Navigator Holdings Ltd (NVGS) 2018 Q1 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Navigator Holdings Conference Call on the First Quarter 2018 Financial Results. We have with us Mr. David Butters, Chairman, President and Chief Executive Officer; Mr. Niall Nolan, Chief Financial Officer; and Mr. Oeyvind Lindeman, Chief Commercial Officer. (Operator Instructions) I must advise, this conference is being recorded today. And now I pass the floor to one of your speakers. Mr. Butters, please go ahead, sir.

Thank you, Sophie, and good morning, and welcome to Navigator's First Quarter 2018 Earnings Conference Call. We will follow today our usual format with my making a few brief comments and then followed by our financial review by Niall Nolan, our Chief Financial Officer; and in turn, Oeyvind Lindeman will have some comments regarding the current state of the market.

Our first quarter produced mixed results. Operationally, rates and utilization got proceedingly difficult as we went through the year, resulting in a marginally profitable quarter, but a profitable quarter nonetheless. Niall will shortly provide details regarding utilization, charter rates and the implementation of a new set of accounting policies that we, along with most of the shipping industry, adopted beginning this year.

Obviously, these results are disappointing. Moreover, in the short run we do not see any catalyst that will improve the market in any material way, with one exception. And that is the completion of the Mariner East 2 pipeline. This has been an on-again, off-again construction project that is nearly 3 years late, but currently is almost 95% finished. Our best guess is that it will be completed and operational by the -- this year's third quarter. In the past, I have stressed the importance of this 275,000 barrel a day pipeline, since it will open the East Coast terminal at Marcus Hook to exporting a large LPG volume trapped in Marcellus and Utica basins.

The Marcus Hook terminal, with its strategic location on the Delaware River, will be an extremely competitive facility with close proximity to European markets. The good news is that Energy Transfer Partners, the owner of ME2, intends to commence construction of ME3 or ME 2X almost immediately following the opening of ME2 and be operational by mid-2019. Combined, these incremental LPG volumes will have a meaningful and positive impact on all size LPG vessels, but especially for large gas carriers. Our smaller handysize vessels will benefit by having easy proximity and access to the smaller ports and terminals on the Western European side.

Now while operating environment during the first quarter was difficult, we saw nothing that would change our positive outlook on the future of Navigator. On the contrary, during the first quarter, we saw an acceleration of activity and interest in the global LPG and petrochemical demand, notably, the announcement by Energy Transfer Partners that they will build a new 5 million ton per year ethane terminal in Texas and have entered into a 10-year supply agreement with a Chinese petrochemical company.

The supply agreement involves the transport of 1.5 million tons per year of ethane for a new cracker being built in China, which is likely to require almost 6 very large ethane carriers. We understand that there are number of other Asian petrochemical companies discussing similar projects.

And on a similar note, during the first quarter, NOVA and ETP announced their intention to explore the construction of an ethylene export terminal also located in Nederland, Texas. This facility would, of course, compete with our ethylene export terminal that we are building with Enterprise Product Partners.

The interest shown by NOVA and ETP to build an additional ethylene export facility reflects the strong conviction held by many that the U.S. exports of ethane and ethylene, indeed all U.S-based petrochemical products, will show a strong upsurge as soon as the profit infrastructure in -- is in place both in the U.S. and abroad.

As far as our own ethylene export terminal is concerned, we continue to see strong interest by offtakers, and we expect to finalize the export -- exact location of the facility in the coming weeks. But engineering and design work is continuing, and we now expect to be up and running by the fourth quarter of 2019. That's approximately 3 months earlier than we previously planned.

Of course, the driving force behind all of these initiatives is the abundance and cheapness of U.S. hydrocarbons. In the U.S., ethane and ethylene prices are at multiyear lows, while globally they have reached multiyear highs as the price of crude has risen and most Asian and European ethylene producers are based upon oil off NAFTA. Demand for U.S. ethane as a feedstock is also supported by the clean burning quality of ethane, and we expect a lot of activity in exports, both ethane, ethylene and all hydrocarbons, over the next several years. And now let me pass the call over to Niall.

