we are at $3, while Brent is closer to $10. So it's a big gap between the pricing of spot LNG and the Brent price. And actually, given the fact that coal plants are usually efficient at a level of around 40% thermal efficiency, while thermal efficiency of most gas plants exceeds 50%, on our energy efficiency basis, LNG prices are much cheaper than coal. And that, of course, explains the big shift in consumption of coal rather -- natural gas rather than coal in Europe, where we, on top of this, have carbon price incentives.

And then the last thing is events. We've got a lot of questions. I got the e-mail today at 7:01 after we sent out the report. What's about coronavirus? And it seems to be the big question here. Of course, we are not specialists on the coronavirus. We've done some research on this. Wood Mackenzie had a pretty good report out, where they estimate LNG demand in China to be affected between 2.6 million to 6.3 million tonnes. China is expecting to, prior to the coronavirus, a couple of different estimates, but then our growth has been assumed to be between 7 million to 10 million tonnes for 2020. So this impact is pretty big.

Bloomberg has a different estimate. They assume gas demand would be growing around 7% in China this year. This is gas demand. So it's both in pipeline and LNG. And they expect this to be reduced to somewhere between 4.7% to 5.6% because of the coronavirus. What we do see, of course, in the real economies is that the LNG import was up quite a lot in China last week. Imports last week according to KPLER was 1.4 million tonnes. The week prior, it was only 0.5 million tonnes. So volumes are definitely on the uptick. And it's, of course, related to the fact that the Lunar vacation was extended. And once people are a bit back, volumes are starting to flow.

We have also kind of put it in our perspective here. If you look on the right side graph, you see the expected LNG demand in China. And then we put in the Wood Mackenzie's best case and the worst case, how that will impact demand. One other oddity about the coronavirus has been the disruptions at the Chinese import terminals. And this has resulted suddenly in a big jump in floating storage. So if you look at the floating storage, which I explained a bit earlier, we were up to around 32 ships at the peak in October. The contango was kicking in the November contract. So once the November contract was settled, most people started to liquidate their floating storage. But the last 2 weeks, this has spiked again. And we are now up to, last time I checked, 23 ships in floating storage, where each -- these ships on average have been staying 17 days with cargo. So for shipping, actually, it's been a bit supportive in the short term for those ships being tied up.

So we'll then head into a bit more longer-term discussion. Just looking at the volumes, the volumes are continuing to grow month by month. January, we were looking at the 12 months rolling of 362 million tonnes. We expect volumes for 2020 to grow close to 25 million tonnes. The new nameplate capacity is around 20 million tonnes. Most of the terminals coming onstream in 2020 will start up very early in 2020. And then you will have some of the 2019 plans running at full year effect in 2020, resulting in around 25 million tonnes production growth for 2020. And if you look at those ships coming on for delivery this year, which is around 40 ships and the kind of expected sailing distance, the market should be pretty tight also in 2020.

When it comes to FIDs. FIDs, we had the highest level of sanctioning of new terminals in 2019, and we got to around 71 million tonnes of new volumes being sanctioned. And this mega project started off with Golden Pass in February, which is Qatari gas (sic) [Qatargas] and Exxon project of around 15 million tonnes. We had expansion of the Sabine Pass by around 4.5 million tonnes, with the same fix. We had the Mozambique project going ahead at 13 million tonnes, the Calcasieu Pass at 10 million tonnes. Then the Russian's surprised quite a lot of people by actually doing the FID in 2019 rather than 2020, adding another 20 million tonnes. And then lastly, just before New Year, Nigeria did the FID on the Train 7, adding close to 8 million tonnes all together. So a pretty good year for sanctioning.

Despite very weak market for near term or spot market for LNG prices, we do expect more volumes to be sanctioned. The most likely in the near term is the Woodfibre, which has been postponed. We expected our FID on this in 2019, it's only 2 million tonnes. Rovuma, which is the Mozambique -- or the big Mozambique project of 15 million tonnes, we do expect FID soon. Some of the EPC contracts have already been agreed. And then, of course, the big question is when the Qataris will go ahead? And how big it will be? Whether it will be 4 trains or 6 trains as they have indicated, which would add close to 50 million tonnes in capacity. And with quite cheap feed gas, we do expect this project to almost same -- whether this FID, when the FID will come, we will have to have a look on. Of course, they have to agree SPA and LNG offtake on the volumes here given the share size of the investment.

We also have a lot of other projects, expansion of Pluto. We expect Energia Costa Azul to go ahead, which is on the west side of U.S. where you can avoid transiting through the Panama Canal. So they have a pretty good kind of transportation situation. There's still a lot of U.S. projects on the table. Most projects actually on the wall are U.S.-based given the boom in shale oil -- shale gas. Driftwood is one likely candidate, they are in India these days, trying to sort up the agreements with Petronet, which have indicated a 5 million tonne contract, which would underpin the project. Port Arthur, which have -- had a lot of support from the Saudis, and then Freeport expansion is also likely. We also see a likelihood of the Papua New Guinea expansion. So all together, we have more than 100 million tonnes here in fairly near-term sanctioning. And then there are a lot of other projects. And just recently, yesterday, the (inaudible) announcing 1 million tonne with the EDS contract, and we've also seen Gunvor taking over the sale and marketing strategy for the Commonwealth LNG plant in the U.S. So definitely room for more volumes there.

And if you look at the demand, there's a need for probably 120 million, 150 million tonnes near term to meet demand for LNG. And then how -- what kind of price do you need to do those sanctioning? And it's -- we looked at a lot of studies, and it's not that hard to calculate this days either.

But if you look at all the projects competing for sanctioning, Mackenzie accounts close to 300 million tonnes of projects on the table right now. And the kind of -- if you're going to meet the supply gap by 2035, you need somewhere between 100 million, 150 million tonnes, and the average kind of costs for these projects would be around $7 per btu. So of course, the main component is feed gas. So in order to meet that, you need to have feed gas below $3. And Henry Hub now is, for the foreseeable future, below $3 in the futures market. So most of the volumes are U.S. based. And with low interest rates, which means lower CapEx costs or capital costs, we are seeing tolling fees at $2, maybe even below $2. And if you're adding gas at less than $3 and tolling at $2 or even less, you are getting to FOB prices in the U.S. of $5. And then you at least have $2 for both shipping and regas. So it seems to be the area where it's economically viable to sanction new projects with $7 for 1 million btu gas price.

And if you look at more the big numbers. Shell published their LNG outlook of 2020 report last week, which is a very good report. Energy demand, most of these reports, if it's -- whether it's the World Energy outlook, BPO, whatever, they tend to have -- or the Mackenzie report, for that matter, they have a very similar view.

Energy demand will raise by around 1% per annum, the next 20 years or so. And this is related to a couple of factors: population growth; economic growth; a lot of people ending up in the middle class, who would like to have access to energy and electricity. We all -- we have 600 people in Africa, close to half of the continent, who still don't have access to electricity. So the main drivers for energy is economic growth and population growth.

