GasLog Ltd.
Q2 2017 Earnings Call Transcript

Published: 5 Aug 2017

[Operator:]

Good morning. My name is Liz, and I will be your conference operator today. At this time, I would like to welcome everyone to GasLog Ltd. Second Quarter 2017 Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. Today's speakers are Paul Wogan, Chief Executive Officer; Alastair Maxwell, Chief Financial Officer; and to commence the call, Jamie Buckland, Head of Investor Relations at GasLog. Mr. Buckland, you may begin your conference.

[Jamie Buckland:]

Great. Thanks, Liz. Good morning or good afternoon, and welcome to GasLog Ltd. Second Quarter Results Call. As a reminder, this call, webcast and presentation are available on the Investor Relations section of our website where a replay will also be available. As shown on slide two of the presentation, many of our remarks contain forward-looking statements. Let me refer you to today's press release and our reports filed with the SEC where you'll find factors that could cause actual results to differ materially from these forward-looking statements. In addition, some of our remarks contain non-GAAP financial measures as defined by the SEC, and a reconciliation of these is attached as an appendix to the presentation. Please now turn to slide three for the highlights, where I will hand over to Paul Wogan, GasLog's Chief Executive Officer.

[Paul Wogan:]

Thank you, Jamie. Good morning, or good afternoon to you all. Thank you for joining us for GasLog's second quarter results. I will start today's presentation with the highlights of the quarter before handing over to Alastair to take you through the financials and activity in the quarter in more detail. I will then conclude with an update on the LNG product and LNG shipping markets. Following our prepared remarks, we'll be happy to take any questions you may have. In Q2 2017, we continued to deliver on our strategy and I'm pleased with the company's progress to the first half of the year. We reported record quarterly revenue helped by the 100% availability of our contracted fleet and improving utilization from the spot vessels in The Cool Pool. Since the first quarter, we have completed the GasLog Greece and GasLog Geneva dropdowns to GasLog Partners, providing increased liquidity for the parent. To fund the most recent dropdown, GasLog Partners raised over $150 million of equity during the quarter through an issuance of preferred equity and an aftermarket program. We used the funds from our recent U.S. bond issue to repay the outstanding 2018 Norwegian bond and to pay down $150 million of the Junior Tranche of the Five Vessel Facility due in 2018. In our FSRU business, we continue to progress our Alexandroupolis project with the FEED study due to complete this quarter and FID now scheduled for Q1 2018. And we're pleased to be paying a dividend for the quarter of $0.14 a share. With that, I'll hand over to Alastair to take you through the financial results and the activity for the quarter in more detail.

[Alastair Maxwell:]

Thank you, Paul. Good morning, and good afternoon to all of you. Please turn to slide four for the financial highlights. As Paul mentioned, we reported record revenue for the quarter. Revenues in both the second quarter and the first half of 2017 benefited from an increase in vessel operating days compared to the same period in 2016 as a result of the newbuildings we delivered last year. Second quarter and first half 2017 EBITDA increased by 18% and by 30%, respectively, relative to the same period in 2016. Our total operating expenses were also higher due to the delivery of the new ships. Within 2017, as we mentioned in Q1, OpEx cost will increase somewhat in the second half of the year as a result of the timing of scheduled maintenance. On the balance sheet, total debt has increased year-on-year to reflect the new vessels delivered in 2016, partly offset by scheduled amortization. The cash balance at the end of the second quarter reflects the impact of the approximately $150 million of common and preferred equity raised by GasLog Partners during the quarter, as mentioned by Paul. Turning now to slide five. In May, we closed the sale of GasLog Greece to Gaslog Partners, which delivered equity to GasLog of $68 million. Also during the quarter, we announced the dropdown of the GasLog Geneva which closed on the 3rd of July, 2017. This is the fifth dropdown transaction between the 2 companies and the 8th vessel in total that GasLog has sold to the partnership since IPO. The $211 million sale price represents a premium-to-book value and a multiple of 9.1x EBITDA. It delivers total equity to GasLog of around $56 million, net of the debt transferred to the partnership. And the recently announced increase in the GLOG distribution to $0.51 per unit will result in increased cash flows to GasLog. Since the IPO of the MLP in May 2014, almost $460 million of equity has been recycled back to GasLog in total. Please turn to slide six. The chart on the left showed the company's leverage profile over the trailing 12-month period on a net debt-to-EBITDA basis. Our leverage has fallen steadily from just over 9x to just over 7x, and we expect it to continue to fall as a result of the EBITDA contribution of the 5 newbuilds we have on order, the scheduled amortization, and some $800 million of bank debt between 2017 and 2021, future dropdowns to GasLog Partners and the anticipated improvement in spot rates. The chart on the right shows our recent U.S. bond in the Gaslog Partners preference share issue, the group has continued to diversify its sources of capital. Having access to different pools of capital is key to both companies as we grow and has served us well in the past. In summary, it has been a strong quarter for the company in terms of our operating and financial performance. We have largely addressed our near-term debt maturities, and we've continued to strengthen our balance sheet in order to take advantage of the multiple opportunities we see ahead of us. With that, I'd like to hand back to Paul to take you through the industry section.

