Navigator Holdings Ltd (NVGS) 2019 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Navigator Holdings First Quarter Conference Call 2019 Financial Results. At this, 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 of the company. (Operator Instructions) I must advise you the conference is being recorded today.

And now I'll pass the floor to one of your speakers, Mr. Butters. Please go ahead, sir.

Thank you, Jenny, and good morning, and welcome to Navigator's First Quarter 2019 Earnings Conference Call.

It has just been over a month now since our last earnings call, so I would expect this call to be quite brief. Now while the call may be brief, it will not be without mentioning some significant accomplishments achieved over the last -- this very short period. And the 2 most important ones are: number one, the addition of a third long-term contract for our joint venture ethylene export terminal in Texas. The contract was signed on the eve of the collapse of the U.S./China trade negotiation and reflects the strong demand of U.S. quality ethylene and the fact that U.S.-sourced petrochemical gas products can absorb significant tariffs, if necessary, and remain a viable export commodity.

The second major achievement completed since our last call was the entering into a 5-year contract of affreightment to transport ethylene. The agreement contemplates the use of potentially up to 4 of our [handysize] ethylene carriers and the unusual length of the COA underpins a concern by the charterer of a potential shortage of appropriate tonnage over the 5-year contract period.

We are excited and pleased by these 2 agreements and believe that we will see more of them in the coming months. Oeyvind and [Niall] will discuss these developments next, but I hope you will appreciate we are under confidentiality agreements underlying these agreements. And we do not intend to divulge much in the way of detail. We will honor those commitments we have made.

So with that, I will let Niall begin with a discussion of our financial performance. I will be back with a few closing comments, and then we will open up the call for a question-and-answer period. Niall?

Thank you, David, and good day, everyone.

Headline revenue for the first quarter was $76.1 million, 2% less than the $77.8 million generated during the first quarter of 2018. The net revenue, that is revenue after deducting pass-through voyage expenses, was $62.7 million for the quarter, not dissimilar to the $62.8 million generated for both the first quarter of 2018 but also for last quarter, the fourth quarter of 2018.

Despite net revenue being almost identical across the quarters, increases [are way cheaper than] charter rates during the quarter but were offset by a reduction in utilization.

Charter rates rose to $21,782 per day or $662,500 per month during the first quarter compared to $20,190 per day or $614,000 per month for the first quarter of 2018, generating an additional $4.9 million. However, net revenue reduced by $5.2 million as a result of the drop in utilization from 91.7% for the first quarter of last year to 84.8% during this first quarter.

We undertook 1 drydocking during the first quarter, causing an aggregate of $1.5 million, with a further 9 scheduled over the remainder of the year. The aggregate cost of these 9 drydock are expected to be approximately $40 million, which now includes the mandatory fitting of ballast water treatment systems since January 1 of this year, which cost approximately $500,000 each.

Voyage expenses for the first quarter decreased by $1.6 million or 10.8% relative to the first quarter of last year. Those voyage costs are pass-throughs (inaudible). (inaudible) of our operating days related to time charters or contract affreightments and 37% on voyage or spot charters.

Vessel operating expenses, or OpEx, increased during the quarter with average daily OpEx of $8,618 per vessel compared to $7,892 per vessel per day during the first quarter of 2018. This rise was higher than expected but is anticipated to reduce over the coming months and quarters. That said, we do expect to see the average daily OpEx rise by approximately 40 -- sorry, about -- by approximately 4% relative to last year as a result of the fleet being a year older and no newbuildings being added to the fleet as these have tended to keep the average OpEx lower over the past number of years.

General and admin cost increased by $4.8 million for the quarter from $4.4 million for the comparative period of 2018 primarily as a result of an exchange rate valuation credit relating to our euro-denominated bank account during the first quarter of last year, without which G&A cost would have increased by only 2%.

As with the last quarter, our income statement contains 2 additional line items, both of which relate to our Norwegian-denominated bond. The first is an unrealized foreign exchange loss of $200,000, resulting from translating the Norwegian kroner-denominated bond at the March 31 exchange rate. The second is a $800,000 of unrealized gains on the cross-currency interest rate swap. Neither of these have any cash effect, and both will be reversed over the life of the bond.

Interest expense for the quarter was $12.2 million, an increase of $1.6 million compared to the first quarter of 2018 with a similar rate for the fourth quarter of 2018. This quarter-on-quarter increase was primarily as a result of interest on our Norwegian kroner-denominated bond taken out in November '18 to partially finance the ethylene terminal.