Thank you, David, and good morning. We are pleased to be able to report a small profit for the first quarter, unlike many of our shipping peers in the LPG sector. The year started, as David mentioned, strongly, with utilization around 95% in January and charter rates appearing to be on the increase, but this upturn didn't last, with February and March increasingly heading back to levels seen in Q4 of last year. This resulted in net -- in revenue for the 3 months ended March 31 at $77.8 million, similar to the $77.3 million generated during the first quarter of 2017. We generated an additional $5.7 million in revenue as a result of the additional investors in our fleet, now at 38 vessels, but this was largely negated by a reduction in charter rates, which reduced to $20,190 per day on average, or $614,000 per calendar month for this quarter, from $21,712 per day or $660,400 per month for the first quarter of last year.

Utilization for the quarter was 91.7% compared to 92.4% for the same quarter last year, but an improvement from the 87.6% achieved during the 12 months of 2017.

With effect from January 1, 2018, we've had to adopt a new U.S. GAAP accounting standard relating to revenue recognition, which changes the way in which we recognize revenue on all of our voyage or spot charters.

Previously, we, like all the shipping companies, recognized revenue on a discharge-to-discharge basis in determining the percentage of completion of -- for voyage charters. Whereas since January 1, we now have to determine the percentage of completion of voyage charters on a load-to-discharge basis. This had the effect of increasing our revenue after voyage costs by $1.2 million and increasing our average charter rates from $19,818 per day. This effect, although not expected to be material, can vary quarter-to-quarter depending on the number and percentage of -- the number and percentage completion of spot charters that straddle each quarter end.

During the first quarter, vessel operating days were split 63% on time charters and 37% spot or voyage charters. Whilst time chartered vessels were utilized in transporting LPG for 75% of the days in Q1, those vessels on spot charters were utilized to transport petrochemicals for 80% of the time, with LPG only accounting for 20% of those spot days.

Since the completion of our new build program last November, we now have a fleet of 38 vessels, 33 of which are handysize and 5 are midsize. 14 of those vessels in the fleet are ethylene or ethane capable, 17 semi-refrigerated and 7 are fully refrigerated.

We've undertaken 2 drydockings during the first quarter, taking an average of 28 days (inaudible) and costing a total of $1.5 million. We are scheduled to drydock a further 4 vessels during 2018, estimated to cost a total of approximately $3.8 million.

Vessel operating expenses or OpEx increased by 11.7% to $26.7 million for the 3 months ended March 31, compared to $23.9 million for the comparative 3 months of last year, principally as a result of the increased number of vessels in the fleet.

The daily average rate for vessel operating expenses increased by 2.7% quarter-over-quarter to an average of $7,809 per day, but this was less than the $7,925 per day incurred during the 12 months of 2017.

General and administrative costs and corporate expenses increased to $4.4 million for the quarter, from $3.4 million for the comparative period of 2017 as a result of the new office lease entered into during 2017 as well as additional costs incurred in facilitating in-house technical management. Having taken in 2 vessels into in-house management during the first quarter, we now provide in-house technical management for a total of 10 vessels.

Interest costs for the quarter were $10.5 million, an increase of $1.6 million compared to the first quarter of 2017, primarily as a result of increases in U.S. LIBOR, which accounts for $1.2 million of this increase. But also due to increased borrowings associated with our final newbuildings, offset by a quarterly phasing of approximately $800,000 from refinancing both our bonds in early 2017 and a bank loan refinancing we undertook midyear last year. Our next loan maturity commences in June 2020.

EBITDA for the 3 months to March 31, 2018 was $30.5 million, and net income for the quarter was $700,000 or $0.01 earnings per share. This compared to a net income of $2.7 million for the first quarter 2017 or $0.05 per share.

Moving to the balance sheet at March 31, 2018, cash stood at $50.8 million, having paid $10 million as an initial investment in our ethylene terminal joint venture. In addition, we have $41.9 million available for draw down for general corporate purposes across 2 RCFs. The JV investment is shown separately on the balance sheet under noncurrent assets. Total bank debt stood at $749 million at March 31, in addition to the $100 million of Norwegian bonds.

Following the signing of the definitive joint venture agreement on January 31 with Enterprise to build the new ethane marine export terminal, we've been reviewing potential alternative debt term sheets for its financing, and we expect to decide on our preferred alternative later this month. As almost half of the terminal throughput has already been contracted, there has been significant interest in financing the terminal from banks, infrastructure funds and project bond financings. And with that, I'll hand you over to Oeyvind.