[Paul Wogan:]

Thank you, Alastair. Please turn to Slide 7. The outlook for LNG shipping continues to be positive, with significant year-on-year LNG supply increases as new projects come online and ramp up production, particularly in Australia and the U.S. As new supply of finding buyers in both new and existing markets, with FSRUs opening up new demand centers, there have only been 15 new vessel orders in the last 2 years, including the 4 vessels ordered in Q2 for the Yamal LNG project in Russia. With the growing supply of LNG, strong demand across the globe and very limited new vessel ordering, we believe that GasLog is well placed to take advantage of the improving market fundamentals. Please turn to Slide 8, which shows the growth in LNG imports for the first half of the year over the same period in 2016. In the first half of 2017, global LNG trade continued to grow significantly, with imports up 11% to 141 million tons. China posted the largest year-on-year increase in absolute volumes, importing over 4 million tons more this year, an increase of around 35%, making the third largest consumer of LNG in the world. Japan and South Korea, the 2 largest LNG consumers, were second and third, with increases of 10% and 18%, respectively. South Korea plans to boost gas by power generation from 18% today to 27% in 2030, which according to Reuters, could increase LNG imports by around 50%. The new government has put the environment to the center of its energy policy, halting the construction of new nuclear and coal power plants and announcing plans to phase out several old coal plants. 10 countries imported over 0.5 million more tons in the first half of 2017 versus the same period last year, demonstrating the increased diversity of this growing demand. Turning now to Slide 9. As noted on the previous slide, China continues to significantly outperform market expectations, with imports up 35% year-on-year. The Chinese government has set a target for gas to make up 10% of the country's energy mix by 2020 from around 6% today. We expect this additional gas will come from a mix of increased domestic supply, imported pipeline gas, and most importantly, LNG imports, particularly for the large coastal markets. China is expected to have at least 70 million tons per annum of regasification capacity by 2020, around double the capacity of its projected 2017 imports. We noted with interest that in May, the U.S. and China signed an agreement to promote Chinese access to U.S. gas. Wood Mackenzie predicts that China's total LNG demand would exceed its current contracted supply through 2018, which means they will need additional volumes with the U.S. as a likely supplier. Turning now to Slide 10, which looks at the distances traveled for cargoes for four liquefaction projects in the U.S., Australia and Qatar. It's interesting to know this is 2016, for both Qatar and Australia, the average latent passage is between 3,900 and 4,800 miles. This compares to a global historical market average of around 4,000 miles, showing that some of the projects where distances are assumed to be much shorter, such as Queensland, Curtis LNG, are actually contributing to higher average ton miles. In the U.S., while we only have the data for Sabine Pass cargoes, the average voyage has been around 7,500 miles, almost double the global long-term average. Whilst it's premature to extrapolate this data for other U.S. projects currently under construction, the diversity of destinations and demand for U.S. LNG is clearly positive for future shipping demand, as long as sailing distances take available shipping capacity has in the market. Turning to Slide 11. The red line on the chart shows the vessel order book, while the blue line is the number of vessels required for the LNG projects which have taken FID that are being built. For Australian projects, we've assumed 1 ship per 1 million tons of production capacity. For the Middle East and Russia, we've assumed 1.3 ships per million tons and for the U.S. we've assumed 1.5 ships per million tons, which could be conservative based on the data shown on the previous slide. Based on approximately 120 million tons of new LNG coming on stream from the beginning of this year through 2020 and using this vessel multipliers, leads to a requirement of around 140 ships or 4 ships over the current order book. Assuming a U.S. multiplier of 1.7 based on the Sabine Pass data, the number of ships required rises to around 60 over and above the current order book. The current underwater fleet will fulfill some of this additional requirement, but newbuilds will also be needed. I'd also point out that these figures do not assume any scrapping or vessel conversions to FSRUs or FLNGs, all of which would have a positive impact on future vessel requirements. Slide 12 shows recent LNG market developments. Whilst we would like and expect to see more projects taking FID, it's encouraging that ENI took FID on its Coral LNG project in Mozambique. Qatar Petroleum