EBITDA for the 3 months ended March 31 was $27.1 million compared to $30.5 million for the first quarter of 2018. And net loss resulted for the first quarter of $3.3 million or a loss per share of $0.06 compared to a net income of $700,000 for the comparative period of 2018.

With respect to the balance sheet, cash and cash equivalents stood at $53.9 million at March 31. And in addition, we continue to have $55 million available for drawdown from one of our RCFs for general corporate purposes.

As I mentioned on the last earnings call, a month ago, we executed 2 new bank loan facilities towards the end of March. The first refinancing 4 vessels in a $107 million facility. This facility is now fully drawn. And following the repayment of the previous facility in the amount of $75.6 million, net proceeds of $31.4 million were available for fees and general corporate purposes. The term of the loan is 6 years, maturing in March 2025 and costing U.S. LIBOR plus 2.4%.

The other facility is the bank financing for the ethylene terminal in the maximum amount of $75 million. The available amount, which at March 31 was $23 million, is dependent on the level of committed throughput agreements and will increase as additional throughput agreements are signed. With the additional throughput agreement David mentioned earlier, these available amount will rise to approximately $35 million. The term of the loan is for a total of 7 years with a margin varying between 2.5% during the construction phase up to 3% plus LIBOR in the final 2 years of the term. Total debt stood at $861.2 million at March 31, which includes our now 5 bank loans and both the $100 million and the NOK 600 million bonds.

During the first quarter, we contributed $31.5 million towards our share of the capital cost of the ethylene terminal from the proceeds of the Norwegian bond. And since the quarter end, we have contributed a further $8 million, taking our total investment to date to $80.5 million out of a total expected spend of $155 million. The terminal is expected to commence operations in December this year, and the results of the joint venture investment will be equity accounted as shown separately in the financial statements.

And with that, I'll hand you over to Oeyvind.

Thank you, Niall. During previous calls, you might recall that we have said the handysize segments to be oversupplied by about 8 vessels. (inaudible) supplies become available and we identified 4 key infrastructure projects, all of which are underway as combined with more than (inaudible). So a slight update on the various projects and what we named the Road to 2020.

First, the Mariner system. From East Coast, we have added incremental ton miles to better (inaudible) we have loaded several (inaudible) [and we expect our CapEx results are available for that] (inaudible) and potentially the Mariner 2X becomes operational and [fully] fledged during 2019 and 2020.

Second, (inaudible) in a meaningful way (inaudible) for the European consumers. The current and forecasted North American propane to propylene economics are competitive, leading to new plans already underway and additional ones under review. The handysize ship (inaudible) [are] both operational for additional ton miles of ethylene portion of the handysize [segment].

Three, (inaudible) that are currently for petrochemical cargoes such as butadiene and propylene or at times LPG to carry ethylene only. The semi-refrigerated portion of these assets [to take up] the petrochemical cargoes, which is quite meaningful.

Four, the Pembina. The Canadian midstream company is well underway constructing [The Ridley Island Propane] and export terminal in Prince Rupert, British Columbia. It will have semi-refrigerated handysize vessels for LPG trains. This is all well and good, and they're both underway.

However, the 8 handysize vessels we have identified are starting to do something more than (inaudible) in January. 5 out of the 6 handysize vessels (inaudible) were pulled out as a consequence of the sanctions from Venezuela (inaudible) transactions (inaudible).

Some capacity increase happened to us in the markets (inaudible). Remember the handysize segment is 110 ships total, and you add 5 ships to that. But the proportion is much more when you're [competing] on those 12 markets. We believe that the cabotage trade (inaudible) and will commence once the sanctions are lifted. But the demands remain (inaudible).

Regardless of the timing of reentering Venezuela LPG trades, the 4 key milestones on the Road to 2020 should have a combined effect, [of making] the segments [profitable].

Now more specifically for the quarter, Far Eastern consumers were filling their inventories prior to the Lunar New Year, which commenced early February, and did not need or very reluctant to continue importing for the remainder of February and March. A wait-and-see approach was adopted.

The European chemical industry commenced a period of turnarounds during the quarter, a whole host of plants were taken offline for periodic maintenance. Clearly, the European excess of ethylene and butadiene returning to balance or short in the region. The [shortage of supplies] from U.S., which traditionally had -- the total effect was that of reduced ton miles compared to the norm. This should change once the turnaround period has been completed.