Thank you, Niall. Morning, everybody. As you heard, our first quarter utilization came out at 91.7%, an increase from 87% achieved for the previous quarter. And the 2 main reasons for the uptick came from a continuous demand for handysize LPG freight, primarily in Europe and Mediterranean during January and February winter months; and secondly, from a slight increase in our time charter contract for petrochemical cargoes. 15% of our time charter earning days for the quarter came from petrochemicals. This is double the percentage compared to first quarter 2017 and up from 0 compared to first quarter '16.

We had a total of 4 ethane-capable vessels committed to ethane trades during the quarter, servicing 3 different clients in Mexico, Brazil and Sweden. Our voyage charter earning days for LPG increased slightly to 20%, with the remaining 80% from petrochemical trades as Niall just mentioned. No voyage charter days were concluded in ammonia.

We -- as a first, we contracted the first large handysized propylene cargo to be loaded from Enterprise PDH complex in the U.S. Gulf, bound for Europe. The U.S. Gulf propylene deep-sea exports have the potential to be an incremental opportunity to the handysize segment, and we expect the trade to continue for the remainder of the year and eventually ramp up in 2019. The propylene export for U.S. Gulf unlocked opportunities for triangulation, where we can take advantage of diverse style capabilities across our fleet, transporting C4 products to the U.S. Once discharged, we change grade and take C2 products via either ethane or ethylene or C3 propylene out. We are starting to see these scenarios to materialize, and we will continue to work with the various suppliers and customers, with the objective to convert to a structural setup.

Our time charter coverage is about 50% for the remainder of the year, and during the quarter we have successfully concluded the annual extension of 2 petrochemical contracts of affreightment, which helps to galvanize our contracted earning days.

The Clarksons 12-month time charter assessment for handysize semi-refrigerated ships went from $425,000 a month at the beginning of the quarter to $450,000 a month at the end of the quarter. This trend has flattened out and dipped slightly due to decreasing demand for LPG coming out of the winter months, and today, it currently stands at about $440,000 a month.

Thank you, Oeyvind. Thank you, Niall. And Sophie, I think we can open up the call to a Q&A period now.

(Operator Instructions) Your first question is from the line of Donald McLee from Berenberg.

So with the reemergence of competing ethylene projects, could you, one, comment on what you think the overall scale of the U.S. ethylene export opportunity is and how both projects might sit within that dynamic; and then two, has there been any impact from that new terminal as you've negotiated incremental business?

Thank you for that question. Right now, we're not seeing much in the way of pushback at all from that particular terminal. The question is -- the fundamental question that you raised is, what is the ultimate demand for U.S. ethylene out of the United States, particularly contracted on a long-term basis. Currently, any barrels that we could possibly get will be sold because there is an enormous, unusually strong spread between U.S. ethylene pricing and international pricing. And that's, of course, as I've said in the opening remarks, is totally as a result of very cheap hydrocarbons. This spread is so great that it's probably non-sustainable, and it always -- for the last 5 or 6 years it has been quite good, but it is enormous right now. I think if I could quote the current numbers, you can buy 1 ton of ethylene today in the United States for approximately $300 a ton. International markets are anywhere between $1,200 and $1,400 a ton. This is quite an incredible spread considering the cost of transportation, terminaling and so on. It's probably in the area of, depending on where it's going, $300, $350 a ton. So you would say on the face of it you could sell every molecule you could get your hand on, but the -- really the fundamental reason or issue will be how long a contract, and that's what we're after, long-term contracts. How long can you get contracts for to sustain the coverage on your plants? Right now, we are making good progress. I think it will accelerate once we can finalize some decisions we have to make on our own terminal, which are about ready to be completed. We have not, in spite of some decisions not being finalized, we are not stopping, whatsoever, in the design and planning of that facility. So that, as I mentioned in the opening remarks, we are actually moving it quicker. We hope to get up and run this operation in Texas by the end of the fourth quarter -- in the fourth quarter of 2019. Then I -- to get you -- answer your question more directly, we're not running into any resistance or any competitive backlash from the NOVA/ETP, but of course, they haven't made a final decision, they just announced that they were investigating it. Again, it reflects strong interest, these wide margins and the outlook that U.S. ethane and U.S. ethylene will be underpriced throughout the world and have strong competitive features to it.

