GasLog Ltd.
Q2 2019 Earnings Call Transcript

Published: 1 Aug 2019

[Operator:]

Good morning. My name is Chris and I will be your conference operator today. At this time I would like to welcome everyone to GasLog Ltd. Second Quarter 2019 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. As a reminder, this call is being recorded.Today’s speakers are Paul Wogan, Chief Executive Officer; Alastair Maxwell, Chief Financial Officer; and to commence the call, Phil Corbett, Head of Investor Relations.Mr. Corbett, you may begin your conference.

[Phil Corbett:]

Good morning or good afternoon to everyone and thank you for joining GasLog Limited’s second quarter 2019 earnings conference call. For your convenience, this webcast and presentation are available on the Investor Relations section of our website www.gaslogltd.com where a replay will also be available.Please now turn to slide two of the presentation. Many of our remarks contain forward-looking statements. For factors that could cause actual results to differ materially from those forward-looking statements, please refer to our second quarter earnings press release. In addition, some of our remarks contain non-GAAP financial measures as defined by the SEC. A reconciliation of these is included in the appendix of the presentation.I will now handover to Paul Wogan, Chief Executive Officer of GasLog Limited.

[Paul Wogan:]

Thank you, Phil. Good morning or good afternoon and thank you for joining our second quarter earnings call.I’ll begin by outlining the drivers of GasLog’s value proposition, and how we delivered against them in the quarter. I’ll then discuss our recent commercial successes before handing over to Alastair to take you through our financial position and outlook. Finally, I’ll review the current trends in the LNG and LNG shipping markets before opening the call for questions.Turning to slide three, and the factors which we expect to positively impact our investment case and share price. Firstly, our fleet continues to grow through our charters new build program, driven largely by fleet grow, our Q2 EBITDA was 15% higher year-on-year. Our seven new builds delivering through 2021 would underpin further growth in our revenues, earnings and cash flows and augment our fleet efficiency and competitiveness.Secondly, we expect the growth in our core term charter business to be complemented by a tightening spot market, with average headline rates during the third quarter to-date, 25% ahead of the second quarter’s average.Thirdly, following our recent long term charters with JERA and Endesa, we continue to diversify our customer base with Gunvor becoming our latest high quality counterparty.Fourthly, during the quarter we eliminated our IDRs in exchange for both common units and new Class B units that convert into common units over time. The IDR elimination will reduce GasLog Partners cost of capital and simplify our financial reporting.And finally, we continue to offer an attractive dividend, which is grown at a compound rate of 5% since our IPO. If our forecast of substantially tighter spot market is correct, this should provide additional opportunities to reward our shareholders above and beyond the common dividend.Slide four shows the commercial success we delivered in the second quarter. Just yesterday we took delivery from Samsung of the GasLog Warsaw, our fifth vessel with X-DF propulsion. She immediately commenced the 22 month charter which Cheniere from which she will redeliver in May 2021, straight into the eight-year charter with Endesa. This combination of charters represents a continuous hire period of almost 10 years and delivers attractive returns for our shareholders.As I’ve just mentioned, we also chartered the GasLog Shanghai and GasLog Salem to Gunvor, a leading commodity trader with an established and growing presence in LNG. The charters have a valuable rate at hire with an agreed range, with 100% utilization for both vessels during the charter period. These innovative charters were enabled by our decision to exit the Cool Pool and demonstrate our ability to create value for our customers and shareholders. We’re excited to be working with Gunvor and look forward to demonstrating our operating capabilities to them.With that, let me now hand over to Alastair.

[Alastair Maxwell:]