And feedstocks, that's going to be grabbing market share here is gas and renewables. So 80% of the energy demand will be met by these 2 sources, which are very complementary since the renewables tend to be intermittent. Gas is something you can switch on quick and easy on short-term notice. So 43% of this energy will be gas according to Shell, 37% renewables. Coal is in structural decline. Oil is soon at peak demand. And this gives them our gas demand of 2% increase annually over the next 20 years. LNG is becoming the main mode of transportation of gas to international trade. So LNG imports are expected to grow 40%, while pipeline is only 15%, and then the rest will be met by domestic production. So this means LNG is expected to grow around 4% in the next 20 years. I think we've used the Mackenzie number in our last presentation, and they were around 3.5%. So it's somewhere in this area.

Asia is today around 3/4 of the demand center, where Shell and most other analysts think this will continue. So 3/4 of demand will be Asia centered. But what is -- of course, I think, also good for the energy market is it will be less dependent on China. So only about 1/4 of this Asian LNG demand will be met by Chinese demand, another 1/4 by South Asia, and the rest of Asia is actually 50%. And the mature market, the JKT, which is the Japan, Korea and Taiwan, is mature, and we don't expect much growth there. Both Japan and Korea LNG growth last year was negative by around 7%, actually. So China has to make up for their decline.

And then when it comes to the demand drivers, they are basically fourfolds. It's about supplementing pipeline gas. It's decline of domestic sources. And then there's another driver, which I also will touch upon a bit later, which is the bunker market, where with these prices and with more focus on environmental issues, LNG is a very good fuel for ships.

When it comes to regas. Of course, if you are building LNG terminals, you also need to have regas capacities to put the gas into the pipeline. And there, we are seeing a big growth, 85 million tonnes expected growth in key Asian markets the next 5 years, being India, China and Bangladesh. So while LNG liquefaction capacity will go to around 500 million tonnes by 2024, regasification capacity will go to 950 million tonnes. And you also have the option of utilizing extra use, where a lot of this is available in the market these days.

Then one of the themes we have been talking about is LNG as a commodity and a commodity story. And this is a graph we've spent quite a lot of time on. We've presented this several times. So I'm not going to go into details here.

But it's about the transformation of the LNG space from being a boring utility space, becoming a more global commodity, and also driven by technology change with new ships being much more efficient, and large and efficient ships are the preferred ships for charters. So we also added our utilization overview. These are numbers I got from Poten yesterday, showing the utilization they have assessed for the different segments. So steam, not surprisingly, are the lowest at around 87%; the dual fuels are at 89%, and then we are at 93% utilization of the new modern tonnage use of ships.

When it comes to the fleet composition, also as we have shown before, this is basically taking the LNG 1.0, 2.0, 3.0, put again into different technologies. And we have today more than 200 steamships. We have close to 70 ships, which are built before 2000, which are very inefficient and small. We have around 160, 165 dual fuel, tri-fuels, then you add another 44 Q-Maxs and Q-Flexs, and around 30 hybrid ships. These are -- hybrid ships steamships with improved efficiency, basically. And then you have the new latest generation ships, which is the MEGI and X-DFs spread off, altogether with order book around 170 of these ships.

4 years ago, I read a very good article by Dr. Richard Pratt in Fearnleys, and he had made actually 2 articles called LNG as a commodity. So this was a -- he was a bit ahead of his time, and he assessed kind of the viability of LNG as a commodity with the increased production of U.S. flexible volumes of LNG. And we kind of had a new look at those to assess what's changed the last couple of years. And of course, barrels are going more into the green. So the factors he has described in this article, which I'm sure the Fearnleys brokers are happy to provide any investors calling them are the following: it's about the availability. LNG has usually been and traditionally been sold on long-term contracts with utilities and hasn't been readily available and that's also been the closest regarding destination flexibility. So even if it's a big trade of LNG, it's not really easy to get your hands on.

So even with gold being fairly scarce, if you pay somebody, you will get gold because it's still a commodity. This hasn't been the case with LNG. We also see the growth of portfolio contracts, where actually you, as a customer, could go to the big portfolio players, Shell, Total, all the trading houses, and you could tell them, "I want to buy 1 million tonnes of LNG," and they can source it for you and provide it to you. So there's definitely been a big trend in LNG becoming more available, and especially with the glut of LNG, which is struggling to find homes in today's market.

Then another factor of commodity is that supply/demand determines price and of course, everybody having economics, really, they understand this. But actually, this hasn't been the case with LNG because it's been contractual price linked to oil with destination flexibility not being an option. So supply/demand hasn't always been the determination of the prices. And we are seeing this to a much greater extent today, where supply is ample today, and then prices are responding and going to very low levels.

We also see this on the marginal cargo follows the money. It means that we have much more arbitrage today. We have -- if you have positive netbacks between different markets, you are -- also you tend to send the cargo to the highest market. So this has also been a big development. This wasn't how LNG markets tended to work before.

And where we are still a bit in the yellow is on the transportation/storage side. It's much harder to store LNG than most commodities because of the temperature. You're at minus 162 degrees. You need to have specialized cargo tanks or gas storage underground, which does not -- endless capacity of. This is one of the drivers where Europe has been able to take in so much LNG, is the fact that they have the most efficient storage capacity of LNG in the world.

So once you have more efficient transportation and storage then, of course, you can respond more to demand because if gas prices are in contango, you can just buy storage place. And this is what's happening with ships recently becoming storage places for LNG, where people are playing contango. Then we are also in the yellow when it comes to global prices. We are definitely moving in the green direction, but are still bit -- LNG is still a regional price product. So in Asia, usually it's JKM, and Europe more TTF and -- national balancing point, which are more gas markets. And then at the end, we have then the U.S. So still have a -- a bit way to go on the global prices. And like oil, which is more our global price in that regard.

Derivative markets, we've seen an explosion. Derivative markets have developed very quickly. And last time I checked, growth there was tenfold in less than 2 years. So today, it's very easy to hedge cargoes. And you can also start hedging [your freight through] derivatives like the spars, which was recently introduced. And then we have, again, one in the yellow, which is the transaction costs, transaction costs that are a bit more than in most of the commodity sectors, which makes it a bit easier to transact with other people.

Last item is the marginal production, it's nondiscretionary, which is a bit hard to explain, but it means that once you put in production, you usually produce whatever you can produce. And we have seen recently some shut-ins of U.S. volumes. Whether their volumes will be hitting the market, we don't know yet. There are people who have used the option to terminate the volumes, but it could very well be that the volumes will be hitting the market, but we're not really there yet, but everybody who has a LNG plant will be producing whatever they can, which is more or less the case with offshore oilfield.

