FLEX LNG Ltd (FLNG) 2022 Q4 法說會逐字稿

Hi, everybody, and welcome to Fourth Quarter Results Presentation for Flex LNG. It's February 14, Valentine's Day. So I'm Oystein Kalleklev. I'm the CEO of Flex LNG management, and I will be joined by our CFO, Knut Traaholt, who will give you some more details on the numbers a bit later in the presentation. The presentation will be concluded with a Q&A session. And as you might recall, best question this round, will get the original Flexington bed linen sets for 2 people. So I hope you can provide some questions either by sending us an e-mail on ir@flexlng.com, or just use the Q&A button in the webcast. So before we begin, I just want to remind you about our disclaimer related to forward-looking statements. We do provide some non-GAAP measures. And of course, the detailed level we can provide here is limited given the time.

So with that, let's review the highlights. Revenues for the quarter came in at $98 million, in line with previous revenue guidance of $95 million to $98 million, where our numbers this quarter was boosted by our index ship in a booming spot market. Net income and adjusted net income came in at USD41 million and USD55 million, respectively, were the main difference is we realized gains of $14 million on derivatives during Q4. Earnings per share and adjusted earnings per share was USD0.78 and USD1.02, respectively.

In November last year, we announced the extension of 3 ships with Cheniere where we added a minimum of 14 years of contractual backlog to an already rather sizable backlog. Knut will tell you today that we have finalized our balance sheet optimization program. He is presenting refinancing of 3 last ships in our fleet. And altogether, the balance sheet optimization program will have released $387 million of cash.

For next quarter, Q1, we expect revenues to be in the region of $90 million to $93 million as we are doing our first scheduled drydocking of Flex Enterprise at the end of Q1. And altogether, this year, we will drydock 4 of our ships. Nevertheless, we do expect revenues to increase regardless of that of fire. Revenue is expected to be in the region of $370 million for the year, driven by higher time charter equivalent earnings, where we expect average time charter equivalent earnings to be about $80,000 compared to $72,800 for 2022. Our EBITDA numbers are also expected to increase with a similar amount compared to 2022.

So with a healthy backlog, a very sound financial position, we are again declaring an ordinary dividend of $0.75, but also a special dividend of $0.25, bringing the dividend per share to $1, and for the full year 2022, that means dividend of $3.75, [$200 million] of dividend, and that implies a dividend given the share price level today of around 11% yield, which should give you investors are attractive yield being invested in Flex LNG.

So let's review our contractual backlog portfolio. As I mentioned, we did 3 ships we extended in November with Cheniere. This was Flex Endeavour, which was extended until end of 2030, added altogether 5.6 years Flex Vigilant added 6.4 years, also bringing that to 2030. Those 2 ships have option to 2033. And then the last ship we extended with Cheniere was Flex Ranger, the 2 optional year, bringing that ship until early 2027, which we think is a very attractive position to be in. This is a time where we will have a lot of new LNG coming to the market. And here other deliveries today are early as 2027 and even into 2028. So we are competing against much more expensive ships with the current yard's ticket price today of around $250 million.

In 2027, we also have Flex Constellation fully open. This ship is firm until 2024, but the charters has the option to extend the ship. After 3 years, bringing it redeliver to us in Q2 2027 at the later. So these are the 2 ships we are marketing in -- for longer-term contracts today, and we are a bit about the prospects given the higher term rates, as I will explain later in the presentation. Last year, we also extended more ships. We extended Flex Rainbow for 10 years, and she just commenced a new 10-year charter in February. And we also extended Enterprise and Amber by 7 years starting July last year until 2029.

We also have some other ships in the portfolio, Flex Freedom, early as redelivery 2027, that's a 2-year option on this ship until early 2029. We also have 2 more ships with Cheniere, Flex Aurora, Flex Volunteer, early as redelivery 2026, also have 2-year options bringing them to 2028 potentially. And then we have 2 more ships on these 3 + 2 + 2 structure, Flex Courageous and Flex Constellation early as redelivery 2025, but this is very likely that these ships will be extended given the contract structure. So we don't expect to get the ships back before 2029. Constellation I already covered and Flex Artemis is the one ship we have on variable hire contract, which had boosted revenues in Q4, as I mentioned in the highlights.