The quoted 12-month time charter rates during the quarter remained mostly unchanged with VLGCs at [below] $700,000 per month, although the spot market has risen recently. And midsized and semi-refrigerated handysize hovering around the $500,000 per month mark. The drag from the various events discussed or identified just now during the first quarter will influence somewhat the start of second quarter before the various infrastructure projects take firmer hold.

Thank you, Oeyvind. And Jenny, I have -- I understand that some of our voices are not coming through as clear and as loud as they should. So if there is any way you can check on the technical communication, that would be great.

Yes. I believe it's not as we speak now, but at the moment, you are loud and clear.

Well, that's great. So I will continue and just kind of repeating some of what Oeyvind said, so it would be helpful.

A couple of years ago, when we mapped out the need for this Road to 2020, we did not anticipate the 5 handysize vessels leaving the Venezuela coastal trade and coming into the already crowded spot market. But with the tougher U.S. sanctions imposed by -- on PDVSA during the first quarter, that is just what happened. And 2 of the 5 vessels that came out of Venezuela were, in fact, our vessels, and they have inflicted somewhat of a punitive economic environment on the handy market. And that will probably continue until the comprehensive settlement with Venezuela, and it reduces the crisis there.

Now we have applied to OFAC for a license to return to Venezuela based upon humanitarian ground as our activity there was essentially to provide LPG for bottled gas used in everyday heating, cooking, sanitation and then the sterilization of infant care. We have not heard from OFAC, and -- but realistically, we don't expect to, unfortunately.

Venezuela aside, we believe in the milestones we had identified on that Road to 2020 remains achievable and essentially on our original time schedule. For example, we understand that Mariner 1 and 2 will be operating at capacity of around 300,000 barrels a day in June in full capacity, including Mariner East 2X will be operational by year-end, bringing the total throughput into Marcus Hook to around 600,000 barrels a day if all goes well.

We focus a bit more on the developments on the East Coast simply because [tons] leaving the U.S. via the Delaware River are more likely to go to Europe. And because of Europe's proximity to the East Coast and because Europe has a number of smaller ports, and therefore, our handy vessels can compete quite effectively with the larger mid-sized vessels. Even with the restricted flow out of Marcus Hook, we are beginning to see handy cargoes being contracted out of the East Coast with various destinations.

Another milestone is the ethylene export terminal. It remains on schedule for a mid-fourth quarter commencement. Interest in the terminal is robust. And this third long-term contract just entered into is another important step to have the facility fully utilized by the time it opens. U.S. propylene, as expected, has ramped up and expectations remain high that this will continue and add additional Gulf Coast PDH or propylene plants will be built with the singular purpose of serving the export market.

In Western Canada, Pembina Pipeline, company is on schedule to complete its LPG export terminals on Prince Rupert island on the coast of British Columbia in the summer of 2020. Discussions are underway on how to expand the facility and quicken the pace of Canadian LPG and petrochemical gas exports from this strategic West Coast location.

So with those summary, I would like Jenny to open up the conference call for Q&A. And I'm just hopeful everyone could have heard what we were just talking about. If not, we can clarify it during the Q&A period.

(Operator Instructions) We'll now take our first question.

It's Mike Webber from Wells Fargo. David, I heard most of the call. You were kind of cutting in and out a little bit. But I wanted to look back on, I guess, first, on the carriers you guys had tied to Venezuela. Can you just talk to the leverage you guys had on those carriers? And what impact you're going to have this ripple through from a credit perspective, if there is an impact?

I don't think there's any impact. They were part of our regular collateral package, but they're out earning money now, Mike. We just had to pull them out. They've been in there for quite some while. That business has been a good business for us and for a number of other shippers for quite some while. It's a very essential business. It was the heart of the population's heating and cooking business. They can't live very long without this basic commodity. Stories were that they were burning their own furniture to try to offset the lack of propane, and infants were going without sterilization. I think it's a hot lead as far as I'm concerned, and it will come back no matter what, but it will take some time I believe. But there was no financial -- dramatic financial impact on us for moving it out. The biggest impact is you got instead of what -- Oeyvind mentioned was what we thought was 8 oversupplied handysize vessels, [you] added just 5 more. So we have to work off quite a bit more, but they will be worked off until they go back to work in Venezuela.