So if we look at kind of the commodity story, we are seeing a greater degree of commoditization, especially given the fact that a lot of LNG offtake agreements that are up for renegotiation. And we see a less willingness of buyers to agree to oil price index. And then you are starting to, "Okay, I'll set a price for gas." And this is what has been happening in the European gas market. So in 2018, only 24% of European gas market was oil-linked, while it was 78% in 2005. So we're definitely seeing this in the European gas market. And with this big blue box set with contracts for expiry, we do expect that the market will become more flexible as we are moving forward in time.

Yes. Okay. Then we will head into sustainability. IMO have put in certain requirements when it comes to emissions. So we have this good graph from DNV GL, which illustrates the ambition. 2008 is the base case. And for shipping, this is pretty convenient, given the fact that emissions was pretty high in that year. It was a pretty good year for shipping and people were running their ships pretty quick. So we have had an ambition here to reduce the intensity by 40% by 2030, and we have made progress when it comes to emissions. And this is mostly related to slow speeding of ships. The ambition will be at 50% production in 2050, but the hard part here will be the intensity reduction of 70%. And then the ambition is to go to 0 emissions by 2100. So how are we going to meet those targets? And DNV have the 4 main drivers there. It's about the logistics and digitalization. And this is something Lars will talk a bit about later. It's about hydrodynamics, making the hull more efficient. It's about the machinery, and of course, this is related to all machinery. Our 2-stroke engine is typically terminal efficient at around 50%, which is more or less the same as the average gas plant onshore, while our steam engine is typically efficient at around 35%. So of course, there's been made big progress in the LNG industry when it comes to efficiency of propulsion. And then it's about fuel. So what fuel are you putting in the tanks to run the ship. And of course, there, we have a lot of different options. It's LNG, which gives our production of around 20%. It's about hydrogen battery package for peak consumption, biofuels.

So if we look at the overview that DNV has, they have assessed all the different options. There's a lot of different options. And if you look at them, which ones are the best? And a clear conclusion is today given technical, logical visibility, it's LNG that is the one that meets most of the requirements. The only kind of orange box their greenhouse gas emissions, where we still are not able to meet the ambitions -- IMO 2020 ambitions. However, we are making progress by switching to LNG.

And then if you look at kind of the different technical maturity and commercial, I think the main issue facing shipowners, who are to order ships is the infrastructure. So far most of the ships who have switched to LNG propulsion has been cruise ships, which have a pretty predictable route, which are also running at very quick speeds, which means a lot of consumption. They are also running a lot into the ECA areas, where there are emission targets. And then it's the big containerships, which are also very fuel thirsty and has a predictable route. But the infrastructure, there is happening a lot with a lot of bunkering activity. So we do expect the kind of the blue point here showing the maturity to head more into green territory.

And one kind of illustrative example here is CMA CGM's recent container order. They ordered 22 new containerships. And they were asked by Wall Street Journal why they opted for LNG. And what they said is, if you're going to fit it with battery, it would take up 146% of the cargo space. If they opted for hydrogen, which isn't really an alternative there, you would need 6x the space and 4x the weight of the current fuel storage. It would cut the capacity by more than 1/3. So these options aren't really viable today. We can't stop ordering ships. Ship orders are at 15-year low. And if we want to make progress on the emission targets, we do have to use the option which is available, and the option that is available is LNG and that's also the conclusion.

So when we're looking at the bunker demand going forward, what will be the composition? And this is actually the most pessimistic scenario for LNG. At this scenario, we are only at 40% market share for LNG in 2015. But there are 3 scenarios, and they range from 40% to 80% market share for LNG by 2050. So with the big price spread between LNG and oil products, it is the road map going forward that we expect LNG to become much more dominant in the ship operation system. And of course, this will also drive demand growth for LNG as illustrated earlier.

And then, of course, typically, when you talk about LNG, there's one thing everybody tends to mention, and that's the methane slip. There's a lot of confusion here. It's about what kind of perspective are you using on emissions. So if we first -- if we look at the methane compared to CO2, methane has a much shorter half-life, only 12 years. So if you emit methane, which you are doing mostly on all farms as well, you will have that methane in the atmosphere, the half-life is 12 years, and then it will taper off quite rapidly. If you are emitting CO2, it will stay in the atmosphere for century because it has a much longer half-life and the half-life depends, so that's why I didn't put in the number here. So what you have to then take in mind when you are trying to cut consumptions, if you are running on fuel oil, emitting more CO2, you will have those emissions in the atmosphere for a long time. And if you're switching to LNG, you might have some methane slip, which will have an impact in the short term, but much better in the long term, so kind of the net effect is illustrated in the red. So if you want to make any progress, LNG is the way forward. And actually, the methane slip on our mega ships is less than 90% lower than on the dual fuel engine, the four-stroke dual fuel engine, and this is something also Lars will talk a bit about. So some of the test results that are related to studies on older LNG propulsion system, not the newest type. So the newest types tend to have a lot less methane slip than the older type of LNG engines.

And if you're looking at the methane budget, so these are the emissions yearly. So what are the sources? Fossil fuels is around 100; we have agriculture being the biggest factor together with the wetlands; then we, of course, have some of absorption of methane in the atmosphere. So the net effect there is around 10.

So what about those emissions? Actually, 40% of them are profitable to reduce. The remaining 60% needs to be incentivized. And actually, these are on the top of the agenda for the biggest oil companies. So a collective of the 13 biggest majors have got together and founded the oil and gas climate initiative, where they are putting realistic targets for reducing of the methane emissions, where they have an ambition to reduce the total methane emissions in the fuel value chain down to 0.25% by 2025. They have also have an ambition of 0 routine flaring by 2030 and they have put money behind those works. Each of these 13 members have put $100 million into the fund to support these initiatives. And one of the people presenting for these guys are Torleif Madsen who will be presenting a bit later here today.

And also keep in mind, the methane emissions is not just a natural gas topic. It's also related to coal. And of course, as you know, coal has lot of other dirty emissions. So CO2 reductions is only 50%. But if you look at the particle matter, which is the unhealthy fibers, who can really have detrimental effect on your health; reduction of these, close to 100%, sulfur is 100% -- sulfur is close to 100% and mercury also 100%. So these are the drivers for acid rain.

And then lastly, before finishing off here, of course, this is related to local climate as well. If you are reducing these nasty emissions, you will also be improving the local climate. And this is one of the big drivers for the shift from coal to natural gas in China, where they have made significant progress on local air pollution, while India is really struggling with this. And 14 of the 15 most polluted cities in the world are in India. So we -- let's hope that Trump is able to make a deal with Modi in getting some more U.S. LNG to India because they definitely need it.