Thank you, Paul, and good morning or good afternoon to you all. I’m pleased to report another strong quarter in terms of our operating and financial performance.Please turn to slide five, where I’d like to take you through our second quarter results. The chart from the left of the slide illustrates our trailing 12 month time charter equivalent revenues, split between our term business and our spot vessels.During the quarter our revenues were underpinned by the operational performance of our fleet, which continue to be excellent with uptime of 99%. Our term revenues have seen stable growth over the period, as we have grown our fleets against long term charters and rechartered some of our open vessels with high quality customers.Year-over-year our Q2, 2019 trailing 12 month term charter revenues grew by 8%. This growth trajectory will continue with the addition of the GasLog Warsaw and the delivery of our seven further new builds through mid-2021. You can also see from this chart, the significant improvement in our trailing 12 month spot revenues, which have more than doubled year-on-year and more than trilled compared to 2017 levels.We continue to make good progress on reducing our unit-OpEx and unit G&A. This is illustrated by the chart on the right of the slide, which shows that during the first half of 2019 our unit OpEx and unit G&A fell by 7% and 9% year-on-year respectively. While we did benefit from a more favorable U.S. dollar Euro exchange rate, we are also making good progress towards our underlying cost reduction targets. As a result, we now expect to deliver unit OpEx below our previous guidance of $15,000 per vessel per day for 2019, excluding one-off IMO 2020 related costs, and subject as always to movement in exchange rate.Turning to slide six, the underlying growth in revenue coupled with our success in controlling unit costs have delivered continual and meaningful increases in EBITDA over time. Trailing 12 month EBITDA was $476 million in the second quarter, a near 30% increase on the comparable Q2, 2018 figure of $368 million.Turning to slide seven, which discusses our strengthening balance sheet. At the end of the second quarter, our net debt to EBITDA stood at approximately 6.1x, slightly down from the end of the first quarter and significantly lower than the 7.6x at this time last year. While our new build deliveries over the next two years will lead to temporary increase in our leverage on a trailing 12 month basis, we anticipate a significant reduction once our fleet is fully delivered.In the bottom of this slide we’ve illustrated how our amortizing debt, build, balance sheet capacity and equity value in our fleet, using the recent delivery of the GasLog Gladstone as an example.Our debt amortizes at roughly twice the rate our ships depreciate and as the chart displays, by the time the initial charter expires in January 2029, the vessel would have been depreciated by 26%, while we would have amortize 67% of the vessels debt. As a result the vessel debt to EBITDA ratio will be just over 2x and the loan to book value ratio was up full into approximately 34%.Moving to slide eight, we’ve updated the chart illustrating our capital commitments. We currently forecast cumulative future cash payments for the equity and the remaining new builds represented by the light-blue tranches at the top of each column to be $277 million, assuming 70% loan to value for the financing of each new vessel.We plan to fund this from unrestricted cash balances of approximately $167 million represented by the thick green line, future free cash flow generation from our growing on-the-water fleet, a stronger spot market, further dropdowns and it required our available RCF capacity.Moving to Slide 9, where I’ll cover near term guidance and summarize the key financial takeaways from today’s presentation.The availability of our spot vessels during the third quarter will be impacted by unscheduled drydockings for the GasLog Chelsea, the GasLog Singapore and the GasLog Savannah, which we have decided to carry out now to maximize their availability and performance in the winter trading season. The combined drydockings are expected to result in approximately 100 off-hire days in the third quarter.As concerned the TCE revenues of our spot vessels, I would remind you of the rule of thumb that we set out last year. When average headline spot rates are below $50,000 per day, we expect to capture approximately 40% to 50% of average headline rates with a slight lag. When rate average mid-cycle and above on a sustained basis, we expect to capture closer than 90% to 100%.In between $50,000 per day and mid-cycle rates, we would expect to capture some 50% to 70% of the average headline rates. Using this rule of thumb, we currently expect the third quarter TCE for our spot ships, excluding the off-hire days mentioned above, to show a noticeable improvement on Q2, but to be clearly below mid-cycle.This guidance includes the GasLog Salem which as we discussed earlier is our nine month charter at a variable rate of hire, but exclude the GasLog Shanghai, as she is on a multiyear charter, and we hope that it will provide analyst and investors with more visibility on this part of our business.I would also remind you that we have three scheduled drydockings in the fourth quarter of 2019. The Methane Jane Elizabeth, the Gaslog Saratoga and the Methane Lydon Volney, each of which are expected to take 30 days.I’d like to leave you with three key messages. Firstly, the elimination of our intended distribution rights during the second quarter will significantly improve GasLog Partners cost of capital and reduce the complexity of GasLog’s financial structure and reporting.Secondly, our new build and focus on long term charters underpin our continued growth in EBITDA and cash flow and cushion us against spot market volatility, while still retaining meaningful exposure to a tightening LNG shipping market.And finally, while leverage well increase periodically, we take delivery of new builds once all these vessels are in the water, our scheduled amortization will lead to significant deleveraging of our business over time.I will now hand back to Paul to discuss the LNG and LNG shipping markets.