So do you think there's a chance that some of the older competing products might reemerge, given that price dynamic and the level of demand?

Listen, I cannot tell you if they will emerge. We have the ability to expand our own facility if that demand emerges to -- in excess of what we're currently building. And part of me says, I'd love it because we've got the vessels to move it, and the more terminals and the more output and the more product available for export, the greater the demand for our vessels. On the other hand, we own, well co-own, a very important facility that we intend to lease out almost completely before it gets up and running. We're terribly happy with the progress we're making on that whole ethylene export business. Terribly happy.

Got it. Then I've one more before I turn it over. Just on the $10 million capital contribution. Can you maybe give some color on what your aggregate capital contribution would be for the terminal? Or alternatively, maybe where the terminal stands in terms of a percentage of completion?

So $10 million was just the initial. Both of us made a $10 million contribution to begin the process, and that covers a lot of engineering work we're doing, the planning and so on. We are -- at the moment, we're in the process of design and getting quotes for the construction. Once those numbers are in, which we expect within the next 30 days, I think we'll have a better fix on the total overall cost, and my guess is that it will come in under $400 million, but we haven't come out with any specific cost estimates yet. But that's kind of -- from what I could understand from other competitive talk in the past, that's kind of where the next -- an export terminal would run. But -- so there is no real percentage of completion at the moment. It's just design work, request for bids, that sort of thing that are coming in, and 30 days from now we'll have a better fix on the overall cost.

Your next question is from the line of Jon Chappell from Evercore.

Just if I can follow up on that last one and maybe ask it a different way. Just so we try to think about the capital outflows as this project develops, and I understand that the final total is a moving target right now. But what would you imagine would be the capital outflows this year? And should we think about this as kind of like a shipment payment, where it's kind of front-end loaded, a little bit of some downpayment but then a big bullet at the end? Or would this be more whatever the cost ends up being, you're just [spreading] from now until startup in late 2019?

Sure. And it's a fair question. The way we have looked at it in the past and numbers we've been presented and kicked around, Jonathan, is that it's pretty evenly spread throughout the 18 months or so construction period. However, there is a back-loaded number because the big cost happens to be for vaultings in the storage facility. That's where a lot of welding, a lot of metal goes in. Everything else can be manufactured off-site, being brought in and assembled, but the steelwork, the storage, will probably come in 3 or 4 months after the initial operation. What we were able to do by the fourth quarter of 2019 is once that refrigeration unit is up and running we can start to ship low vessels through the refrigeration unit. Once the storage is complete, maybe 2 months or 3 months later, then product will move from the refrigeration unit, the chiller, into the storage, and from the storage into the ship, which will enable us to load a vessel in less than a day. That's the objective. That will happen sometime between the end of 2019, fourth quarter of 2019 and the first quarter of 2020. But -- so there is a little skewing to the end of the period to accommodate that heavy expenditure on storage. But otherwise, it's fairly evenly spread.

Okay. And then just one more on the terminal. I understand that you have about 50% of the offtake filled and you'll probably wait to finalize the financing until maybe you have a little bit more than that. But can you just kind of help us think through kind of next steps? Is it -- do you have to get more offtake, then the financing? Can you do financing for the offtake? And then also, as it relates to you specifically in the other part of your business, your core business really, when does the kind of the shipping component of the offtake get finalized? Is that after the startup or is that something that needs to be done before the first cargo is lifted?

Sure. Niall, why don't you take that?

Okay. I think there's a couple of minor hurdles still to go on the terminal itself. But I think they'll be -- well, we're expecting those -- these are more legal [litigious] hurdles, but I think they'll be resolved in the next number of weeks. There is no further commercial subjects, if you like, on terminal and what happens in the next, so I think that process has already happened. And I think as David mentioned on the last earnings call, we have these 2 parties who are committed for just under the 50%, et cetera, et cetera. So it's a done deal.