So looking at our guidance in a bit more detail, you can here see our revenues and EBITDA the last couple of years. As we have taken deliveries of ships in '18, '19, '20, 21, the last ships, of course, our revenues have increased and also the market has improved. For next year, despite as I mentioned, drydocking of 4 ships, we do expect revenues to grow by about $20 million and similar for adjusted EBITDA. Looking at our dividend, earnings belong to our shareholders, and I think we have demonstrated that today with a $1 dividend, bringing it to $3.75 in total for the fiscal year 2022, which compares to earnings per share of $3.54 or adjusted earnings slightly below that at $2.83 as we had significant gains on derivatives, which has been unrealized during the year.

When it comes to the decision factors from for our dividend, I think I've covered this in great detail in the past. But of course, it's linked to our earnings, which are strong. The market outlook, which is also strong. We have a very sizable backlog, as I just demonstrated, our liquidity position, we ended up with a cash position of $332 million, and this will be further boosted by the refinancing as Knut will shortly explain. Covenants flying with clean colors. We don't have any debt maturities before 2028. CapEx liabilities are limited to the dry docking of the 4 ships we have this year where we do expect drydocking expenses to be at around $18 million to $20 million in total. Other consideration, I don't [want to tick sit] putting this also fully green. So we keep it light green for now. And that's kind of the highlights for our assessment of the dividend.

In terms of safety and quality performance, this is something we care deeply about. We do have a lot of repeating customers coming back. And of course, they are doing so, because we have very reliable uptime. As you can see here, 99.9%, 99.8% and 100% uptime on ships, despite quite challenging operation during COVID. And regardless of that, we keep our ships and the propellers turning. Also, in terms of safety, the 2 most relevant benchmarks are the lost time injury frequency and the total recoverable case frequency. Here also, we are measuring very favorable to the LNG data from INTERTANKO with LTIF of 0.33, 25% lower than the industry standard and even better when it comes to the total recordable case frequencies despite a bit uptick in that for ['22 for other parts].

So with that, I give it to you, Knut, and you can do a review of the financials, and I will come back and go through the market. Thank you.

Thank you, Oystein. And let's have a look at the key financial figures for the fourth quarter and 2022 full year. 2022 was the first year where we had a full fleet available for the whole year as we had 3 deliveries of new buildings in 2021. If we look at the time charter earnings per day, we achieved $82,000 in Q4 and USD73,000 for the full year. OpEx per day, a slight improvement, where Q4 ended up at $13,500 per day and for the full year, $13,400.

Moving on to the revenues. The fourth quarter delivered $98 million in revenues for the year and reflect higher earnings under the variable time charter for the Flex Artemis. For the full year, we ended up at $348 million. If we look at net income and adjusted net income, $41 million for the quarter and adjusted net income of $55 million for the quarter. The difference here is the realized gains and termination of derivatives that were done in October in 2022. Net income for the year, $188 million and adjusted net income of $151 million for the full year.

If we look at cash flow, cash increased by $61 million in the quarter, and we ended up with a record high cash position of $332 million. This is mainly driven by the net proceeds from financing where we concluded the refinancing of the Flex Resolute in December. And we mentioned the realization of derivative swaps, which were terminated. In addition, we raised $14 million from our ATM program. And as a reminder, amortization in Q4 is slightly lower than Q1 and Q3 due to the semiannual repayments under the ECA facility. As we will announce later on, this ECA facility will be refinanced in full, so for the coming quarters, amortization should be more smoothed out quarter-by-quarter. As we will highlight later on, we are also completing our refinancing program. And for Q1, we estimated to release net proceeds of $204 million, adding to our already solid cash balance.

So for the balance sheet, it remains clean and robust. Strong cash position of the mentioned $332 million, and we have a book equity of $907 million. That gives a book equity ratio of 34%. And it should be noted that the book values reflected these vessels were acquired at historically attractive prices, which is where the replacement cost is materially higher than this.