Got you. Okay. But they’re part of a broader collateral package, so they're just back in the pool. So there's no -- they're not secured individually or anything like that?

Yes.

Okay. That's helpful. And then -- and I know you kind of touched on this a bit. But if you could talk to how the backlog looks for the East Coast facility? I know there are a couple of anchor customers, and there's some -- there's a push to secure the rest of the business. I know there are some things you probably can't get into, but just from a broad strokes perspective, can you kind of give us a bit more color about how that's shaping up? And how much of at least the traditional revenue stream there would be something close to fixed versus something more [merchant] ?

First of all, you mentioned the East Coast facility. Are you referring, Mike, to the ethylene terminal in Houston Ship Channel?

Yes, sorry. Sorry to go off. Yes, I'm sorry.

Yes. So we're comfortable where we are with the commitments. They are long-term commitments. We have a number of other customers where we're negotiating that could push us well up to over the top, if you will. There will be a strategic decision, I'm sure, down the road where we say just how far do we go as far as long-term commitments on the terminal. Do we keep some of it into the spot market where the margins may be significantly better? Or do we just tie everything down?

Look, the spread is enormous right now and has been, and we expect that to continue. So there is an awful lot of demand for it. I think there were some comments coming out of Enterprise Investor Day that people are just saying that "Yes, we need it, we need it now." I think the overhang of these negotiations on the tariffs have had some kind of dampened -- some sort of dampening effect on commitments for 5 to 7 years on the terminal, but nevertheless, there is enormous amount of demand.

Today, again, I will repeat, if we were open today, it would be sold out, period. The demand is that strong. The margin is so great, and we expect that to continue. But we work we will press on getting the throughputs to a significant level. They're over 50% now. We don't have a target, Mike, as to how much we want to commit before we close out, but we're very comfortable where we are. I don't know if that answers quite all of it.

No. It does. And forgive me, in your scripted comments, you were kind of cutting in and out a bit earlier, so I want to make sure I heard it right. Just in terms of to reconcile the idea that there's so much demand for -- there's so much scarcity value, I guess, placed on long term -- the availability of long-term tonnage that you're signing COAs that are longer in nature versus the fact that there are still -- I would think that even with the tariff conversation that there's still merchant volumes that are available out of a facility like that. I would think that you would see a pretty healthy bid already for those as well. I'm just trying to kind of reconcile those 2 data points. And it could just be a very healthy backlog that's behind the scenes that we don't see. That's kind of the angle I was looking at.

I think you're right, there is. Listen, no one signs a 5-year COA without great concern that there's going to be a lack of availability of tonnage, okay? Pure and simple. And let's leave it there in a way because we need to be a little bit cautious about what we say because we have these clients who are sensitive for competitive reasons on what they're taking, what they're committing to, what kind of vessels they're going to be using, and I appreciate that. And I'm quite sensitive, and we also have a partner in the terminal that I'm sensitive to who was, as you -- as everyone knows, is quite protective about providing a lot of information. [Likely so,] they've been successful.

We'll now take our first question.

Great. This is Ben Nolan from Stifel. Hopefully, you guys can hear me. I wanted to follow up a little bit and again, hopefully, not pressing too much. But with the 3 contracts that are in place, is it -- can you say maybe what percentage of the million tons per year has now been contracted versus what is left to be contracted?

No. I can't tell you, quite frankly, but we're almost 50%, okay? And we're at a place where the terminal is self-sufficient today. And it's all a matter of how far do we want to go and when do we want to go there and who do we want to go with. Those are the issues.

Okay. So -- and then diving in a little bit more deeply. I assume that the COA for the -- up to 4 ethylene carriers is tied to that facility. That's a fair assumption, correct?

I'm not saying anything. [It doesn't make any sense.] You shouldn't make any assumptions, please.

All right. Fair enough. How about this then? So if there is capacity over and above what has been contracted when the terminal comes online later this year, is it your expectation that, that might be potentially sold into the spot market by your new partner? Or is the idea to sort of simply sell what you've committed to sell?