But the way it will work and the way we are shooting for, Jonathan, is that it will be done as a project finance. It's going to be based upon security of the cash flows coming off of those contracts. There is already, with the amount of contracts that we have, a substantial ability to borrow directly off of this number that is not even close to capacity. And it will be done a variety of ways, but probably it's going to be nonrecourse but just as a project. And we have a combination of parties interested, banks, infrastructure funds and private equity, all of which would like to participate. And it'll also be done, Jonathan, on a construction basis. Draw downs can be scaled so that as you need it, you'll get it and it goes on your books then. So we don't anticipate anything dramatic. We don't anticipate any equity required by Navigator to support the construction. It's just the more percentage capacity committed to the terminal, the more attractive financing is attainable. That's pure and simple. That's finance 101. And so that's why we're moving the way we are.

Okay, and just one more, if I may. And you mentioned in the 6-K the slump in the business in March associated with the markets force majeure. Is there any way to quantify what that might have been in millions of dollars? And then also -- not even in millions of dollars. Anyway you can quantify it, just so we can have something around it. And then did that extend into April or even further? And how should we think about the potential impact of that on the second quarter?

Good question, Jon. I think it was early March that they declared force majeure on Mariner East 1 because of the sinkholes and so forth. And we checked this morning with the local agents over there and there's a ship outside expecting to load tomorrow. So by the sound of things, it looks like they are up and running again and can commence exporting what they used to before the force majeure. But of course, during that period, the ships that have the offtake agreements or the customers that have offtake agreements, either they didn't get -- obviously, they didn't get the volume there, so they were loitering around or they had to sail somewhere else to find a product. So they did have a big influence on the handysize a little bit. Some of the ethane ships that were supposed to load over there were idle in the North Sea, and of course, taking cargoes that they wouldn't otherwise be interested in. So overall, a slight negative. By the sound of things, they're back up and running now, I think.

Okay. But just simplistically, probably impacted 1/3 of the first quarter? And maybe 1/2 of the second quarter, but now going forward we're back to status quo?

Yes, that's right. So I think it was on International Women's Day, 8th of March, that they declared force majeure.

The next question is from the line of Michael Webber from Wells Fargo.

David, I don't want to make this all about the terminal, but I do want to just make sure I'm clear on a couple of things. The -- in terms of where the project stands now, you guys have allocated capital towards feed work to actually [FIV] the project. Can you walk us through the actual contingencies associated with actually getting to a firm commitment?

Well, we have -- in spite of not using the words [FIV], because we haven't specifically firmed the location, however, we have contracted throughput with offtakers. So a terminal owned by Energy Transfer Partners and Enterprise Product Partners and Navigator will, in fact, be built. So we have committed to do that. We have just -- adjusting to and finalizing the location to be the most efficient place to put it. That decision, hopefully, will be made within the next 2 to 3 weeks. But we are organizing the engineering, negotiating with the contractors, and all of that should be available to us within the next 30 days. And I don't think it's slowed anything in the way. In fact, what I pointed out, we are ahead of schedule. So we fully intend to get this thing up and operational in 2019 and not 2020 as we originally planned.

Sure. Yes, it just seems like a bit of a different wrinkle in kind of a normal timeline that we're used to seeing, so I just wanted to make sure we were clear on that. When you referenced the 2 anchor buyers, and I know in the past you talked about the fact that what gets you excited about the project is not the fact you get the 2 buyers but it's kind of the strength of the pipeline behind it and the ability to permit out. What do those buyers need to see in order to step in and commit to firm volumes? So what's (inaudible) the rest of the commercial process, what's the biggest variable there, do you think, in their eyes?

There are none. They've committed, they've done. They have...

For the remainder.

For the remainder? I think there is this element -- because we have not announced the precise location of the facility, I think there is some unwarranted uncertainty, if you will, about whether the project is moving forward. I've heard this, a number of potential customers, and they said let's wait until you've decided. Well, we have decided. We are going to build the terminal, period. And we've got commitments and we're moving forward. There's just no issue. So I think it's that element of, we're going to tie it down, we're with you, we want to put it through, we're negotiating with some of the suppliers of the ethylene. So yes, I think it will all fall in place within the next couple of months. I don't hesitate to be convinced and say that this thing is going to be wrapped up by midyear here.