Moving on to our interest rate portfolio, which is we have had an active hedging strategy on, adding long-term swaps when the interest rate market was low. And as we see in October, we terminated the $100 million 10-year swaps, which gave us a cash gain on $14 million. In the quarter, we also amended $100 million 10 years swap, where we had unrealized gains of $15.5 million, which we used to enter into a new shorter interest rate swap of 2.5 years, but increasing the notional value to $181 million, which was then entered into an attractive level of 0.9%. Further, in January, we added another $50 million of a 10-year swap, which gives us a total swap portfolio of $741 million enter into attractive levels, which gives us now a forecasted hedge ratio of about 54% in the coming quarters. And the hedge ratio has improved as we are now announcing new financing, where we are increasing our RCF capacity, but then on a net basis, the hedge ratio improves.

Which take us then to the balance sheet optimization program, which we now announced will be finalized. We will, with the remaining financing we are announcing today, we will then release $387 million of cash under that program. Last quarter, we announced the financing of the enterprise is completed and with the Resolute and Amber to be completed. Today, we announced that all of these are documented. Resolute was completed in December, Amber in early February, and Artemis is shortly due to be refinanced. All of these are documented and signed. Today, we also announced a new lease for the Flex Rainbow is with a nation-based lease provider, and it's a back-to-back financing with her 10-year contract. The Flex Rainbow was refinanced under the $375 million facility. So we will replace her under that financing with the Flex Aurora, which was then taken out of the $629 million ECA facility.

And then today, we're [finaling] the balance sheet optimization program with the $290 million bank facility of where $150 million will be structured as a bullet RCF. And with the completion of the final financing, the full $629 million facility will be refinanced in full. And as we also highlight there that once we now complete this, we're also pleased to see that all of our priorities from the outset has been met. We are stretching our repayment profiles. We are significantly improving our margins. This is a comparison with the on-balance bank loans and lease financing in Q4 '21. We're increasing maturity dates. We are freeing up nearly $400 million, and we have a flexibility with the $400 million RCF for cash management and reduced the utilization during, in particular, high interest rate environment. So we are pleased and grateful for the trusting commitment we have from our banks and lease providers. And with this, in Q1, all of the financing shall be completed.

So then last quarter, we named it fortifying the balance sheet. We now rename it to fortress balance sheet. Our contract backlog gives us stable cash flow. We have now refinanced and we're having significant cash available. And that is for cash management purposes, we can use [TRCF], which then has a cost of 70 basis points. And all of this is -- gives us the commercial flexibility to continue Flex journey.

And with that, I hand it over to Oystein.

Okay. Let's review the LNG product market. Product exports were up 5% last year, driven by U.S. up 9%, despite the outage on Freeport, which removed about 112 cargoes from the market equivalent to 8 million tons. Freeport has been up exporting cargoes again this weekend. So that will add to growth of U.S. volumes this year. Russia, despite all the sanctions, sanctions don't apply to LNG. Russian exports were up 9%, 3 million tons in total. Malaysia also recovering, up 11% and then other countries up 2%, bringing the total export market for 2022 to 400 million tons. On the import side, we had some major shifts in trade flows given the high prices of LNG and the economic downturn in China caused by the zero-COVID policies. Imports in China was down a whopping 20% in 2022, which was a very welcome relief for the European market. European buyers have been struggling getting access to natural gas given the curtailment of cushion flows and European imports were up 45 million tons or 54% in total.

Looking at the import nations, you can see here 6 top import gainers last year where all Europeans dominated by France, U.K., Belgium, Spain, Netherlands and Italy. So just like in 2019 when we also had a weaker market in China, we saw the European buyers at that time buying up LNG cargoes because the price was low. This time they are buying up cargoes because of the curtailment of cushion flows. And on the other side here, you see China, Brazil and also some developing countries where the price of LNG has been so high that buyers in Pakistan, India, Bangladesh has been struggling to be able to pay such a high price for LNG. And as we see here, coming soon, is Germany. Germany is becoming also our LNG import nation, rapidly ramping up regasification capacity.

Looking at storage levels, which has surprised, I guess, everybody. Storage levels have been on the top level of historical average, despite the energy crisis in Europe. This has been caused by a couple of factors, which I will come back to, is the demand subversion, and it's also a milder start of the winter, which has driven up LNG inventories, which is now being reduced according to the seasonal norm. So if you look at the pipeline flows from Russia, they are now down by about 90% compared to the level in 2021. In 2022, you saw our development with sliding pipeline flows from Russia, Q1 and then Q2. And then when you had the explosion on the Nord Stream pipeline volumes fell down to very low levels in Q3, even less in Q4, and they have been staying steady at these kind of levels. This means that Europe has been tapping the LNG spot market to replace Russian pipeline flows.