Also last thing to mention here, ESG. We started reporting ESG in last year. We published our 2018 ESG report. We are expecting to release our new report in April. So here have we have implemented the Sustainability Accounting Standards Board guidelines, where we are providing a lot of data about emissions, health, safety, et cetera, which will provide you with valuable guidelines to also assess less financial numbers about Flex LNG, but also taking into account these key matters. So that's it, on time.

Summary, we have delivered our best results ever, $52 million, in line with our guidance; our earnings per share was $0.44; we have going from a strong freight market in Q4 to a market affected by a combination of glut of LNG, a warm winter and then the coronavirus virus outbreak. So despite this, we have been able to book Q1 at healthy numbers. $70,000 anticipated TCE, well ahead of our cash breakeven, which is slightly less than $50,000. We do think Q2 could be a bit challenging. However, we have 3 or 4 -- 6 ships already fully covered for the quarter. But we expect stronger market in 2020 as gas prices is expected to recover. We have a very strong financial position. All the equity, $840 million already paid in, and we raised $1.3 billion of step financing with long-term maturities last year. We have $130 million in cash and very limited remaining CapEx. We have 13 ships under construction, all the new types, 6 on the water, 7 for delivery over the next year or so. And keep in mind, LNG is a long game here with only hydrocarbon with any substantial growth over the next 20 years.

So that's it. I think we will start with the Q&A for the people in the audience, and then we could move over to the telephone in case we have more time for those questions. Let's see and make this work. Okay. So any questions? All clear.

It's good we have a lot of Americans on the phone. They tend to have more questions. Okay. We have one there from Ian. Maybe you could hand him a microphone.

So is it...

Yes, I think it's working, yes.

Yes, it's working? Okay, good. So just 1 question on the -- your average time charter rate for 2019, what was it for...

So on average for the year, it's around 65 (inaudible). The headline rate is, of course, much higher, but that -- you have to take the headline rates and then the utilization. If you had 100% utilization, I think we would have made, based on the spot market, maybe around 85,000, I think, was the average headline rate for 2019.

That's, of course, for the modern tonnage. You wouldn't get that on a steamship.

Petter Haugen from Kepler.

Yes, a quick question on the floating storage situation now. It's increasing, and I suppose that's -- well, my experience, the first time we've seen this increase this early in the year. So first question is, how does this continue from here? And I do understand you need to make some assumptions here. The second question is, when you talk about your reliquefied vessels coming on stream, you are intending to have them on long-term charters. Wouldn't they be better in the spot market if floating storage is a play going forward?

Okay. So we'll start with the floating storage. Of course, it's something we follow from day to day just to have a look at the buildup. Of course, this is not what I would call voluntarily floating storage where you are paying out contango as the gas market is in backwardation. So it's more related to disruption at same port terminals. That's why we were a bit cautious on the guidance because we have ships in the spot market who are discharging. And if you have too much delays, you could miss a [Laycan] for the next voyage affecting your earnings ability, unless you are on a very high rate and after stranded in floating storage, then it, of course, would be a benefit. So it's hard to say. I think the numbers will go down. They are spiking now. It's just related to disruptions. We see imports in China picking up, as I mentioned, last week. The numbers I saw was 1.4 million tonnes last week in imports compared to 0.5 million tonnes the week prior. So of course, if you're only importing 0.5 million tonnes of LNG to China in 1 week, then, of course, there is a lot of delayed discharge. So I think this is -- I believe, this will be heading down again once things starting to resume. But at least it's keeping some ships on -- out of the business, and vessel availability is always less than you would imagine because of the floating storage.

Then the next question, I think, was with the reliq ships and yes, it's a good question. I think the ships offer some added value in the market, especially now when you have floating storage becoming more a common theme, especially when you have peak seasons and contango. So yes, of course, they would be good in the spot market for that purpose. But I think also, it would be very good for our portfolio player (inaudible), who have portfolio contracts, so are playing in the market to have access to such a ship because then they are sure they get a hold of the ship, they can utilize the ship for that purpose. And it might not be that surprising that it was a trading house, taking our first full reliq ship once she is delivered from yard. So I think those ships are, I would say, more suitable for player who are portfolio players than we're doing that trade ourselves. But we're happy to trade them in the spot market as well.

Okay. Any more questions? No. Okay. Then I think we'll check with the operator whether we have some questions via the conference call.

(Operator Instructions) And we do have a question, and the question comes from Greg Lewis, BTIG.

Øystein, clearly, Flex has done a good job of taking delivery with vessels, have some vessels still on the water. But as I think about where Flex is going to be bigger picture, and I'm sure you know this better than me, but it seems like maybe anywhere from 30% to 40% of the LNG order book is uncontracted and maybe in the hands of some speculators. As you think about Flex over the next 12 to 18 months, do you see opportunities for you guys to actually go out and build this fleet out to something of a little bit more critical size? Just curious if you could provide any comments around that?

Yes, I think -- thanks, Greg, and good to have you on the call. I realize it's a bit far from you traveling to Oslo today. When it comes to critical size, I think we already have it. We have $2.5 billion invested in ships. That 13 ships gives us, I would say, the critical size. Given where our share stock price is trading today, last time I checked and I actually bought some at [60 krones], we are adding implicit $150 million per ship. If we're going to go to yards, we probably have to pay $190. And then as I explained in this kind of brief return analysis, you are tying off equity then in ships, typically, 40% -- 30%, 40% of the billing price for 26 to 30 months, which is the lead time for LNG ships. So if you add the kind of the cost of that equity and the cost of equity, these areas are pretty high, at least we'll get to $200 million. So given where we are pricing, it's not really an option for us to go, and we don't need to go either. We have the size we need. So we rather focus on getting charters for new builds. We have very good new builds in 2020, 3 reliq ships, 1 is already taken. So if you're listening in from oil company today, there are only 2 left of those. And then we have 2 X-DFs, which are one of the first X-DFs, which is uncommitted. So 2 of those, maybe 3 of those in 2020. So we focus on getting contract for those. We prefer having a mix of more long-term contracts. We've been fairly successful in achieving 7 years of more backlog the last couple of months, but we would like to have more. So that's the main focus. Our main focus for 2020, number 1, 2, 3, taking delivery, ships getting contracts and then putting in place the remaining financing for the 2 last ships, running the ships well and rather returning equity to shareholders through dividends and hopefully, higher than $0.10 once we have a better view of the market and the financial markets are a bit more stable.

Great. And then just one more, on shareholder returns. I mean, clearly, you guys have shown you're committed to the dividend. Yes, there's some uncertainty out there. But how are you thinking about your share buybacks? You mentioned the cost per vessel versus what those vessels would be from a new -- from the shipyard. Just kind of -- any kind of view on that and what may be in different ways beyond the dividend just thinking about where the broader markets are, and sometimes in shipping, we see a somewhat healthy market where maybe the broader stock market isn't as healthy.