That is a -- it will be, of course, a joint decision with our partners at Enterprise. Whatever isn't sold has a spot market, and the spot market may be much more attractive than the long-term commitments. It should be. It is today if we were to be operating. And I think it's a game plan, how to play that out when it comes to that position at the end of this year. How do we want to play it? How does Enterprise want to play it? How do we treat our customers? How do we treat them, those who committed long term? Many of the customers who have already signed up have an additional appetite. Do we handle that? Or do we spread it around? I think it's a dynamic position at the moment. I think -- but I think the nice part about is the choices that they have in there are delicious choices for us. We will be making those later. So I'm comfortable. I'm very excited, but I just want to get there as these customers said, "We want it, and we want it now." So.

Right. So I maybe thought of another way to phrase my previous question without being overly sensitive. So the 4 new vessel contracts, what have you, COAs, those are incremental to the, I guess, 4 vessels that you currently use to service target, correct? So collectively, up to 8. Is that correct?

What I -- Ben.

You're not going to talk? Okay. Okay. Okay. I understand that. I just am trying to see if this is an incremental or just sort of an extension of the existing business.

Okay. I understand what you're trying to do, Ben. And I have to be -- in all seriousness, we're sensitive to the customer and the charter. And if they want to be protective, then we'll -- we're going to march to their music right now.

Right. Okay. That's fine. Last one from me, unrelated to those things. The ethylene terminal in Italy, that caused some issues that you called out in the press release and Niall talked a little bit about. It sounds like that's back up and running again. Although, a month ago, when you did your earnings release, it didn't really come up. A, I was curious why you didn't call it out at that time. But more importantly, are there any other issues that are happening today that might be having an impact on your business other than that in Venezuela and what have you that we should be aware?

Now Ben, that's a good question. And Europe, as I mentioned in the opening remarks, typically, is a net exporter of ethylene and butadiene primarily to Asia. So right now they are undergoing a turnaround period whereby a lot of these plants, producing plants are down for maintenance, making that area balanced or short.

So if you have voyages, traditionally, from Priolo or from Northwest Europe to Asia, it take 2 months to go there and back and -- for butadiene and ethylene. So that takes up quite a substantial amount of boats. Now and today, over the last few months, with the maintenance period, some of that they keep internally in Europe and some of it has been imported from the U.S. And of course, U.S. to Europe is quite shorter than from West to East.

So those are the fundamental things that is going on right now, albeit it's short term, which is good. So structurally, Europe is long and U.S. is long and where it should all go, well, most of it is East, getting back up to the ton mile that we anticipated and have seen in the past. Despite tariffs and all, ethylene and other products can -- we have seen as well, I think we mentioned in the last call, frequently going to Taiwan, Korea, Japan, Indonesia instead of China. So that's what's happening at the minute. But Europe needs to certainly overcome it's maintenance period, and then you'll see an impact on that I believe.

Yes. And don't downplay the continuing dampening effect that these 5 vessels that came out of Venezuela have. I think that will continue until that -- there is a resolution. And the resolution will happen because this activity that we have been engaged in and a number of other companies have been engaged in for a long period of time must be reconstructed. That's the central movement of the lifeblood of the population in Venezuela. It's got to be back. It will be back.

Okay. But through the second quarter, probably another kind of a little bit lower than normal utilization is what we should expect?

I would think that, that's a good observation.

Now we'll take our next question.

This is Donald McLee. I just wanted to kind of go back to the terminal. Could you provide some color on what type of hypothetical returns would be available on today's market for merchant values? I think it would be helpful just to demonstrate what the benefits are of maintaining for the spot exposure versus the motivation for counterparties to fixed long-term agreements?

I'm not quite sure I understand the question.

Well, you can buy ethylene being sold in the U.S. today at sub $300 a ton, and the market price in Far East is about $1,000 a ton. And if you can get hold of that, then of course, shipping is part of it. And then of course, that's the attraction.

So the spread still is -- the spread is greater versus -- than the cost of the ethylene itself after you provide transportation and terminaling. I don't know of any other commodity that has that kind of spread. So there is terrific motivation to buy U.S. And I don't expect that to change. Now it only could change by a dramatic decline in the price of oil so that naphtha becomes more competitive or a ratchet up of the cost of ethane because if natural gas prices spike. But otherwise, you've got a sustainable margin that becomes highly attractive in the long term. And because of other factors such as environmental reasons, you find ethane-based ethylene to be the most attractive.