Got you. Okay, that's helpful. Just one more and I'll turn it over. And Niall, you mentioned some of the -- you've got term sheets now predicated on roughly 50% coverage. Can you give us a vague sense on maybe a price range there, it can be a pretty wide range, just to give a sense on what the project would look like right now from a term perspective and a (inaudible) perspective.

I'm sorry, I can't -- your line is very poor, I didn't get that. Some perspective on what?

Certainly get a big sense of the cost of the capital you get in terms of the term sheet you guys are looking at for the project right now?

I don't think we're in a position to do that right now. We've obviously got some competing term sheets and I don't want to -- I think it would be inappropriate to start giving information away from one to the other. Let's sort the -- determine which way we're going first before we do that, you'll understand.

Next question is from the line of Randy Giveans from Jefferies.

So 2 quick questions. One more, just be clear, sorry if I'm beating a dead horse, on the Enterprise export terminal. Do you expect Navigator to sign any firm contracts to ship some or all of that 1 million tons per annum in the next year?

Well, it is -- the joint venture will sign contracts to terminal ethylene, okay? So it may be other people's ethylene that we terminal, but we are doing the physical transfer and storage in our facility. That's what we will do. Now the ethylene may be purchased directly from the producer by the buyer of the ethylene and then execute a contract for the terminaling through the joint venture with Enterprise here. That's how that will work. So we don't sell ethylene ourselves, but what we will do and we will execute within the next period of time is execute on the transportation of that ethylene. And that means...

(inaudible)

Okay. That we expect to firm up within -- again, by midyear we should have something.

We have -- I mean, if you were on the call last quarter, the same question was asked and we confirmed that we have one contract for ethylene shipments or Navigator shipping ethylene on our ships. But because of confidentiality, we couldn't say much more on that. But of course, it's tied in with the timing and the opening of the terminal.

I'll just point out, Randy, that this ethylene production is going to be commencing at the fourth quarter of 2019, and ship availability for this type of -- the type of vessel required is going to be very tight. So if you want to move your ethylene, you'd better be signing up fairly quickly with us or you're going to miss the boat, literally.

Literally. I see what you did there. Second, with that, do expect to order or need to order any new buildings to service that project, or is your kind of current fleet fully capable? No need for new more?

We want to employ all of our existing fleet on long-term basis before we would even think about new vessels, and any new vessels that we would contemplate would be done with securing long-term contracts against those new construction. I don't think the industry needs to have any new tonnage around. I think that's then the fault of the shipping industry historically, and probably will continue. So we want to take a very prudent, very focused, very rightful shot approach here. New construction will be based upon new contracts.

I concur. All right. And then for the Energy Transfer 1.5 million ton per annum ethane export project, how much of that could you possibly move on your current fleet? Or do you think all of that goes on VLGCs?

By far, that stuff will be moved on very large ethane carriers. The economies of scale are such that a very large ethane carrier would be required. Number two, would be a real advantage. Number two, it's long-term contracts, those contracts are going to be supply contracts for 10 years and it's point A to point B. It's -- so you wouldn't think about anything else but constructing new vessels of the very largest nature.

And is that something that Navigator would be getting into, possibly?

Well, we are and have been involved in discussions with all parties regarding that. There is an issue about the price of the vessels, there's an issue about availability of shipyard capacity, but we're engaged, let's just put it that way. We're deeply engaged in that discussion. But we have not concluded any contracts, whether for construction of vessels or in shipping, at this point.

Yes. That's fair. Lastly, just a quick modeling question. Remaining 2018 drydocking, is it still 6 vessels, $8 million? And then what about 2019?

It's 4 vessels at $3.8 million, having had -- having done 2 so far this year. And next year, '19, is 8 vessels at -- around the $8 million mark.

Your next question is from the line of Ben Nolan from Stifel.

So I wanted to follow up on something you were just talking about, David, with respect to shipyard capacity. Obviously, your terminal is going to require some tonnage, and you'd hoped to use the existing fleet shipping infrastructure to accommodate that first. But I think, depending on how the numbers shake out, you're going to run out of ethylene capable vessels pretty quickly. And then there's other stuff behind it, whether Energy Transfer moves forward with their ethylene terminal and you have ethane and everything else. Could you maybe help me frame in how you think about the actual ability of the market in terms of shipbuilding capacity and so forth to meet these potential requirements?