So looking at European gas demand. As I mentioned, demand subversion, you could say, demand destruction, but we do think that the gas demand will come back, and that's why we're also using the demand subversion, with European gas consumption down 12% last year, driven by the extremely high prices we have seen. This is not all good news because the beneficiary of these high gas prices has been coal, which was up 14% in 2021 and grew another 6% in 2022. So if you look at, well, we have had the demand slumps. It's mostly about industry like ammonia producers, but also household where high prices have resulted in people consuming less and also because the winter this year has been very mild in Europe.

Looking at how Europe is adapting to less pipeline flows from Russia, it's about building out new regasification capacity. And the easiest way to ramp up capacity is through the use of FSRUs, where we do see here Germany, as I mentioned, Netherlands, Italy are rapidly ramping up regasification capacity in order to substitute Russian pipeline flows with LNG imports.

The arbitrage, the American market, Henry Hub, where you really do see fairly low prices. European and Asian markets have been up and down here. As you can see, we have now come to more reasonable levels for the LNG prices, but still, the arbitrage versus Henry Hub to Europe and the Asian market is still massive, which will support further expansion of U.S. export capacity.

Looking at prices going forward. We are now at a level where European and Asian prices are fairly similar, slightly higher prices in Asia, also the spread between pipeline gas or the TTF and the LNG price, which we call [this] Northwest Europe has also been reduced significantly. This spread between the pipeline gas prices and the LNG prices were at close to $30, and it's come down now to $1 or $2, which is a more normal market. So going forward, it will be a tug of war for the marginal cargo. We do see more shift of flow into Asia. And of course, the prices of the LNG in Europe and Asia will, to some extent, decide where the cargoes will be flowing.

Looking at our peculiar thing with the LNG market this year, we saw a rapid increase in floating storage this autumn. If you look at the August numbers, we had about 16 million tons of LNG on water, and this increased to a peak in middle of November of around 21 million tons of LNG on ships. So you have more than 5 million tons increase in LNG and water, and this is equivalent to about 72 ships. So that's one of the main reasons why the freight market became incredibly tight at the end of the year because a lot of ships were tied up on floating storage, either because of congestion in Europe, but also to somewhat extent because of our contango in the gas prices in the October-November range.

With LNG prices now coming down to earth, we have seen a liquidation of LNG on water, 4 million tons less LNG on water now than on peak, which then results in about 56 ship equivalent, less ships with floating storage. And that also very well explains why freight market has been softening from the peak in the middle of November. So if we look at the headline MEGI/XDF spot rates, as you can see, these rates went up to about $0.5 million a day at the peak in October, November as we had less floating storage, they started to slide from November, been sliding down now to around $100,000 per day, which is still a pretty good level at this time of the year. And actually now in week 7, we do see a small uptick in the spot freight rates. So usually, the spot rates tend to bottom out in week 7 to 11 and then usually following a tighter market throughout the year. And here we are putting in the dotted line on the left hand, the forward assessment for freight rates where we do see that the forward market is pricing above $200,000 of spot rates again for Q4 this year.

Another thing to pay attention to is the liquidity of the spot market also varies quite a lot. On the right-hand side here, we do see the numbers of spot fixtures. The spot market was very liquid in 2020 into 2021. And then we saw from spring of 2021, a lot of the charters being very active in the term market, pulling in ships into the portfolio and the liquidity of the spot market has been decreasing. So from a peak of above 30 fixtures months, we have now been down to about 5 fixtures amounts. And most of the fixtures being done are being done by charters themselves, reletting ships out in the spot market, and there's been very few independent owners active in the rather illiquid spot market and less liquidity is also driving up freight rates.

Term rates, however, have been [able to affirm] the whole period. This is driven by higher building prices. We have definitely seen inflation on new building prices. As Knut mentioned, on our balance sheet, we have ships booked at the bottom of the market when prices were at around $180 million, $185 million per ship. That price today is about $250 million for delivery 2027, even into 2028. Another driver is, of course, inflation has also driven up interest rates. So in order to kind of defend such an investment, you need a higher term rate and the 5-year term rate has now stabilized at around $135,000, which is a pretty high level, and it's also one of the reasons why we are pretty confident about being able to build more attractive backlog for the 2027 ships we are today marketing.