I think, of course, we had long discussions about the dividend. And I think in a bit more conductive market, the payout ratio will from a kind of JF shipping company would tend to be a bit higher than what we are paying in Q4 with these kind of numbers and also the fact that we have plenty of cash in the bank. But right now, the kind of physical market is a bit in disruptions, a bit unclear. We think it will recover. How quickly this is, it's a harder question. And then do you have the financial markets and especially for energy and shipping stocks, they are really in turmoil and people are not having a good time being in shipping and vessels. So rather than paying out dividends, [PAT] dividends, we are preserving some cash, and hope we have the trust of shareholders that once things settle down, we can rather evaluate the dividend levels again. Buybacks, something we also, of course, discussed when we are getting to $150 million implicit pricing for ship. We are rather than spending this company's money on buying back the shares, we are paying -- maintaining the dividends. You can, of course, reinvest the dividend in new shares or buy all the shares. We think it's better for us to just preserve some cash right now but it's something we will assess from time to time. And of course, at $150 million, it's pretty very low levels compared to buying new ships these days.

Exactly. Thank you very much for the time, and have a great day.

Okay, thanks, Greg.

Thank you. There are no further questions on the phone lines at this time. Please continue.

Okay, thanks. And I think we do our 15-minute coffee break. And then we give the floor to Lars, who will talk a bit more about technology perspective, how we are progressing with our in-house ship management. He will also touch upon the things on everybody's lips, which is the methane slip. And yes, some other stuff, engineering stuff, which he loves, I guess. And then we'll finish off with Torleif talking about carbon capture. And I hope you stick around are patient for 15 minutes because we are returning then. Okay.

(Break)

Okay, everybody. Then we are back. And we are now going into the more deep aspects of gas and carbon capture. We start off with Lars Pedersen, MD of Flex LNG management, who will give us some perspectives on the technology side and how to run a LNG ship.

Okay. Thank you very much, Øystein. So in order to transport all this LNG coming online and generate revenue, we need to keep the propeller turning of the vessels. So I'd like to give you an idea about how we make that happen in Flex LNG and the group of JF shipping companies. So we are benefited from being a large shipping, what can I say, company group with presence in different segments. We do deep sea shipping under the JF controlled deep sea companies of 6 companies, so we do technical management of the ships on behalf of Seatankers, which is John's private company. We do Golden Ocean, which is bulk cargo ships. We do Ship Finance, which is a combination of different ships, but also [bricks], but we are only involved in the shipping part. We have Frontline, which is primarily crude transportation. We do have Flex LNG, which we are here to present today. And then we have Avance Gas, which is VLGCs, which is LPG transportation.

So on our technical platform, we, this year, operate 238 ships. So in order to be able to handle so many ships, you need some structure. And you need to find a way of where you can do and utilize the economy of scale, taking advantage of the volume of what we have available. So we have done some structural matters where we do have shared functions, which we have described up here. It's where we utilize the volume through, for example, procurement and contracting. We do also consolidate vetting. And for vetting, for those of you who don't know, vetting is a ticket to trade by oil majors. So all majors and gas majors, they go on board our ships, they check the condition, and they basically give you a tick, yes or no. So we consolidate that in a large scale, and we are able to then see trends whatever that's happening in the industry and then take actions and direction thereafter.

Obviously, when we override 200 plus ships, we spend a lot of money also. So we need good systems in place to have control of our spending’s but also making sure that our [factors] are very, very sharp. We have a lot of data available. So we are able to do a lot of analytics of data on different matters in ship operation. And last but not least, people. People make the difference. And we have to make sure that we have the best people because, at the end of the day, these are the ones which are facing the customer frontline. We also need to have good processes and procedures in place.

We then go into the more segment-specific activities. So we have different boxes covering that. We have a box which are handling new building and projects. This is where we consolidate the group new building activities in different shipyards and also way to fit projects on fleet-wide basis. On the new building side, we are having office here in Oslo as well as in Shanghai. And then we are present at different shipyards physically where the ships are being constructed and where we have specific teams looking after that the ships are being built and delivered according to the shipbuilding contracts.

In Singapore, we try -- we run our dry bulk operation from, but we also have a time zone dry bulk function here in Norway. In Norway, primarily we do the tanker operation, but also a time zone difference -- sorry, time zone backup from Singapore. I will come more into details of Flex LNG's fleet management work we are doing here, but we are a team sitting here in Norway as well as in Scotland. And then the second and -- sorry, the last [leg] of the segment is our second, what I can say, in-house ship manager, which is named sea team. It is specialized in tanker and dry bulk operation, and they sit in Singapore. And all these activities are coordinated through my function. So if we go into the LNG specific vessels, you have already seen the slide, Øystein presented the same, but it is a good view of how the composition of the fleet is. So we have the latest technology of LNG vessels. They are all highly efficient in what is named boil off in LNG but is also the most fuel-efficient ships which are available, which, again, links into that this is curating the lowest rate unit cost that you are able to get in the market.

We have 6 ships on the water and 7 under construction, and they all have a slightly difference in the technology. And some have high-pressure propulsion systems, which is a 300 bar fuel injection and some have the low pressure. And you can say the ships operation is more or less the same. The fuel-efficient are more or less the same. But some charters, they like more high pressure, some charters like more low pressure. So we have a relevancy of actually charters can pick if they are available.

Back to our new building activities in the group is quite substantial. So since 2004, we have overseen more than 300 vessels being constructed at different yards worldwide, but most in China as well as in Korea. At the moment, we are handling 31 ships under conduction, including the LNG vessels, which are being constructed at DSME as well as HHI. Through consolidating all the new building activities, we are able also to make very good deals on the commercial terms, but certainly also on the technical spec because we have a very close relation to the shipyards, and we are able to understand what we should have included in the spec and what is cost drivers who come afterwards. So it's very valuable having this opportunity to have it in-house.

So in 2018, in late '18, it was decided that we should bring in LNG in-house and various discussions around why we should do it. But basically, there's 3 things that is the drivers for bringing it inside is that LNG is complex. And when you say that LNG is complex, why is LNG complex? First of all, it's liquid. It's minus 162 Celsius and it's very explosive if you don't treat it in the right way. So in order to be able to handle LNG, it is not a commodity, technically. It requires that you have very sophisticated equipment. You need to have highly skilled and competent people to operate the equipment. And that goes also that you'll need competent people in the office to guide the people in the right direction on board and support when needed. It's very expensive assets, Øystein explained, it was $190 million average per ship. So obviously, with our investment, it's a lot of money. So we need to make sure that the assets are taken well care of. And then not the least, and if you want to make yourself available to long-term charter business, it is expected by the oil majors that you do take a larger part of the value chain in ship management and actually do in-house ship management.