Sure. And I think that's a very timely and apt question, Ben. Shipyard capacity for this type of vessel is tight. These are ethylene-capable LPG vessels, but particularly when you get into the ethylene, ethane type of vessel, they're complex to build. Number two, it's not a huge market, so you're not attracting every shipyard available to build these things. You need good engineering, you need the design, so it's not going to attract a whole crowd of shipyard builders -- shipbuilders. We've surveyed just about every yard in Korea and in China about delivering these vessels, 6 vessels, our handysize vessels, the midsize vessels, and to meet the needs of the potential importers of ethane, principally the Asian petrochemical companies, there is a real question about the ability to deliver those vessels on the time line that they would expect to get delivered. Something has to give. So projects are either going to be delayed or combined or coordinated. I'm not sure. When I say coordinated and combined, I think some of the Chinese yards must get together to see how they can support a construction program that will meet the demands of the petrochemical -- Chinese petrochemical business. Again, what we understand and what we know, what we've been talking about in -- with the potential customers, is that they need to acquire U.S. feedstock, ethane feedstock. They need to do it because of the economics. The price advantage is enormous. And secondly, there is a great deal of pressure upon the Chinese government to, whatever the incremental business that they're doing, to do it in the cleanest way as far as the environment is concerned, and ethane is a pure burning feedstock, and that's clearly preferred over oil. So there is a great deal of interest, and it's interest that's coming at the same time. It's not going to be huge, but it's all coming at this point in time, in 2020, 2021, and there's just not efficient capacity to meet them. So how it gets all worked out, I'm not sure. I think -- we believe that most of the ships will have to be built in China. Because this is a one-road, one-built product, it'll be China built. Some vessels will be able to be built in Korea and we'll see some of that. But shipyard capacity for this type of specialized vessel is an issue. And that's maybe a stumbling block but it's a workable stumbling block. And I've seen in the past that shipyards somehow find capacity, one way or another, and that will happen. But right now it's not clear, quite frankly. And I know that the price has been risen because of the cost of steel, and nickel has been driven up. And so the cost of these vessels are going up. That's an ambiguous -- not a very clear answer to your question, but I just want to highlight that it is a serious question and one that we're struggling with ourselves.

Right, which is what I've heard and why I asked. The -- but sort of moving on down the path and looking at both the terminal capital required, whatever that might end up being, as well as potentially any other CapEx that might come to or be needed to build ships to service this flow of volumes, maybe not -- could you maybe walk me through what you sort of see as your current dry powder or war chest? And how much you feel like you have available to you to meet these things?

Well, look, first of all, we -- our focus right now is the project in hand and that's financing the ethylene terminal. And as Niall pointed out, we have a number of avenues that we're pursuing, attractive avenues, that can produce the financing that we need and done on a basically a nonrecourse basis because we want as much powder dry as we possibly can handle or get, because so many projects are floating around relating to the infrastructure required to meet the exports of petrochemicals coming out of the U.S. Ethane is just one of them. The ethane presents a challenge because, as we point out, these projects are large scale, requiring large vessels, and the large vessels are $100-plus million each. And it takes deep pockets to do that. And we were coming up with various ways that if we are lucky enough to secure the kind of contracts we want on a long-term basis, that we will go in and finance these things. We can do that, hopefully on a project basis, securing outside financing, and hopefully nonrecourse requiring little equity on the part of Navigator. What we're talking, if these projects, particularly on the ethane, forgetting the other infrastructure projects that we're looking at, ethane alone, that could be a $3 billion, $4 billion shipbuilding project. That's a lot of money and it needs a little bit -- a lot of deep pockets to get that done. But the good news is, most of it will be done on long-term contracts, very focused, and it will take time to develop it. Lots of issues. It's not an easy thing.

Okay. And then lastly for me, just switching gears maybe a little bit, Oeyvind. Obviously, this week there was President Trump backing out of the Iran deal. I know in the past we've talked about Iran potentially being a much bigger player in the export of LPG and petrochemicals. I'm just curious where that stands and if there's much, if any, exposure as an industry to disruptions?