And let's look at -- back to the product market. Then, as I mentioned, in 2022, we had a growth of the market of 5% this year, will be slightly less. We expect the market to [go] around 4%. There's very limited new liquefaction capacity coming to the market this year. We will have about 8 million tons from U.S., mostly due to Freeport restart. Trinidad & Tobago have been able to get the feed gas level up, and we expect 2 million tons from Trinidad & Tobago. LNG plant area in Norway has started up last year. So we do expect an annual increase of about 2 million tons. Mozambique, they have FLNG, which will be producing for our full year this year. End of the year, we will have a new FLNG in Mauritania, adding some volumes and some other 2 million tons from other projects, bringing the market to $416 million as estimated for 2023.

And looking forward, however, there is a plenty of new projects coming to the market, especially around '25, '26, '27 when, as I mentioned, we are marketing ships. We have a lot of projects under construction. As you can see here, $95 million rest of the world. Of course, the Qatar is the big driver here and then some projects in North America like Golden Pass and LNG Canada. We also have some projects being already reached FID. So if we look at the project under construction and those who have been given the green light to start construction, we are ending up at a volume of 583 million tons. However, we also expect more investment decision to be made, especially in America, as I highlighted on this arbitrage, where Henry Hub prices are very low compared to international prices. So the projects we see here, highly likely, I will come back to this, 73 million tons more than U.S., 46 Rest of the World, which can bring this market to 700 million tons by 2030.

So let's look at the big contenders for FID or green light of new projects. We have in Texas, 2 projects, Rio Grande from NextDecade and Port Arthur, quite sizable projects. We do expect FID to be imminent. They have also signed offtake for our vast majority of the volumes being produced. And then we also have 2 projects, which is closing in on FID in Louisiana. It's the Calcasieu Pass 2, CP2 from Venture Global, which Venture Global have had an excellent track record on getting offtake for the project and building them in very short time to market. And then it's the Lake Charles from Energy Transfer, which is also closing in on FID date.

So with that, I think we will conclude today's presentation. Just to remind you of our highlights, revenues, $98 million, in line with guidance. Strong earnings, USD41 million and USD55 million, respectively for net income and adjusted net income, which gives earnings per share and adjusted earnings of USD0.78 and USD1.02, respectively. We have continued building our backlog with the contract we announced for Cheniere in November. We are upbeat about the prospects of adding further backlog to our company. Knut has finalized the balance sheet optimization program. We still have some loans to be executing during Q1, which will bring the total net proceeds from this refinancing of all the [3 ships] to $387 million, which as he has highlighted, will give us a very strong cash position.

Revenues for next year is expected to increase by about $20 million to $370 million, despite carrying out for drydockings. And this is driven by higher time charter equivalents earnings of about $80,000 per day expected for 2023. And with the strong backlog, strong financial position, great outlook, we are today paying out $1 per share dividend, which gives a very attractive yield, we think, of 11%.

So with that, I think we conclude today's presentation. We will be doing a Q&A. Just a reminder, you can win the Flexington bed linen kit for the best questions. So Knut and I will now start the Q&A round. Thank you very much.

With our new bed linen sets. Let's go. (technical difficulty) and as last quarter, Omar Nokta and now also [Keswani], what is the key strategic priorities for management and the main objectives going forward?

Yes. Near-term, of course, it's to close -- for Knut to close the current financing during first quarter releasing this $204 million of cash. Longer term, I think I highlighted it in the chartering strategy. We have 2 ships now open 2027, which we are marketing in a market where term rates have gone up. So of course, our key priority is to try to secure some attractive long-term contracts for those ships and then thereby increasing our backlog and hopefully also improving the earnings profile to higher term rates on those ships. We also have ships -- 2 ships coming open early '28, which I also think will be finding a marketing window during the year.

So it's mostly about building more backlog. I think the financing process is done for now. As we have highlighted in the past, and I also mentioned the new building prices are quite stiff. So we rather focus on building more backlog for existing ships, which are the same type of technology. And let's see, we have a strong balance sheet. So we can always act on opportunities quickly, $400 million revolving credit line available for us in case we see opportunities. I think we can easily scale the company. As I mentioned, we have fantastic uptime and quality on the service we are delivering. So nothing like big for the moment. I don't think it's the time to rush to the yards. But keep building the business step-by-step like we've done in the last couple of years now.