So this is why we are doing this or have done this. So in early 2019, we sat down and started to work out how are we going to do this. We built a road map and got support from DNV GL and worked out very detailed management of change process, which was divided into different work streams. And by October last year, we got our ticket to train, we got our certificate to operate ships, which was obviously a very happy day, but it was also a complex road map to get there because one thing is that we had an idea and good view on how is the best way of doing ship management. You need to have a sign off by the oil majors and the oil majors are very strict on looking after that you are operating ships in a way that they like. So you need to understand their needs in order to service their needs.

So ship management in a nutshell. First, it's about people. It's about making sure that every seafarer that saw one, bought our ships will be turned safely like they're safely joined onboard. It's about making sure you don't make any harm to the environment, and you don't have any spills to sea. We want to stay lean. We want to stay efficient. We want to stay focused and don't make it too complicated, always with the simplicity mindset. We need to build credibility with charterers, investors and financiers. It really doesn't mean anything that if we believe we have a good product if nobody likes it. And the only way that we are able to create that is by delivering cost efficient solutions. It's about making sure that the cargo is delivered on time. It's about making sure that the propeller keeps turning, and obviously take economy of scales out of where it's possible.

Then the train is moving very fast on the technology side, digital, in particular, and we had to make sure that we are embarking on that platform as well. So we are trying to build an operation to have very good control of how we are consuming fuel and how can we make sure that we deliver the best freight unit cost as possible. We build a culture on board our ships, but also in the organization about every drop counts. And then the tools in the toolbox to monitor this better is an off-the-shelf cloud-based technology that we are embarking on. I will come back to that in a short while.

So the road map, how -- what has happened since we got the document of compliance is that last year, we have transferred the first vessel Flex Enterprise. Then this year has been followed by 3 other vessels. And by end of Q2, we expect to have the last 2 vessels on the water transferred. And then the new ships, which are starting to flow in from May, will flow directly into this setup. So I mentioned previously that the oil majors and gas majors are very, very strict in how you do ship management and tango operation. So we have had several roadshows with these up here on the board, meaning Chevron, Shell, BP, Total, Enel and also [Gunvor] about understanding what are their expectations to us, what does it take to put cargo onboard our ships? Because about ticket to trade, if you remember, I said vetting is ticket to trade. In order for an oil major to load cargo on your ship, you need to have an inspection of the ship, and you have to have an approval, so to say. But a lot of oil majors or gas majors, sorry, are not able to do this without having cargo in the ship. And in order to have cargo in the ship, you need to have an approved, so to say, vetting report. And so -- and it becomes quite a difficult situation because you can't get cargo before you have an approval, and you can't get an approval before you have cargo on board. So it actually means that in principle, you can't make it work. So you need to find a way of how can you convince that the oil majors so to fill 174,000 cubic meters of LNG into our vessels, and we carry the cargo very safely. That has been a very tricky part. It looks on paper relatively simple but it's very complex. And that's why you need to have a very detailed management of chains in place where you can document every single doc that you do. But we are getting there. So 4 has been shifted already and again, the 2 last ones will be by end of Q2.

So how do we make sure that we put people and safety in focus? In order to have safe ships, we believe it all relies on competent and empowered crew. And our crew is an integrated part of our strategy. We have developed a number -- or set of values, which are helping us in how we should conduct and behave ourselves and they are future driven, it's about leadership, it's about empowering people, and it's about being exceptional. And the sharp eye will see that they spell Flex. And we have had several conferences with our seafarers, which are trading, which are serving on board our ships, and to find out what is important for them, we have had meetings with a different part of the organization. And after our 2 days workshop, we landed on these values.

So back to digital and tools in the toolbox. In order to be able post to handle a large number of data and numbers which are coming in for when you operate close to 240 ships, you need good systems, you need good tools in order to take better decisions and have control of your operation. So basically, we sat down 1 year ago and started to define what is important for Flex LNG fleet management as well as the rest of the companies which are subscribing to our technical platform, what do we need?

So we defined 4 different areas, which was important to focus on, on a digital platform, and we put that out in an open tender process and had some very tough rounds. But after 6 months, we landed on the platform named Veracity by DNV GL, and we have now started to get this platform up and running. So it's about 3 main things. It's about getting better operational insight through analytics. It's about making sure that you handle and are able to do better and smarter research on data management. And then, obviously, the technology should be future-proof. So it's basically a maritime ecosystem. This is hosted by Veracity by DNV GL. This is very off-the-shelf solution, of course, with our trick the technology is developed, and we have had a very aggressive timeline with DNV GL. And today, actually, we had the first milestone, which was our 45-day milestone of having the first dashboards and tools presented. And after another 45 days, the platform is up and running. So it's extremely aggressive.

So basically, it's about different dashboards that get different data available to do better analytics to take better decisions. And for our way of doing ship management, we have 7 strategic objectives that's monitoring the technical efficiency and operation of our ships. So it's about cost; it's about fuel efficiency; vessel performance; it's about people, sea and shore; it's about HSEQ, where we measure safety and quality matters; it's about vetting performance, meaning ticket to trade; it's about technical performance when we have any technical deviations to, what I can say, our maintenance systems; and last but not least, it's also how are we able to measure customer satisfaction. So these are our 7 strategic objectives and they are supported by KPIs where we actually, lively can see how we are performing.

I think we'll then move on to fuel efficiency or fuel consumption. Øystein has already mentioned part of it during his presentation. But if you look at the graph on the right-hand side, and then think about our vessels have the ability to carry the same amount of cargo, meaning 170,000 cubic meters, which is the size of our ships. And then you compare to the different types of propulsion systems, which are available in the system. You have the old and first technology of steamships. You will see that per day to move cargo with 19.5 knots, this is charter's speed, not necessarily what this ship is trading, but it's part of the time charter party what it should be able to trade, it will consume around 230 tonnes of fuel per day. While on our MEGI latest four-stroke design, you trade around 90 tonnes of fuel. So there's a massive change in the environment, while it is so important to understand that the technology that we have in our ships is a huge difference and by not having steamships. So not only the size of the steamships are troublesome, but for sure, the fuel consumption. So of course, it's about freight unit cost. If you are able to deliver lower cost cargo, you'll make more money, so simple as that.

And then you had the dual fuel in the middle, which is the generation before the 2-stroke design. We saw the ship started to -- or technology flowing in, in 2008, '09, '10. So today, there are also more or less not attractive in the market. They are being utilized for FSRU operation or FSU operation, but for trading it's very, very uncompetitive, as you can see on fuel.

And then back to -- this has also been shared earlier about methane slip. So what is methane slip? I mean there's a lot of talk about methane slip. And methane slip is basically the less -- the amount of fuel which are not able to be burned in the consumption. So it's a waste product of the combustion of the different designs. So in steam, you could see very thirsty technology, take everything, also leaving nothing left, very thirsty.