[Paul Wogan:]

Thank you, Alastair. Slide 10 examines some of the macroeconomic headwinds that we believe have recently been driving sentiment towards LNG shipping. Recent behind weather and additional new supply has led to a weakness in LNG prices. However, we believe that low prices are already creating additional demand with coal to gas switching in Europe being just one example.There have also been concerns, the slowing global growth along with trade disputes could potentially delay investment decisions for new LNG supply, particularly in the U.S. However, LNG consumers continue to sign-up for long term supplies and we remain hopeful that LNG can be part of the solution to the China, U.S. trade dispute.New build ordering has slowed down this year compared to 2018, and we are hopeful that this discipline will be maintained. And finally, gas remains the most viable partner for renewables with a substantially better emissions profile in coal and heavy fuel oil.LNG fueled ships have the lowest emissions of any form of commercial shipping and being constant with slow steaming, provide a way to meet the 2030 emissions targets creating further LNG demand. We believe these factors will lead to increases in both short-term and long-term demand for LNG vessels over and above the current operating fleet and order book.Slide 11 shows LNG imports by country on a trailing 12 month basis. Year-over-year LNG demand grew by 38 million or 13%. China posted the largest increase in absolute volumes, importing over 31% more LNG year-over-year as gas continues to increase its share at the overall LNG mix.In addition to strong Chinese demand, LNG growth was broad based. For example, European demand grew by 68% year-over-year, bolstered by a declining indigenous gas production and continued coal to gas switching for power generation.Slide 12 shows Wood Mackenzie’s expected net LNG demand growth of nearly 150 million tons between 2018 and 2025. It’s important to note that Asia, excluding China, plus Europe, together account for nearly two-thirds of the projected LNG demand growth through 2025.Turning to slide 13, of the 21 million tons of new LNG capacity is scheduled to begin production in 2019, primarily from U.S. projects, which are expected to have a significant impact on Tonne-Mile Demand.Overall approximately 107 million tons of new capacity is scheduled to start production from 2019 through 2024, including Sabine Pass Train 6 and Mozambique LNG, both of which took FID in the second quarter of 2019.The LNG supply picture continues to be dynamic and growing, Wood Mackenzie forecasts that including projects already sanctioned, approximately 80 million tons of LNG capacity will reach FID in 2019.Slide 14 shows how U.S. exports have positively impacted shipping demand. Since 2016 an average 1.8 ships have been required for each 1 million tons per annum of U.S. exports. A positive development for shipping demand, particularly considering the significant amount of U.S. liquefaction capacity, expected to be online by the end of 2020. Approximately half of which has been sold on a multiyear basis to Asian buyers.Slide 15 illustrates our view of shipping supply and demand through the end of 2020, based on Wood Mackenzie and Poten data. As you can see, the market is expected to be structurally tighter through at lease the end of 2020. Based on Wood Mackenzie’s latest quarterly LNG supply and demand estimates and the underwater fleet, shipping fleet, plus scheduled vessel delivers.Slide 16 compares weekly average headline spot rates for TFDE carriers with a number of immediately available spot ships. It shows the natural and inverse relationship where spot rates rise as shipping availability declines.The chart indicates that over the last two years and following seasonally week month in early summer, the number of available prompt ships in the spot market declined, but demand for shipping increased to meet seasonal demand for LNG ahead of and during the Northern Hemisphere winter.On slide 17, the left panel shows the monthly average headline spot rates for TFDE carriers during 2018 and 2019, while the right panel shows the monthly average from 2011 through 2018. While the absolute values may differ, the trend in 2018 and 2019 has closely followed previously observed seasonal patterns, with headline spot rates generally bottoming in the early spring and peaking in the fourth quarter.As the historical data on this chart suggest, we can expect the market to return to higher LNG shipping activity levels and stronger spot rates as we move into the heating season and the northern hemisphere winter, new, large LNG projects, especially in the U.S. into production.Slide 18 shows how periods of spot market strength and weakness have historically influenced activity for multiyear charters. Last year was no exception, as a record number of charters greater than six months were reported, while spot rates for LNG carriers set all-time highs.More recently 13 charters between six and months and three years in duration were reported in the second quarter of 2019, despite spot rate weakness. Additionally, brokers currently assess the one year time charter rate at approximately 85,000 per day, in contrast to the current headline spot rates of 65,000 per day, indicating expectations for a tighter market over the coming quarters. We anticipate that there will be ample opportunity to reach out to our ships on attractive terms as the LNG carrier market improves during 2019 and 2020.Slide 19 revisits our target to more than double consolidated EBITDA over the 2017 to 2022 period. This target encapsulates the key themes from today’s presentation

[Operator:]

Thank you. [Operator Instructions]. And our first question comes from the line of Greg Lewis with BTIG. Your line is now open.