And there's a number of questions here about fleet expansion. And how do you look at the newbuilding prices and ability to go to the yard for new buildings?

Yes. I think I mentioned it already. One thing is when interest rates are 0 and you are committing to our new building contract where you have a lead time of close to 4 years today. So kind of the alternative return on that money, which you are tying up in yard installments, you have 0 return on that capital. And that means that a ticket price of $250 million is suddenly approaching $270 million, $280 million when you are kind of taking into account the alternative return on that money you are tying up in that investment. So I think it's not really attractive for us.

Of course, if there is a tender where there are long-term contracts, given the high or elevated newbuilding prices, I think you need to see 10, 15 years contract in order to kind of defend such an investment, which I think makes it a very good window for us to fix our existing ships. So we are always open for consolidation, the Seatankers group of companies, Frontline, Golden Ocean, SFL. We have always been open to consolidate. We don't have any big egos there. We want to do what's best for the shareholders. So we always have the door open for consolidation, but only if it's good for our shareholders, not necessarily for us as a management.

Good. Then moving over to capital. And we have this ATM program. And the number of questions is you can give some color on the background, the rationale for it, and how to use the proceeds?

Yes. It's -- when we started thinking about listing this company in the U.S., it was 2018. And one of the things we did then was to change our accounts from IFRS to U.S. GAAP already in 2018. Capital markets in 2019 for LNG shipping companies were pretty poor. So what we did was a direct listing, and we listed the company in U.S. June 2019. When we did a direct listing, that meant we never issued any shares in the U.S. market. So it took a while before the liquidity of the stock became to a level where it's today.

At the same time, when we had a slump during COVID in 2020, our stock price was negatively affected by that, and we bought back stock, 980,000 shares we bought back in that period, which we have still in our treasury today. So the ATM is kind of aware of us improving the liquidity of the stock since no stocks have ever been issued in the U.S. So basically, we are selling back some of the shares we have bought back in order to create a bit better flow in the stock. We don't have any immediate capital requirements for this cash and also one of the reasons why we are paying out a special dividend today of $0.25 on top of the $0.75, which gives the investors a good time on Valentine's.

Moving a bit over to more shipping related and the contract portfolio. The question is about termination risk in case if natural gas prices falls down, how do you look at --

Yes. I think we have --

[What's the ability] for the charters to amend the contracts?

Yes. I think you had a super stress test on this in 2020 during COVID when LNG price in Europe went below $1 per million Btu and was up, as I mentioned in the presentation in August, above $100 per million Btu, and Asian price as well as low as [$1.8]. I've never seen -- I don't think anybody else have seen termination of these contracts ever since the LNG industry started 50 years ago. These are hell-or-high-water contracts. Usually, the people who are shipping they also have a cargo they need to ship. And of course, the cost of the freight is usually quite low compared to the value of the cargo.

So it's not something we ever seen, and we didn't see it in 2020, even though people were losing money, even though a lot of cargoes in the U.S. were canceled and a lot of ships were idling. We still saw that everybody honored the contract. And keep in mind, LNG is the big boys game. If you think about the super majors, their size in the oil market is very small compared to all the traders and the national oil companies in LNG, it's mostly the super majors and it's the big national oil companies like Qatar gas. So it's not a lot of shady counterparties, it's good counterparties, and that also is make it a reliable partners for us to do freight.

Yes. You mentioned LNG is a big boys game. There's a question here if [Flexington] start buying in trading, LNG and not only transporting it.

It's not -- LNG selling and buying, LNG is incredibly complex. You need a totally different organization for doing that. You need to have master sales and purchase agreement with all the relevant buyers and sellers. And of course, keep in mind, the cargo values can be substantial with cargo values going to $200 million. So it needs -- you need a lot of working capital to kind of finance that type of activity. Another point is, of course, we would be competing against our customers for kind of spot cargoes, which I would think that some of the charters would maybe shy away from [chartering] our ships if we are competing head on head with them. So we'd rather focus on the transportation side of the business, which is our shipping business, which we find a good and attractive business and where we can run a lean organization doing that activity, which we couldn't have done on the LNG trading side.