For the dual fuel, the 4-stroke, this was technology of #2 -- of 2.0, still very, very thirsty on methane slip also apart from fuel consumption. The technology with 4-stroke simply is not so efficient as the technology that you see on the next generation of 2-stroke engines. So the 2-stroke engines, you have 2 different kinds. You have (inaudible) construct and you have the [MEGI] design. MEGI design is a bit more efficient on methane slip, but the fuel consumption for both engines are more or less the same. There's not so much difference. Because for running the MEGI engines or MEGI design, we need to operate big compressors, and to operate big compressors, you will need fuel. While on the vessel [lead] design, they don't have the need to operate big compressors, but they are a bit more thirsty. But when you compare the 2 designs, they're more or less the same.

I think the takeaway from methane slip, yes, you have a waste product, but it's much, much less than it was when you were consuming much more fuel. So it's a move in the right direction. It's a way to go to utilize this loss or this slip and the engine makers are working hard on improving.

So basically, if we should sum up on how we are doing ship operation or operation in Flex LNG or Flex LNG fleet management, it's about -- that we are committed to responsible and transparent operation. We build our vision and our way of operating ship, a long-term approach and are committed to make sure that we take good care of our people and the environment as well as governments. We have applied ESG to the way that we operate our vessels, and these are transparent, available through reporting. And we look proactively to see how can we improve going forward, both through data but also through different kinds of technology to increase our efficiency in handling fuel.

So I think this is what I wanted to share.

Okay. Thanks, Lars. And then we will head into the last section, which is actually getting rid of all the carbon or at least most of it, not only the CH4. And for that, we have one of the leading experts in this field, Torleif Madsen, who I've already introduced, and I guess you can introduce yourself a bit as well.

Yes. Thank you, Øystein, for this invitation to come here and talk to you, and congratulations on your results today. I'm the CEO of Compact Carbon Capture. And we are a company which are revolutioning (sic) [revolutionizing] the CO2 capture technology. Based on the dialogue and the presentation here today, I will do some clarifications before I start. So you have a couple of ways to remove the carbon. You have the precombustion, which is -- which Øystein mentioned, removing the carbon from methane creating hydrogen before you burn off the energy, and then you have post-combustion, which is basically taking out the CO2 from the exhaust of the fuel gas.

In this presentation, I will mainly focus on post-combustion. The 3C technology is a post-combustion technology, but we have several patents also taken out on precombustion. We have, amongst others, recently taken out a patent where we even could introduce methane through gas turbines, and we have a reforming process prior to burning off the methanes. We are taking out the carbon, burning the dirty hydrogen for reducing the temperature in the burner, also preventing NOx emissions. So there's a lot of things going on. The key takeaway, I think, from this presentation will be for you to know that there's growing disruption into CO2 capture. The conventional technology was invented in the 1930s, and there's been very little disruption because the market is still under development. So now when the market is taking off with the Q45 in the U.S., the carbon quota prices in Europe is rising. So my guess is we will see a lot of disruptive technologies in the near future, and this technology is one of them.

I will first describe a couple of ways of avoiding CO2, removing CO2 or reducing CO2 emissions. I will point out why I believe that gas is one of them, and then I will give you a glance of the 3C technology.

First, I will give you kind of a brief overview of why this is important. We emit about 36 billion tonnes of CO2 per year from human sources. And to put it in perspective, if we were to make carbon out of all this CO2, every person on the world -- in the world, 7.7 billion persons would get their own carbon racing bike every other day. This is the amount of CO2 we're emitting, and approximately 1/3 is from energy. So even though we go all renewables, there still will be about 20 billion tonnes of emissions left each year: a lot from transport, 10%, 12%, 14%; process industry, about 20%, 25%; and of course, farming and so on.

The easiest way, of course, is change our attitude. And we could see that now with the coronavirus in China. The CO2 emissions are really reducing. But as Øystein mentioned, there is 2 billion people coming from poverty to lower middle class in the next couple of centuries demanding energy, demanding products. So without us wanting to reduce our standard of living, this would be difficult to do something about. So we have moved into increasing efficiency. I will give you a couple of examples of this. But to my perspective, gas is clearly one of the ways of increased efficiency, also when you look at our CO2 emissions. And the most expensive and complicated part is CO2 capture, but we still have to do it anyway. And we believe that we will have to use green energy as long as this is also viable. But I will give you an example of why, I think, the transition period would create some challenges also for this.

I would like to start off with a fun fact, but it involves shipping industry and it involves increasing efficiency. This is the Flying Cloud, and in the 1850s, they put sails on sail. Prior to this, it was common with only one sail taking it in a direction. And when they created this method of sailing, they reduced the time used for going around South America from 200 to 89 days. I could also mention it was the first ship with a female navigator. So that also could have something to do with it probably. And of course, with a bulbous bow, you create equalizing waves, reducing the drag. So increasing efficiency has been done in shipping over several -- and the recent presentation also showed that increasing efficiency on engines would have a lot of effect as well.

Moving into the energy transition forecast by DNV GL, you could see that gas is the only fossil fuel that will be stable or increasing during the next years, and coal and oil will decrease. And one of the reasons we believe it is, is, of course, its efficiency, but in terms of CO2, coal has about twice as CO2 emissions as gas have. And an example is when (inaudible) went from Norway to U.K., the reduction in CO2 emissions in U.K. was 55 million tonnes per year, which is equal to all of Norway's CO2 emissions. So gas is clearly something also from an environmental perspective is a very decent thing to do. And if we look at South Africa, with 450 million tonnes of CO2 emission from coal alone, you could reduce the CO2 emissions from that specific country by 220 million tonnes if you reduce energy -- transition energy production from coal to gas. And there's a lot of countries with a heavy coal production for today.

This is one of the reasons why, I think, we will struggle a bit in this transition period moving to green energy. Here, you could see a 360-megawatt offshore wind farm. And if you are to produce 10 seconds of backup power, you need a container of Tesla batteries. And if you are to produce 2.5 days backup power, you need a containership full of batteries, and you could do the same with a 450-megawatt (sic) [440-megawatt] gas-fired combined cycle power plant. And you mentioned, Øystein, a bit about the difficulty or the challenges of storing and transport natural gas, but this is the main challenge of renewable energy. In Norway, we are lucky because of the hydro plants have the batteries on the far side of production. All other renewable alternatives have to produce energy before storing it. And then you are talking about hydrogen, which is even more complex to transport than LNG because it's about 250 degrees below 0 and 600 bars of pressure. So it's a huge challenge to solve this. We will get there, but when and what do we do in the meantime?

If we are putting that aside for a bit, we are agreeing, at least when I'm speaking, that we need to have that change of attitude that we could see for us, and we need to increase efficiency and all other means necessary. The International Agency -- Energy Agency states that we have to handle 850 million tonnes of CO2 per year in the next decade, up from 50 million tonnes per year today. And the number is actually lower, but there's some projects going on. So I'm taking them into the calculation.