has also announced that they plan to increase production from the Northfield from 77 million tons per annum to 100 million tons per annum in the next 5 to 7 years. In addition, at the end of this quarter, the U.S. Department of Energy authorized an additional 2.5 million tons per annum of exports from the Lake Charles project in Louisiana, bringing total authorized exports to 17.5 million tons per annum. Turning to Slide 13, which looks at recent FSRU developments. We are making good progress with Gastrade on the Alexandroupolis project increase, while the FEED study should be completed this quarter. The project is also advancing discussions with potential offtakers with both Greece and Bulgaria playing major roles. We now expect the project to take FID in early 2018. GasLog is also in the process of ordering a second set of long lead items, given the multiple interesting opportunities we currently see in the FSRU sector. Similar to the first set, these long lead items should give us a speed-to-market advantage for projects looking to utilize an FSRU conversion. Whilst there has been relatively few new FSRU awards so far in 2017, activity remains high and we continue to believe strongly in the operational synergies between our core LNG carrier business and the FSRU business, given the customer overlap, our relationships with the shipyards and the opportunity to convert existing carriers into FSRUs. Slide 14 highlights the evolving spot market and the improving fundamentals. Through July 2017, overall fixtures were up 11% over the same period in 2016. The bottom right chart shows the firming rates and improved utilization we have seen as we enter the Northern Hemisphere cooling season and the Southern Hemisphere winter. We are also seeing a return of round-trip economics on spot voyages, another sign of an improving market. Slide 15 shows the increasing seasonality in the market. The blue line shows the headline rates from Clarksons over the last 12 months and the volatility they have exhibited, compared to the red line, which shows the relatively low and flat market in the previous 12 months. When a market has a large oversupply of ships, rates not only stay low but also generally less sensitive to changing shipping supply and demand dynamics. In tighter markets, small demand changes typically have a much bigger impact on rates. Recently, as demand for ships has increased, rates have reacted quickly, with suggests that the oversupply of vessels is relatively small. And we expect this trend to continue through 2017 and into 2018. Slide 16 shows Poten's analysis of the impact of the number of vessels operating the spot market has on rates. The historical data shows that when there's been around 30 to 35 active spot market vessels, rates have been around $30,000 to $40,000 a day. When the number of active vessels falls to around 15 to 20 ships, rates have historically moved towards the long-term average of $70,000 to $80,000 a day. The number of active vessels trading in the spot market should start to fall as more charters look to lock in shipping to cover their medium and longer-term requirements. This is likely to happen at a time when more spot LNG becomes available for trading, further driving up utilization and rates. Turning to Slide 17. The top graph shows the impact of improving spot rates on GasLog's profitability to the 5 vessels we have trading in The Cold Pool. If rates increased from 2016 levels of around $20,000 a day to a long-term average of around $75,000 a day, GasLog's 5 spot vessels will generate additional $100 million of EBITDA with no incremental CapEx. The graph below shows in addition to our spot exposure, we have significant in-built growth from our 5 future new deliveries all of which have charters for multi-year contracts to high-quality customers. These 5 vessels will also generate well over $100 million of EBITDA when delivered and on the charter. So a combination of our organic growth and the spot market returning to a long run average rate would add approximately $200 million of additional EBITDA to the group. So turning to Slide 18 and in summary. We reported record revenues for the quarter and a strong EBITDA growth year-on-year. We have significant visible future revenue and EBITDA growth from our new newbuild deliveries and expect an improving market to help drive future growth. Our strategies of dropping down assets to Gaslog Partners to recycle equity, to grow and to delever continues to serve us well. Following the dropdowns and the equity issuances of GLOG, the GasLog Group has a strong liquidity position. We continue to make encouraging progress on our FSRU project in Alexandroupolis. And finally, GasLog's strong financial, operational and commercial platform positions us well to benefit from these improving fundamentals now and into the future. And with that, operator, I would like to open the call to questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Jon Chappell with Evercore.