Then more shipping specific, how many days does the ship used to cross the Atlantic?

Yes. Usually, U.S., Europe, 5, 6 -- mostly 6,000 nautical mile, it's fairly simple to calculate this. So in natural boil of speed, we are at 18 knots is 24 hours a day. That means you are traveling 432 nautical miles in a day. So that means at 14 days, U.S. Europe, you need some time for the loading. You need some time for the discharging. So basically, you can do 1 cargo a month. That translates into 12 cargoes a year, and then you are lifting 900,000 tons a year, give or take.

Of course, if you're going into Asia, it's a longer distance, then it's 10,000 nautical miles through Panama. And if you -- if the Panama canal get clogs, which is usually happens from time to time, then you have to go through Cape of Good Hope and you have 15,000 nautical miles. So that means when cargoes are flowing from U.S., the long way either through Panama or Cape of Good Hope or Suez to Asia, that usually tightens the LNG shipping market because ships are able to transport less cargo a year.

Then there's another question of decarbonization and environmental impacts and focus that on regulator side than politicians, how will that impact LNG shipping and Flex in particular?

Yes. I think our main competitor is coal. And as I've shown on the graph here, coal consumption is up a lot in Europe. It's not only up in Europe, it's up a lot in China. 2022 peak coal consumption in the world. And actually, we see people are expanding more on the coal side as well because it's affordable. And of course, if you are a developing country, maybe you are not able to pay the price for LNG. The price of LNG will come down actually in Europe today. We are at such low prices on the natural gas or LNG that we are getting into the territory of coal to natural gas switching, which is a long time we have seen because in Europe, you have carbon prices as well. And if you're burning coal, it's twice as much CO2 emissions, and you need to buy more of these carbon permits, which is costing close to EUR100 per ton. So with lower prices, we actually prefer lower prices because that stimulate demand and usually stimulate demand more in Asia, which is driving sailing distances.

In terms of ESG, this -- what we're trying to do here is to replace coal with natural gas, which is reducing CO2, but also cleaning up the local air quality with SOx in [particulate matters] and NOx, which is reduced 85% to 99%. So that is also a side factor of it. Another element is the CO2 pricing will -- which I mentioned in Europe, that will also now start soon for shipping. That means ships calling European ports will have to pay CO2 price for their emissions for that voyage. And of course, our ships are much more efficient than the older steaming generation of ships. So our CO2 footprint compared to older steam ship is down by about 60%. That means that if you're shipping a cargo on our ships into Europe, you have less CO2 tax on it, and that will improve further our competitive advantage towards older generation of ships. And we do think that eventually CO2 prices will spread to other parts of the world and just Europe, and now also Europe is signaling that if other countries are not doing this, they will then start to collect that tax for the full voyage and not just the half of the voyage, which has so far been suggested.

Then there's a question if our revenues are sensitive to the LNG commodity price.

Now we have 12 of our ships are on fixed hire rates. So the rate is fixed. It's not linked to the commodity. One ship is on variable hire contract. It's not linked to the commodity price. It's linked to the spot rates for freight. So no, that's not the case.

Then there's a final question. If we are having a balance sheet optimization program, Phase 3?

Maybe I can take it. We've done Phase 1 and 2. And now we introduced 2.1. So you can say it's Phase 3. But now we refinanced all of the 13 vessels and long-term maturity dates, and we're pleased with what we have. So we'll pause on that for now.

Yes. That's good.

So that concludes the Q&A round. And then the big question is, who is the winner?

Who is going to sleep well at night? It's going to be [Wolf Biermann]. Thank you for the questions. You have not only sent question today, but I've been getting questions from you for the last 2 years or so and really like your engagement by sending us questions in the middle of the night U.S. time. So we will send over some Flexington bed linen kits to you and also 2 T-shirts. So you can enjoy that as well and sleep even better.

So that concludes today's presentation. Once again, I would thank you for joining. I would like to thank our financers, providing about $2 billion of new financing. I would like to thank all you investors. And not least, I would like to thank onshore and offshore personnel, making this possible, making the propellers turn every day, despite all the challenges we have had with COVID. As I've shown today, we have perfect uptime and quality record.

So, thank you very much, and we wish you a very good Valentine's Day, and we will be back for more updates in May, when we're doing our Q1 presentation. Thank you.

Thank you.