Okay. That's helpful. I think it's just important to kind of continue to say that the current levels are still compelling. Switching gears a bit to the financing around the terminal. I think in your prepared remarks, you mentioned that $35 million of that $70 million to $75 million facility is available based on today's contracted capacity. How do you, one, think about the timing of the drawdown on that facility? And then two, how do you expect to bridge the gap on the remaining, I think it's $40 million, of acquired capital contribution for the terminal?

As far as the facility that we can drawdown on is the final piece of the financing, so working backwards from when it's completed, we will utilize the facility. For the remaining part, we have the $55 million on the existing revolver that we can utilize to pay that remaining part. But as additional throughput agreements are signed, then that $40 million reduces.

Okay. And then just one more on the Venezuela charters. Was there any -- could you quantify the revenue impact in Q1 tied to those specific charters or the loss of those charters?

In what way? The...

Maybe what the difference was? And what those charters tied to PDVSA was compared to what you were getting in the spot market once you lost the long-term [employment] ?

Well, the charters were, combined, were probably in excess -- slightly in excess of $1 million a month. Combined. Across the 2 ships.

We'll now take our next question.

This is Fotis Giannakoulis from Morgan Stanley. David, I would like to ask you about the trading sanctions, the Chinese tariffs. I know this is not a new issue for the LPG market, but I wonder if you have any color to give us about if there is any volume right now before the escalation that is going from the U.S. to China, if you see any indications on the demand and the project, the PDH project that they are developing in China that they can affect the LPG and the pet chem demand market.

Okay. Thanks, Fotis, for that question. I did not include any comments about the impact of the tariff breakdown on the ethylene terminal or our business because I knew you would, for example, be asking that question directly, and it's a good question. So let me talk about ethylene first and then whether or not that has an impact on our terminal and the prospects of the terminal.

To understand that, you must grasp and understand that there is a tremendous need, demand in China for incremental ethylene. They're growing rapidly. The economy still is. Globally, ethylene is growing at least the growth rate of GNP. And in China, it's growing even more rapidly. They don't have the capacity. They're short and significantly short of ethylene. So we have, on one hand, a strong demand for imports. The rest of the world is also hungry for ethylene, but particularly China, and that's where the tariff barriers are going up.

The second part of that is the United States. We have in the United States because of the hydrocarbons, the lowest price by far of any producer. So we can manufacture ethylene based on feedstock of ethane less than the price of ethane practically, less than $300 a ton. So there, we -- you have a strong demand and a great supply of very inexpensive. Now that means that this bridge [and] tariffs will be breached somehow.

How this it happen? Do we breach it directly? Yes. You could breach it because the margins are so great that you could absorb the 25% or whatever it may be tariffed and move into that. We're seeing ethylene going into China now without any kind of hold up. It's flowing and flowing smoothly and uninterruptedly. Don't expect that to change, but even if we were to increase even more the tariffs, than what the 25% is, there will be a fungible activity going on.

And what do I mean by that? I mean that if a major producing country producing a lot of ethylene and is not affected by these tariffs, you could conceive them of importing U.S. ethylene to supplement their domestic needs and exporting their own domestically made ethylene to go to China without tariffs. So you'll see that kind of trade take place. I am sure. That is why, for example, the Chinese have not imposed tariffs on crude oil because crude is so fungible that it's just a silly game to try to put a tariff on it.

So you view that the impacts eventually could be a positive for the handysize gas carriers because of this fungibility of the ethylene and reshipments from other countries, Asian countries towards China. Is that correct?

We appear to have lost our speaker line. So if you'll all just stand by, I’ll dial back out to the speaker for you. Please continue to stand by.

Hello?

Yes. Please go ahead, sir.

Okay. Fotis, did you pull the plug or -- but in any event, I think I finished the question that Fotis had raised about whether the barriers -- the tariff barriers on ethylene into China would've impact the terminal and the flow of ethylene to China. And my answer is unequivocably, no. It will go either directly, paying that tariff or it will go indirectly through another country, offsetting domestic production in that country.

We'll now take our next question.

This is Randy Giveans at Jefferies. Don't hang up on me if you don't...

I did not hang up on Fotis. He hung up on me.

That could be true. All right. On the last call and kind of just now, you mentioned utilization 1Q are below 4Q levels. Do you have an exact percentage? And then secondly, how has utilization been this past 6 weeks? And when do you expect it to exceed 90% again?