[JonChappell:]

Paul, my first question is on the FSRU business, just two-parter, if you will. It seems that the FID being pushback a little bit on this Gastrade project just maybe explain what's going on there, is it offtake or do you see it is taking a little bit longer than you expected? And then the second part of it is, is these project kind of your test case in this business? And then I know you just said you ordered long end items for potential second one, but do you really want to make sure that this one moves forward and you're comfortable with how this FSRU business develops before you start tendering for other projects?

[Paul Wogan:]

John, the FSRU falling back, I suppose on 1 side business surprises, these projects do tend to take -- have a bit of a longer gestation period. It's a combination of the FEED taking a little longer than the first forecast and also the negotiations on the off-take. There was some slowdown, we've been clear that the major uptake discussions are with Greece and Bulgaria and change of government in Bulgaria, which took a while to part down. So those are just taking a little bit longer. But we remain very positive about our project and are very pleased with the way that, that is progressing. And the most important thing is that we get this sort of match in with the top pipeline which is being built and the Greece-Bulgaria interconnect, so everything is sort of lining up for that at the moment. So we maintain a positive view of this project. And in sense of it being a test case, obviously, it's the one that we are progressing. But in the background, we are progressing other opportunities, and we wouldn't necessarily have to do this before we would do something else, John, and I think the fact you've seen us taking on some additional long lead items tells the fact that we're progressing in a number of areas. What we don't want to do is certainly find that we can't progress on 1 project because we have a ship on the certain time committed to another project. So whilst we like to get this one to over the line and get it up and running, it's not something that we must do before we would look at other projects.

[Jon Chappell:]

That's very clear. Thanks. And then second question, I want to match up the press release with the presentation, is great chart from (inaudible) on the historical correlation between the number of active ships in the spot market. And then you mentioned in the press release that you're seeing some offtakers that don't have all their shipping requirements and that is starting to lead to an increase in tender activity. Are you talking about kind of short-term tender activity for the shipping requirements, or is there more of a demand for longer-term? And then how does that kind of matchup then with the timing of this chart? Could this be early '18 story, or is this more of a '19 tightening story where there is only 15 to 20 active ships in the spot market?

[Paul Wogan:]

Yes. So taking the first bit, John. The requirements -- there are requirements right now for future deliveries, so which could probably will take newbuildings, but there are also requirements right now sort of what we would call medium-term contracts between -- we're starting to see return of people looking for between 1 and 3 charters per vessels, which would take ships out of the market. What we found in a number of the U.S. projects in particular is that a number of the offtakers have left it so late that they can't take newbuildings. And if they want to take newbuildings, would have to anyway, so that puts some bridging solution in place. So either they're going to move that on the spot market, which I think if you have offtakes is fairly fraught with danger, all they're going to come and take some of the spot vessels out of the market. And that's happening now and will continue through 2018. So I think we see this -- I think we started to see the signs of this tightening coming through, and I think it continues through 2018. I don't think you have to wait for 2019 for that to become the story.