[Greg Lewis:]

Yes, thank you and good day everybody.

[Paul Wogan:]

Hi Greg.

[Alastair Maxwell:]

Hi Greg.

[Greg Lewis:]

Paul, I just wanted to talk a little bit more about you know the decision to leave the Cool Pool and now that we’re out of the Cool Pool, how does that or does that have any impact in how you think about chartering the spot vessels? Like has this changed the strategy at all and with that, you know there’s clearly a lot of other LNG carrier companies, not in the Cool Pool. Would you consider partnering with some other LNG ship owners to form a new pool?

[Paul Wogan:]

Yeah, thanks Greg. Yeah leaving the Cool Pool was a tough decision. We had a very good relationship I think with Golar in the Cool Pool. I think some of the well-publicized moves that they wanted to make helped us to make that decision, but it also coincided with what we feel is going to be a stronger period in the market and as we’ve always talked about, we would like to have a large proportion of our fleet on longer term charters.Whereas we may keep one, two or three of our ships in the spot market at any given time, most of the ships we’ll put on a long term charter. Having our ships outside the Cool Pool allows us to have negotiations with charters right from spot market, right through to you know long term charters and I think you saw evidence of that with the Gunvor charters. We put on ship on to them for nine months, and we put another ship on to them for 3.5 years. Now if we’ve been in the Cool Pool we wouldn’t have been able to have both those discussions with them.So it allowed us that freedom to sort of put, you know to put some period charter on the ships which wouldn’t necessarily have been there within the Cool Pool.And as opposed to Pools, as I said we had a very good relationship with Golar and with Dynagas when they were partners in the pool and certainly I do think Pools continue to play an important part in shipping. So we would certainly never say never in terms of partnering up with people in the future, but that right now is not in our to-do list.

[Greg Lewis:]

Okay, great, and then just one more for me. I mean you kind of talked a little bit about, you know I guess the medium term outlook with strong one year charters. You know I think clearly there’s some excitement as we move into the back half of the year in terms of improving rates.In the event that we see a similar environment to what we saw last year and in the back half of the year, have your thoughts changed around the special dividend? I realized you paid one in late Q4. Is that something we should think about as being sort of core to the strategy or just kind of how you are thinking about that.

[Paul Wogan:]

Yeah, I think as we looked at it, Greg we want to be very good stewards of capital. You know as we look at how we allocate our capital in the business, certainly we want to continue to fund the inbuilt growth that we have already in the business. We also want to continue to delever the business over time, but also we do want to be able to reward our shareholders you know when we see good spot markets you know.As we’ve shown, we’ve got a very strong underlying business and the spot market revenues, if you like the icing on the cake, I think we see those pushing ahead, then yes, we would like to continue to reward our shareholders. But we do need to see that market improving, and we are hopeful we’ll see the markets sort of follow as we were saying in the remarks just now, that we’ll see the market following a similar pattern to last year, where we do see an increase in rates going into the fourth quarter and the Northern Hemisphere winter.

[Greg Lewis:]

Okay, perfect. Thank you very much for the time and have a great rest of the summer.

[Paul Wogan:]

Thank you.

[Operator:]

Thank you and our next question comes from a line of John Chappell with Evercore. Your line is now open.

[John Chappell:]

Thank you. Good afternoon guys.

[Paul Wogan:]

Hi John.

[John Chappell:]

I’m going to start with an industry question, just because I think it’s pretty topical right now. So it’s going to be multi-partial, hopefully it’s pretty simple. So starting with slide 16, that chart on the left, kind of ‘19 following the path of ’18, I think is super interesting.First part, is there any reason to think that it wouldn’t follow the same path? Not necessarily the same magnitude, because I think each season’s different, but anything you’re seeing that would make you think that ‘19 wouldn’t look with the same type of trajectory as ’18, and then the second part then as if you go to the slide on ’18, that spread between the one of your time charter and spot also looks pretty odd in the rest of that chart, prior seasonal patterns just followed right on top of each other.What do you think is causing that? And can that be either a leading indicator to ‘19 following ‘18 or could it also be maybe kind of in the coal mine that ‘19 may look different than ‘18.