This is a $100 billion market, investing in CO2 handling capacity. And the conventional technology works like this. The fuel gas is entering through an absorber where it's sprayed in liquid solvent extracting the CO2 from the fuel gas. The solvent is taken into a stripper where it's heated up. It releases the CO2 and it's reused. And based on the conventional technology, you get these large towers. And this is the 3C unit. And you can see it's a bit smaller, but that's not the whole story. We actually have twice the capacity of the larger units. For those who haven't been to TCM Mongstad, it's the same as ARCA or Mitsubishi or Fluor is a building in conventional amine capture, and it's about the same height as the Leaning Tower of Pisa.

This is the absorption tower of the 3C technology compared to this, and this is the stripping tower. In our technology, we fit that inside a standard 40-feet ISO container. And we are able to do so because we introduced high g to distributing the solvents. And it could be compared to what we did when we washed clothes in the '50s and then you get the centrifuge on a washing machine. You could dewater a lot of clothes in a much smaller area at a much larger speed. We use the same principle of high g-forces instead of gravity.

The key features we have is that we by reducing the size through high g, the core components are reduced by about 90%. So we get an overall 75% reduction in size, and the cost of steel alone would give us a 50% CapEx reduction. We are scaling it by modules. So if you have 250,000 tonnes of capacity in 1 module and then you could add 4 modules, then you could start taking on small gas-fired power plants. That being said, I believe, in a couple of years, there will be technologies with less (inaudible) energies, more suitable for post-combustion energy capture. But in terms of having a process technology, steel, aluminum and so on, we are more than suitable because of our size to retrofit on those plants.

This is a refinery of Total in Antwerp, and you could see, first of all, there's not a large chimney. You could put 1 unit on and start capturing. There's 50 different points of emission, and there is no room to place this. Our technology was initiated by Equinor in 2007 because they wanted to investigate CO2 capture from offshore installations. And based on that, we have built a very compact and a very light-weighted CO2 capture technology, which means that we could place our equipment on top of existing infrastructure. We don't need additional space for retrofitting. We could just put it on top of a building. And this is representative for a lot of the industrial areas today. There is simply no room. And if they have room, they would like to spend that room for increasing production.

Regarding OpEx, we see that our process technology itself is quite similar to conventional technology because -- but because we could use a lot more viscous solvents and because we have about 2% to 5% of the inventory of the larger capture plants, we could use more expensive and risky solvent clearly and significantly also addressing the OpEx.

We are soon ready for market. This is our 10-tonne-per-day pilot currently being tested at Equinors' test facilities in here in Porsgrunn here in Norway. And we have a lot of benefactors and a lot of large potential clients funding us nondilutive until now. We are currently in discussion for investments. So if anyone are interested, please feel free to leave your card afterwards. We are revolutionary for many markets, both because of retrofitability, and we could keep the cost per tonne captured CO2 low even at smaller- and medium-sized points of emission and because it is easy to retrofit.

Øystein mentioned, we have won some awards. This is our core team. We have a business development model where we are not planning to build organizations for delivering this equipment by ourselves, but we are teaming up with large existing providers of equipment within process technology. As mentioned, we are being advisory for several governmental and other institutions. We were top 6 at the green awards where we were invited to celebrate with the Crown Prince of Norway. We are a member of the Repsol accelerator program, 1 of 6 companies globally. I've been invited to speak to OGCI, the OGCI Investment Day at one of our global -- technologies globally to address the modular, scalable, speedy deployment approach. Instead of going large, having tailor made capture plants, we could deploy at the speed of the customers. We have one specific case where automobile constructor in Europe addressed that they would like us to provide technology for their providers of steel because for the steel factory to invest in capturing all of their steel plant when their customers were buying 10% and have the payability for CO2 capture on 10% of their stock would be commercial suicide. So by doing this modular, they could invest in the first module. When the company buying 10% of their production were capable of paying for CO2 capture, then they can add on modules when other customers would like emission-free products as well. And as Øystein mentioned, a few weeks from now, I will be in CERAWeek receiving the Energy Innovation Pioneer award as one of 6 companies globally.

Speedy but I think you probably would like to have the rest of the day off. If there's any questions, feel free to ask.

Okay. I think we have a bit time so it's an interesting topic and a topic which is probably not all of the people have expert in. So in case there are any questions or if somebody actually dares to ask any questions, then at least we could open for those.

(Operator Instructions)

Okay. I think we'll take 1 question here from the audience. First, let's see just 2 seconds.

Of course, capturing CO2 is one thing, but once you have captured it, what do you do with it? And of course, if you spread small units around, I guess, the question of where do you go with the CO2 is a difficult issue.

Yes, it's a very good question. And the answer is different in different parts of the world. If you look to U.S., there's a lot of EOR, enhanced oil recovery. So basically, they're short on CO2. They pump CO2 down in oil wells to extract more oil. In Norway, in the Northern Lights Project, they intend to store it. So they will inject it into dry oil wells, and it will be permanently restored. For small amounts of CO2, utilization cases could be also interesting to look at. You could produce carbon, cement. You could produce fuels by adding hydrogen. You could kind of recreate methane. So there's a lot of different possibilities for taking the CO2 off our hands while we capture it. Oxy, for instance, is large in U.S. on using CO2 for enhanced oil recovery.

And the Northern Lights is an interesting project because it's a first well in the North Sea being drilled where they are not looking for hydrocarbons. And the rig operating on that field was West Hercules owned by SFL, on contract with Seadrill. So that's part of kind of [drilling] for a case where you can actually fit the CO2. So that's, of course, probably the best use for the CO2.

I'm not sure if there's any more questions. We have one more here. That's okay. We can provide a microphone so people in the webcast also can listen in.

Could you just comment on the cost of reduction per metric tonne of capture for the carbon you're capturing? And compare that to the previous question, what's the market rate for selling CO2 today?

Yes, the most developed market, as mentioned, is the U.S., and in the U.S., you have the Q45, which is a tax credit system. Last week, it was advised by the IRS on how to take advantage of this Q45. And that tax credit system is on utilization. That means EOR, you get a $35 tax credit and then it's about $20 payability for CO2 per tonne. So in the ballpark of around $50 is in the U.S. market where you should be to get an economically viable situation for the point of emission. It really depends on the fuel gas. If you burn methane in gas turbines, you have a fuel gas containing about 4% CO2. So that will be an expensive capture. If you have a process industry emission, it could contain 15% CO2, which is much easier and cheaper to capture, but let's say, in a ballpark of $30. And then you have transportation and utilization costs on top of that.

I guess the utilization costs could be positive if you're using it for different purposes.

Yes, but the utilization will be a cost and then you could have payability for the end product. So that is also, of course, something that you would have to calculate on a case-specific basis.

Okay. Any more questions? Otherwise, I think we adjourn for today. I would like to thank you all for attending. It was quite a long quarterly presentation. And good luck, and have a good evening. Thanks.