[Jon Chappell:]

One simple last quick one and then I'll turn it over and apologies if this has been out there and I just missed it, but I noticed in the press release that Hull 2800 which delivers first quarter next year, that charter doesn't start until the first quarter '19. Does that always been the case? And also, what is the plans for that ship then in that potentially 12-month window, is it going to be just in The Cool Pool?

[Paul Wogan:]

Yes. We much that -- the reason we took that and then we matched that off to another charter. So I think we've reported that a couple of quarters ago, John. But yes, the intention is either we'll find a bridging charter for it, or we would trade that in the spot market. It's quite interesting because it's one of the first of the new generation of XDF vessels coming on to the market, so very -- I think what's quite interesting is it gives some charters the opportunity to take a look at using that vessel and that type of vessel going forward. So I'm pretty confident that we'll find a good hope for it, probably on a term contract rather than trading spot, but we'll have to see.

[Operator:]

Our next question comes from Chris Wetherbee with Citigroup.

[Prashant Rao:]

This is Prashant on for Chris. I wanted to follow up on a couple of questions around Alexandroupolis. In terms of looking at a vessel, I know you said that generally looking at FSRU use in the longer term you have been to booking and building conversions, but just wanted to get some thoughts on this particular projects if you're leading one way or another. And sort of related to that, about speed to market the advantage that you might have there, just how that's developing and what would be the timing after FID given the slight delay for the vessel conversion? And could we be seeing something that come up and running by end of '18 or is that pushed out to 2019 at this point?

[Paul Wogan:]

Yes, I think given the timing on the Alexandroupolis project, it's very unlikely that we will have a newbuilding ready in time, so that's probably going to be heading towards a conversion vessel. In terms of the timing for that, I think we -- when we bought the first set of long lead items Prashant, we talked about the fact that as those deliver and there is about a year delivery window on them. Once those are delivered, we're talking of somewhere between 6 and 9 months to do a conversion. Having bought the first set of long lead items in December, that means that come this December, we ordered them sorry in December, come this December, really we're looking at between 6 and 9 months, so we could have a ship ready within 2018 if we were -- if everything was in order. So that's -- and that sort of speed-to-market I think is an advantage because often when people want FSRUs, they suddenly decide they want them and them want them yesterday, not in 2 or 3 years time.

[Prashant Rao:]

Understood, that's very helpful. I guess sort of related to conversions times 2, right now the order book on the carrier market size is pretty controlled. But given the ramp and capacity -- ramp and liquefaction that's coming and the tightening in the spot market, how is inquiry activity of the shipyards for new carriers? Has there been increased activity? With competition in slots between carrier and newbuilds and the FSRU conversion and shipyard capacity, how does that play out or is that a little too early to tell?

[Paul Wogan:]

Yes. What's been interesting is that we saw -- we did see some orders in the last quarter and Yamal ordered the 4 ships for Yamal, but in general, and anecdotally what we're getting back from the shipyards is that we are not getting a lot of interest in people going and building speculative newbuilding vessels. Does (inaudible) turn charters against them and obviously, that will continue to happen, given the needs of some of the offtakers from the U.S. projects. But in general, there's not a lot of appetite or interest to go and order speculative ships, and that's partly I think a factor of the market. But partly a factor of the financing of it, to go and finance ships without charters, you have to put a lot more of your own equity into those vessels. In terms of FSRUs, mainly the FSRU conversions will be done in conversion yards. For example, the first one we're looking at is with capital. So the FSRU conversions taking shipyard capacity will not be an issue. Newbuildings would be taking capacity. But I don't think that the capacity of the shipyards would be something in the longer-term would create an issue. In the short term then maybe I think a shortage of vessels, given what we're seeing in terms of the number of orders and the amount of new product coming on. But I think longer term, certainly, we'd never bet on the fact that shipyards will be able to turn out the ships over a longer period, if you like.

[Prashant Rao:]

And just one quick last one and I'll turn it over. In the quarter, turning to just the operating expenses it seems like there's a little bit of an uptick in some of the vessel operating expenses in the quarter. I know at Partners there was bit of a -- it was really attributable to timing or you saw something similar, I was wondering if that's the same thing that we're seeing here or anything to read into that?