[Paul Wogan:]

Yeah, thanks John, great questions. I don’t think there is – the one thing I think that’s different this year than last year is the kind of absolute pricing of LNG right now. We are seeing lower prices, which I think is being one of the factors, restricting some of the arbitrage and restricting some of the ton miles.We do see the forward curve for LNG prices both in Asia and in Europe increasing quite markedly and I think that will definitely stimulate the buying trend again. So we do think that it’s going to follow the same pattern as last year. I think what has kept the spot rate – headline spot rates down so far has been the lower pricing that we’ve seen in the summer and the lack of arbitrage. I don’t think that continues into the winter.I do think there is the demand there for the shipping and I think that’s why you are starting to see the disconnect between the one year time charter rate and the spot rate, because our customers are also seeing that and saying actually we want to make sure that we are covered, because we don’t believe that this market is going to stay low. We do believe it’s going to pick-up and we do want to get that coverage of what we think is going to be a busy period. So I think you know overall we are optimistic that we do see a similar pattern.Now I think the question after that of course is, does that continue into 2020 and I think with our supply and demand graph in there, we do think that there is a potential further tightening in 2020 over 2019, which we hope will help to maintain shipping rates through the year.

[John Chappell:]

That makes a ton of sense, it’s a [inaudible]. The second question then as it ties more directly to GasLog, the Salem charter is really interesting, not because it locked in a rate, but because it guarantees the utilization and I think like sometimes we feel the tail wags the dog with your five ships exposed in the spot market, kind of overwhelming the backlog that you've created with the long term contracts and the rest of your fleet.So you made mention to maybe looking at multi months or multiyear contracts with the remainder of the fleet. As you think about the ship's exposed to the market today or to be exposed to the market maybe in the next nine to 12 months, in the past you said you'd like to keep your finger in the spot market, but do you think that maybe you can lock in more of those at this part of the cycle, you know just to get a little bit more visibility and stability of the cash flows across the entire fleet.

[Paul Wogan:]

Yeah, I mean I think the really interesting construct for us at this point in the cycle – and the great thing is it works for both us and the customer, so we have a view that this cycle is going to strengthen and so keeping an ability to have some upside on that ship or you know take the upside is really attractive, but as you say, getting the 100% utilization which is one of the things that can affect your earnings quite a lot is also good.So we like those, that construct for both those regions. The great thing for the customer of course is they do get locked into the shipping, that paying more or less the same rate that their competitors are paying on the spot market, but you have locked these ships. So they are not taking a risk around a fixed rate which could or could not prove to be a good move. So it works I think for both parties and it sounds like for us at this point in the cycle we see this is a nice part of our portfolio to have.

[John Chappell:]

Yeah, okay. That makes sense too. And one more if I may. It sounds like these calls might be getting a little bit shorter going forward. The straight [inaudible] headline, just explain to us how you can go about your normal course of business, meeting your charter obligations, whether it's with Shell or Centrica or Cheniere if your ships are avoiding that region.

[Paul Wogan:]

Yeah, so I think it's a fairly fast moving situation at the moment. Obviously with what happened with the Iranians taking out the Stena Impero, gave I think a lot of course for consulted – a lot of concern within certainly what's called the Red Ensign Group, which is a group of flags which sort of come under the British influence if you like, of which Bermuda is one of them.So we very much follow the Bermudian flag advice and for few days the Bermudian flag advice was not to go into the Gulf. That has since changed and they have told us that yes, you can go to the gulf and the British navy will provide escorts, you know not just the flagship, but also Bermuda, Isle of Man, etcetera, which again is very helpful. So we can now you know work with our charters. As long as we give 72 hours’ notice, we are able to take a convoy in there.So it's become I think more manageable for us. We don't have any ships present in the Gulf or due to go in the Gulf, so it's not a situation that is affecting us right now. We remain hopeful that it resolves itself quickly, but we are also looking at re-flagging options if we think this continues to be a long term problem and putting the ships into alternative flags, which don't have this issue, because of course we want to continue to be able to be as flexible and there's you know as responsive as possible to our customers.

[John Chappell:]

Right, okay thanks Paul. Very helpful answers.

[Paul Wogan:]

Thank you.

[Operator:]

Thank you, and our next question comes from a line of Chris Wetherbee with Citi. Your line is now open.