I think the guys who are, have been doing it for the last few years. We will continue to do it, despite what's happening. Generally, it's Far Eastern, Southeastern Asian players, and they can take it away shipping from around to China and Taiwan and so forth. So I think you won't see less traffic or less volume on those ships, and so I think it will be the same as what we've seen over the last few years. So no big change. I don't think it will reduce.

The only price it could reduce, Ben, is if the Iranian petrochemical industry does not get access to capital to expand the way they had planned to expand, that down the road you won't see as much exports. That's the worry that they have; that's the worry about a conflict in the Mid East. Conflicts are never good. And higher prices, it's great right now but it comes to bite you later on.

Your next question is from the line of James Jang from Maxim Group.

So I just have a follow-up question. So with Mariner East 1 operational now and Mariner East 2 their funds being imposed and so it should be delayed a bit, what is the status for Mariner East 3 then? Do you think that it won't pass and that this will probably be it for the pipelines going to Marcus Hook?

No. Mariner East 2 will get done. It's almost done now. They're within striking distance of completion of that line. But the important point on Mariner East 3, and this is a very important point, that the way they built Mariner East 2 was to core for the pipeline underneath every road, every river. And in the process they cored 2 holes, 1 for Mariner East 2, which they in fact have laid the line now. The pipe is in on Mariner East 2 for 95% of the line. But all the infrastructure for Mariner East 3 is the core and they've lined them, so that when Mariner East 2 is completed, they do not have to go back and get permits for every crossing that they have done. There were something like 298 permits that they had to get to build Mariner East 2, so when they were getting them, they got them for Mariner East 3. So they got permits to core 2 holes, 2 parallel holes under every road and every river. So now the advantage is, when they go back after they complete Mariner East 2, they can just [undercover] the topsoil and everything is already permitted in lane #3. Now it's obvious that if you are Energy Transfer Partners and you have the opportunity to build that, you're not waiting any time. You're going to go in and build that as promptly as possible because you've got the permits and you don't want anything to change. So they will be aggressive in going after and completing Mariner East 3, once they have 2 completed.

But do you think with the Mariner East 2 also being fined for, I think there were some leaks, or I think they skirted some rules on -- near the lakes and rivers. Do you think the regulatory approval will actually go through for Mariner East 3 or do think the public outcry is going to kind of force that?

No. No. That's the point, James. They've got the permits. And the wells -- the holes have already been drilled. So they don't have to go in for the 292 permits they had to get for Mariner East 2. It's all done. So that's the absolute key to why Mariner East 3 can get done on time without the delays. There is no drilling, no horizontal drilling needed. It's all done. So all they have to do is lay in the pipe; that's all they have to do for Mariner East 3.

Okay. So do you have an idea of when we can start to see volumes for Mariner East 3 coming on? Like when are they going to start construction?

Well, let's assume -- let's make some assumptions that Mariner East 2 gets done this summer. Then Mariner East 3 can be done, in their estimate, 12 to 16 months following the completion of Mariner East 2. So once they begin, all they have to do is take off that overlay of dirt and lay number -- the pipe for number 3. So it's just a matter of pulling it through at maybe in a cost of $1.2 billion or $1.3 billion to get it done, but they're not going to waste time on getting that. So the important thing is, you're going to be potentially seeing by the end of 2019, if all goes well, something like 600,000 barrels a day of LPG going into Marcus Hook and being shipped out. That's an enormous amount of product and it will influence pricing and it will be great for all the carriers.

Okay. Great. And then moving on to the fleet. So can you give us an update on the charter status of the ones that -- of the vessels that are due to come off this month and next month?

Yes. As we mentioned earlier, half right at this moment, or at least end of first quarter, the coverage for the year stood at 50%. So typically, in our handysize market, the various time charters are 12 months or less and even LPG, and at various points in time they will also need to negotiate so that's typically with everything. So they're working on the various ships that are coming in -- coming for renegotiations as they come. So we're not sitting still. Some of them have -- some are still in the pipeline but it's a very ongoing process week by week.

Thank you. And Sophie, I think we've reached our time limit, so I'd like to just say thank you all for joining us this morning. And hopefully, we have something interesting to talk about in the next 3 months.

And that does conclude your conference call for today. Thank you for participating. You may all now disconnect.