[Alastair Maxwell:]

Hi Prashant it is Alaistair. No, that's exactly what it is. It's a timing difference and I think we mentioned this in Q1 as well. And so we expect a little bit of a tick up in Q3 and Q4. But if you look at on annualized basis, and we expect per vessel per day OpEx cost to be consistent with what they've been in the past.

[Operator:]

Our next question comes from Michael Webber with Wells Fargo.

[Michael Webber:]

And one for me just Paul wanted to start first or maybe Alastair, just conceptually, we're entering year 4, I guess, that was the period where you will get wider cost of capital at the MLP level across the board for this space (inaudible) this price (inaudible) name but it's still a bit wider than what would be sustainable longer term for most models. I'm curious, it has been a few years now. One, what tools do you think you realistically have at the parent to kind of assist in those drop down economics? And 2, has it started to permeate the way you think about tendering for new business and/or the price you paid for tonnage?

[Alastair Maxwell:]

So I think in terms of the cost of capital for the MLP, you're right that it's a little higher in terms of the yields than it has been at some point in time over the last 2 or 3 years, but it's definitely still at a level where a drop down will work economically for us and work for them. So I don't think it's causing a problem at this stage. We likely to yield less than it is yielding today of course we would but I think the cost of capital is still works for both companies in terms of their business models and has worked very nice.

[Michael Webber:]

Within the existing split structure it might work today but if kind of roll it forward for the next year or 2, just kind of thinking longer tern, is there something that is kind top of your priority list right now in terms of kind of figuring out a way to work around it?

[Alastair Maxwell:]

Yes. So good question. So not top of the priority list today. We don't think it's having a noticeable impact on cost of capital if you look at how the company is trading relative to its peers. It is something that we monitor closely and regularly because we get asked about it regularly. And I think as soon as we get closer to the 50% (inaudible) and when we monitor even more closely, and I think it is something that we won't leave it to later and we won't let it become a problem for either company. So monitoring it closely but not today's business.

[Michael Webber:]

Paul, just a follow-up on the shipyards. I mean an interesting king of commentary around that they are not seeing as much spec interest as they would've liked, especially after we've seen the first drop in values in what seems like about a decade. So just curious on your end, what new build price would it take to incentivize you to take a flier on a new build asset right now

[Paul Wogan:]

Yes. I think if you look at the pricing of the vessels, it's been pretty much within a fairly type 1 for quite a few years now. If you took $200 million, 10% plus or minus, you're in that bond. And I think we're still within that bond, albeit at the lower end of it. I think for us, Mike, I don't think we need to be rushing out to do speculative orders. We have a number of things that we're looking at a moment and our goal is that we'll be able to put some -- continue to grow the business with newbuildings by putting long-term contracts against it, so that's kind of our first priority. And it's actually playing into everybody's hands the fact that people are not going out and ordering newbuildings. The longer you keep saying, the longer it goes on, the more the increase in demand, which is coming has to be taken from existing ships and the more is going to help the existing ship markets. So right now I wouldn't put a price on the price that we would need to go and do speculative. I think we would be quite happy with how things are playing out at the moment.

[Michael Webber:]

Maybe I'll just come to that from a different angle, at what price point do you think you would incentivize other people on the market to step in and place speculative orders?

[Paul Wogan:]

Well, we haven't seen any so far and, I think, given the fact that (inaudible) kind of 10% up or down $200 million I think we're at the lower end of that. We haven't seen people been incentivized. The next question is what price could the yards do to give an incentivize. And I think if you look right now, there's huge pressure on the yards, so if you take the Korean yards particular, Hyundai and Samsung gave huge pressure from their parent companies not to continue to the rack up the losses. The SME having taken billions in government subsidies is also under a lot of pressure not to take loss making orders at the moment. We are seeing a rationalization in the market there with around 30% of the capacity being taken out. And anecdotally, one of the shipyards told they are taking 50% of the LNG space out. So my question whether the shipyards are going to be allowed to actually drop the prices far enough, given the price where they are now is not stimulating speculative orders. Whether they are going to be allowed to drop it far enough to actually drive that speculative demand and as I said, I hope they don't because I think it's positive for the market right now.