[James Monigan:]

Good morning. James on for Chris. I wanted to ask about the storage for a second and understand what level of inquiries around the storage you are receiving relative to last year and you had mentioned lower prices. Just trying to get a sense of what was the case for the lower LNG prices causing more volatile peaks from last year.

[Paul Wogan:]

Yes, thanks James. Right now we have literally, as in the last I would say week started to have questions around charters for spot voyages, but with the option of having up to 60 days additional time on the back end of it and the charting guys here are very much thinking this is linked to people starting to take a look at the ability to have floating storage.You know what's interesting right now is if you look at the pricing, both in the JKM in Asia and BP in Europe, it is quite a discount to the forward prices in the northern hemisphere winter. So it looks as though people are starting to take a look at that. To be honest though, if you are going to really take advantage of that, that’s probably something that starts sort of more in September time, because you don't want to have the ships there storing for too long, because of the boil-up issue. One to two months is probably as long as you’d want to do it.So certainly it appears to be some interest. It looks as though that is feasible given the difference in the forward curve to the pricing now, but we’re probably more likely to see that kicking in in September.

[James Monigan:]

Got it, and then also wanted to get a little bit more detail around OpEx. Today you're doing a good job, but I just wanted to get a little bit color, more color on what you are doing precisely and how much has that improvement affected due to the change in vessels year-over-year?

[Alastair Maxwell:]

James hi, it’s Alastair. Yes, so the principal factors that have had some impact, first of all the growth in the fleet and the benefits of scale, because you are spreading the OpEx over a larger number of operating days and that’s key, just like the vessel management side of things as we’re able to manage a growing fleet, but without growing our vessel management headcount accordingly.The second factor is around maintenance and trying to conduct our maintenance in as efficient a way as we can. I mean that includes the things like to gain the benefits of scale in terms of purchasing you know lubricants and spare parts, etcetera.Thirdly, we had some benefits and we mentioned this in the fourth quarter results. We got some benefits from the change in the tonnage tax arrangements in Greece, which is not insignificant. And then lastly, you know we have had a tailwind from the currency as I mentioned, but if you have to put three or four factors together, those are the things which are leading to ask, to continue to be able to move towards the OpEx targets that we set out in the investor day.

[James Monigan:]

Thank you.

[Paul Wogan:]

Thank you.

[Operator:]

Thank you. And our next question comes from a line of Randy Giveans with Jefferies. Your line is now open.

[Randy Giveans:]

Howdy gentlemen, how is it going?

[Paul Wogan:]

Hello Randy!

[Alastair Maxwell:]

Hi Randy!

[Randy Giveans:]

So looking first at the GasLog of Warsaw, a multi month charter with Cheniere, it looks like it's almost two years in duration there. So what is the rate on that? Can you give us a range, $50,000, $60,000, $80,000 a day?

[Paul Wogan:]

We can’t give an actual rate Randy because it’s obviously confidential. What I would say is you know we really like that charter, literally take the ship out of the yard and delivered it right into a contract with investors. So as we say, it gives us basically a 10 year charter.The one thing I would say is you know we used the mid-cycle rates as a sort of a guidance, which gets you into sort of mid-70’s. The rate that we've got in this instance is when they access the mid-cycle rates. So we're very pleased with that and that what’s great is Cheniere got a very attractive ship with great unit freight costs.

[Randy Giveans:]

Got it, okay. And then you know recently there’s been a few kind of announced delays, some of the facilities to ramp up at Cameron Freeport, a few of these are smaller ones. How big of a risk is this to kind of your LNG shipping demand story at those delays; instead of the three months maybe they got six month. Is that a trend you think continues over the next year or two.

[Paul Wogan:]

Yeah, I mean I think it's always an issue and you know it is I think one of our mantras in the business is that the ship's deliver on time and the projects get delayed unfortunately. I think that as we get closer to the delivery of those projects, especially the U.S. project, the chances of dropping back does diminish.It had some effect this year you know. I think we started off the expecting something like 32 million tons of new LNG production. I think because of what's happening in Cameron Freeport, that's going down into sort of the low 20’s at the moment and I think that has been one of factors affecting the, you know the supply and demand.But we do have a slowing order book next year. I think you'll see those volumes coming through next year. Most of the production that’s due to come on is very close to being completed, so probably it has a less chance at this point in the cycle of dropping back. So I think we are hopeful that where we are on the supply and demand next year is quite a positive for us.