So Randy, again, this is a good question regarding utilization. So if you look at our -- if you charted our utilization over the last 12 months or so, it goes between 90% and 85%. There's a slight nudge up we've seen in the last 6 weeks, which is good to see. But again, it depends very much on the Europeans to make -- to start up their chemical plants again. And of course, the market gets used to having these 5 additional ships that were sprung on us from -- as a result of the sanctions.

So where it's all going to fall, a question mark. But second half or into 2020, when these infrastructure projects we mentioned, Road To 2020, when they take firmer hold and becomes apparent and start pumping volume, that's an exact -- it's a definite time where you're going to see utilization to where we used to be, which is well above 90%. That's our expectations at least.

That's what we're shooting for. I think the whole concept behind the Road to 2020, Randy, is that we will be back to the utilization and rates that we experienced in 2015. Why? Because of the projects that are in place now. The infrastructure projects, the pipelines, the fractionators, the terminals and the, of course, the plants that have -- the PDH plants and the ethylene plants. They're all converging at once. And when they are up and running, there will be, what we believe, a very tight market. And that's somewhere in the middle of 2020 when it will be back to where we saw rates and utilization in 2015. And that's a little over a year from now, less than a year -- more than -- just about a year.

Yes. I'd say, I'd say. All right. And then looking at these kind of multiyear contracts in affreightment utilizing the 4 ethylene vessels, what percentage of the year will these COA agreements employ those vessels? Is this just like a few COAs per year, maybe a quarter of the year? Or there are enough activity on those to pretty much run those ships all year around through 2025?

Our -- the plan and the contract and so forth, et cetera, is for throughout. It continues. So it's not -- the contracts -- any contract that we do on a COA basis. And typically, it's on a continuous basis. So it's is not based on a particular time of the year.

So those vessels will have a 100% utilization until December 2025?

That's the time charter. A time charter, if you have a 5-year time charter, then you achieve utilization being very high. You minus the off-hire or drydock or whatever. Contracts of affreightment, as you know, is a string of voyage charters. So it's intermittent whereby you can then optimize triangulation and so forth. So the contracts, yes. COAs are different. But of course, they will provide utilization for those ships performing those voyages.

It's not any 4 specific vessels. We use our whole fleet to accommodate that trade. And the beauty of it is that you can not only carry it to its destination, but if you're lucky enough, you have something to call -- haul back. And it just makes the whole thing much sweeter. But -- so yes, the whole idea is to spread them out pretty much 12 months a year over the 5-year period.

Got it. Okay. That's fair. And then lastly, obviously U.S./China trade war making a lot of headlines. How do you see that LPG market being impacted by, let's call it, no trade deal in 2019 versus a trade deal actually happening soon? I know you said there might not be a huge impact, but it's going to lead to those 2 options. How would that affect the market?

Right. Let's -- well, look, let's assume there is a trade war, okay? And barriers go up, tariffs are up, how does it affect us? Then that's the real question, okay? Because that's the downside.

Again, what I will repeat, on ethylene, it will flow. It will flow either directly because it can absorb the tariff because the margins are so great or go indirectly and flow into China because China has the demand. Okay.

Now where it will have an impact and is having an impact is in ethane exports. Our incremental major ethane where you have to organize the construction of new ethylene plants in China and that you have to work out the terminal and long-term commitments on ethane, I suspect those are on hold.

And there is, as we have talked about in the past, a fair amount of demand on the part of Chinese petro chemical companies to build new ethylene crackers in China based upon importing U.S. ethane on very large ethane carriers. In my opinion, that's on hold.

Now I never thought that this would be a big business for us because I think that it will be a very competitive market. And I think it just has to wait a resolution on tariffs before people can sit down and negotiate with long-term supplies of ethane with the major suppliers in the United States and contract the construction of plants, which will take 3 or 4 years to build and to build the very large ethane carriers. So that business, in my opinion, is in fact on hold because the only place you're going to get major volumes of ethane is in the United States. And if there's a war, you're not going to get -- I mean a tariff war -- a trade war. If you're going to have that, you're not going to get that settlement and thing.

So that's the biggest impact that I see. Ethylene is going to flow. Ethane is going to be paused until there's a resolution, and then it will flow.

And there are no further questions at this time. Please continue.

Well, thank you very much, everyone, for joining us today. I know there were some interruptions and some lack of clarity in some of the voice, but we look forward to being with you again the next time. Thank you.

And with many thanks to all our speakers today, that does conclude the conference. Thank you all for taking part, and you may now disconnect.