[Randy Giveans:]

Okay and I guess I’ll ask one follow-up to that. Phil, on chart 15, sorry page 15 of your presentation, you have the vessel supply line and you took out the line that usually incorporates some kind of scrapage. Are you now expecting kind of no scraping on those smaller, older steam vessels or is this just a simplification of the chart.

[Paul Wogan:]

Yeah absolutely, Randy, it’s a simplification. We just thought actually having less lines in there was helpful you know. I think you will over time see scrapping especially on the older pre-2000 built steam ships, but it's very hard for us to forecast what that is and so, it was really just a simplification.

[Randy Giveans:]

Got it, alright two more questions – no, I’m just kidding. That’s it from me, thank you.

[Operator:]

Thank you. And our next question comes from the line of Ben Nolan with Stifel. Your line is now open.

[Ben Nolan:]

Great, thanks, I was sweating that Randy was going to get my questions there. I do have a few though actually. First, curious if there's any update on the Alexandroupolis project and you guys have sort of been mentioned as a potential candidate for you know may be other FSRU project. Any updated on how you're thinking about those type of things?

[Paul Wogan:]

Yeah, Alexandroupolis continues to make progress Ben, thanks for the question. There was a slowdown because of the Greek elections which had just taken place. A very pro-business party has just taken power in Greece, which we think is positive for the project in terms of pushing it forward.We continue to make progress and we continue to be hopeful that would take FID on that project, but that will certainly be we believe a 2020 FID rather than a 2019. So as we said I think a couple of quarters ago, rather than keep reporting on where, you know how that’s progressing and the FID in general, we’ll just come back to the market as and when we have some really concrete news to give.But certainly no news, doesn't mean its bad news. No news mean that we continue to progress well with that. And yes, we have been looking at a couple of other potential projects. I know we were reported to have been offered into a couple.I think what we have said is that we will continue to look at projects where we think we can add value from an early point, and where we're not going to be competing just on price, because I think people who have some cost into this business, you know are going to be very competitive, because they need to deploy those assets. We are lucky we didn't sink capital into it. We can be selective and if we can find the right projects that allow us to convert our existing ships, then we will continue to do so. So interesting space, but I think some of the projects just continue to take longer to come to gestation.

[Ben Nolan:]

Okay, helpful, I appreciate that Paul. And then moving back to the LNG shipping side of the business, I know that in the past you mentioned that, maybe on calls, but certainly in other forums that the way you're sort of viewing your growth profile is absorbing the existing ships that were already on order and pretty much being limited to just additional growth if the options are exercised by your several charters that have options for additional new build and not really looking to reach beyond that, at least for the moment.Curious if that’s still the cast. I know that there’s been some noise about some tender offers and that kind of thing, so there are at least seemingly potential opportunities. Are those things that you are looking at or sort of sticking with on what you said in the past.

[Paul Wogan:]

No, I mean in general I think we are sticking with what we were saying and we really want to bring in the inbuilt growth we have right now, the seven new buildings, bring those into the fleet.With a lot of new ships coming into the market, you know making sure we get the right cruise for those, making sure we got everything integrated well I think is very important for us. We do continue to have discussions with our existing character and customers on new vessels, but we are not actively in the market right now looking for new buildings. We think there’ll be a huge amount of opportunities with the growth and the build out of new production in ‘23, but probably more to ’24, and we think we’ll be in a very good position to take advantage of that.So we are not in a rush, you know in a hurry to rush into further new buildings, unless it's with you know existing customers where we can grow the relationship and obviously add good returns for the company.

[Ben Nolan:]

Sure, that’s helpful. And then lastly from me, we've heard a little bit that some of the charters are somewhat sensitive to the new lease accounting and having to show long-term charters and their own balance sheet, and as a consequence to that, there's been some new different types of structures with options and other things that sort of enables utilization or usage of the assets by the charters that don't necessarily require the same balance sheet implications.So curious, I think you are seeing that sort of thing, are durations, contract durations, you think going to be shortening or changing and also as it relates to sort of non-new build, what are the implications there for you know a five year old ship or something like that, that's coming on.

[Alastair Maxwell:]

Yes hi, it’s Alastair. So you are quite right. We have had some inquiries and some conversations on this topic. I don't see it became a real issue from 1 January of this year and I would say that we’ve – you know some of those discussions have been a little bit more serious than others.I think nothing immediately on the horizon. It certainly depends on each individual customer and how much priority they put on the impact from the balance sheet for these things and even though for some of our customers, their commitments to LNG shipping are reasonably large in terms of dollar numbers, they can be relatively small in terms of the total size of the balance sheet. But certainly we have had some of those conversations, but nothing’s come out of them yet, and we do have some ideas around solutions to deal with this issue.I don’t think we’ve noticed any impact on contract durations, and in fact if you look at our recent chances, particularly with JERA and Endesa and one for 12 years and one for eight years, I’m not sure we are seeing that having – it’s getting a lot of pressure, particularly for new build ships where charters could be at shorter durations, and I don’t think either in our conversations with customers around on the water ships. I’m not sure this has really come up, but I think it’s more of a topic around new build, just because of the length of the charters and therefore the size of the obligation that goes with them.

[Ben Nolan:]

Got you. No, that’s very helpful. I appreciate it Alastair and Paul. So that does it for me, thank you.

[Paul Wogan:]

Thank you, Ben.

[Operator:]

Thank you. [Operator Instructions]. And our next question comes from a line of Chris Snyder with Deutsche Bank. Your line is now open.

[Chris Snyder:]

Hey, so first question on the variable rate contract structure. Could you provide any color around the floor or ceiling on that contract? I mean I know that's kind of sensitive information or at least maybe compared to the one year rate of $85,000 you guys are quoting in the release.

[Paul Wogan:]

Yeah Chris, love to be able to get more guidance on that, but unfortunately with it being a contractor with a kind of party they want to keep that to themselves. But what I would say is, you know to give a little bit of help on it, you know the floor I think is well in excess of where we’ve seen some of the low points in the spot market, and the ceiling is well in excess of the mid- cycle rates. So in that sense we feel very happy in terms of where that floor and ceiling sits, and especially given the fact that we get to 100% utilization through that.

[Chris Snyder:]

Okay, fair enough. In the term lengths on the two variable rate contracts with Gunvor are quite different, do you guys prefer more of a multi-month term on these variable rate contracts, so that will maybe allow you to look for fixed rate next year and what's expected to be you know a pretty good shipping rate environment or are you kind of happy to take as much term as you can get on those?

[Paul Wogan:]

I think it depends on a case-by-case basis. So we'll be happy on some of them to take multi month, we'll be happy to take a multiyear potentially on others.I think what we really want to do is to make sure that we have a kind of balanced portfolio where we have ships coming off in a rightful way rather than a clump of ships coming off together. I think that’s always much easier to manage, and to sort of have different durations, and it means that we can be a bit more, keep a bit of optionality in the portfolio.So I think we’ll keep an open mind, but those two taking a longer term and a shorter term with Gunvor worked very well for us in this case as well.

[Chris Snyder:]

Okay, and then just lately. So we are going to see a huge ramp in liquefaction capacity in the back half of this year. You know much of this production has vessels earmarked for transportation. But how should we think about the amount of that supply, that could you know drive spot shipping demand?

[Paul Wogan:]

Yeah, I think the great thing is you know, you're absolutely right. You know most of the production that’s coming on has shipping earmarked, but that shipping that’s earmarked where it’s actually you know appearing in the spot market right now.So what happens is as new production comes on is that shipping gets absorbed, which brings down the number of available ships in the spot market and I think we had one of the graphs in there we showed you. You know as you see the amount of available ships coming down, inexorably the rates in the spot market go up, so I think that's going to be a factor.And of course all the production coming on, a proportion of that didn’t sell in our long term and is available into the market and we will I think see more spot volumes coming from that. So you get like a double whammy from the effect of those ships being taken out and that new production coming on.

[Chris Snyder:]

Well, thank you for that color. I really appreciate it.

[Paul Wogan:]

Thank you.

[Operator:]

Thank you, and that does conclude today's question-and-answer session. I would now like to turn the call back to CEO, Paul Wogan for any further remarks.

[Paul Wogan:]

Thank you very much Chris and thank you to everyone today for listening and for your continued interest in GasLog Ltd. We certainly appreciate it, and we look forward to speaking to you all in the next quarter.In the meantime if you do have any questions, please contact the Investor Relations team. Thank you. Bye-bye.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today’s program. You may all disconnect. Everyone have a great day!