[Michael Webber:]

Fair enough. Fair enough. (inaudible) Samsung you wanted 160, but I appreciate it. It is one more from me and I'll turn it over. You mentioned ordering -- I don't want to spend much time on (inaudible) gasco. That is relatively small thing considered, but you mentioned placing in the process of ordering long wait items for a second project and that looks like you're doing that to Samsung and not for Kappel. I am just curious is the right way to look at that a second project or your dashboard per se is more heavily weighted towards newbuild solution rather than a conversion.

[Paul Wogan:]

No, not at all. We are actually -- we have been discussing doing a conversion at Samsung shipyard has probably worked a little bit for the fact of them having available capacity. So now that long wait items could be used in a conversion, which we do there and what it does is by talking to about capital and Samsung having that optionality means that we can actually we -- if we wanted to, could run 2 projects in parallel.

[Operator:]

Our next question comes from Douglas Mavrinac with Jefferies.

[Douglas Mavrinac:]

I just had a few follow-ups for you all as well. With my question is mostly market related. You guys did excellent work in the presentation kind of talking about where the market strength is in some of the developments. And my question is kind of connection with the dots. So the 11% increase that we've seen year-to-date in spot fixture activity, it's increased over last year, 60% year-over-year increase. And we've seen the corresponding effect on utilization levels. My question more pertains to the specific number of ships and maybe trying to correlate that with the all-square chart that you did in terms of vessel availability versus rates. And so given the 11% increase in spot fixture activity, last year, we started the year with about I want to say 40 ships that were deemed either idle or available with 30 days notice. We ended the year with about 20 ships. Do you guys have a feel for what that number of available ships is today in terms of, if we decline from 20 to something less than that given the uptick in fixture activity?

[Paul Wogan:]

If you look at how -- over the next 30 days, the latest number we have on that dug is 17 vessels. What's interesting is you have 1 vessel in the Atlantic Basin available over the next 30 days. You have 8 in the Middle East and 8 in the Pacific. So also it depends a little bit on where we are in terms of the allocation of those vessels. What's been interesting is you've seen the market strengthening quite quickly on the back of that availability. Now that made -- I think it's dangerous to say that's going to be the number and that's going to continue to go down over the year because I think with talked about seasonality and we may have a couple of shoulder months coming up before we head into the northern hemisphere winter, but we are seeing that come down quiet considerably and that's why I think our comments in the prepared piece were a little bit more optimistic about the tightening and strengthening of the market because we're starting to see those sort of types of numbers 30 day availability numbers.

[Douglas Mavrinac:]

Right that is incredibly helpful, Paul. And then as we look forward towards end of this year and you look at incremental demand catalyst, you mentioned the beginning of commercial production at Sabine Pass Train 4 and then Wheatstone coming online, so for those 2 in particular, either through industry conversations or first-hand knowledge, can you provide some colors for us, how Train 4 at Sabine Pass is progressing in terms of the commercial production and then also timing of when Wheatstone should begin to produce as well?

[Paul Wogan:]

Yes. So I think in terms of Sabine Train 4, everything we're hearing is that's all on target and I think it's actually starting production, not sort of commercial production but starting production as we speak. And in terms of weeks, Wheatstone, I think, again, that's due to start relatively soon and again, we are not hearing any noises so that's not going to come out on time. So I think Chevron's CEO announced that it was on tract to start off later this month, if I remember correctly, Doug. So yes, I mean it's interesting to see that we've got used to some of the projects especially Australian projects dropping back and also I wouldn't say it's unlikely in the U.S. I think it is less likely given the brownfield sites and also, given some of the pressure on the companies that are building them and the skilled workforce, et cetera, has come up and seems to be that the U.S. ones are holding to schedule certainly better than we've seen in some of the ones historically.

[Douglas Mavrinac:]

And then final question within the context of matching time charter contacts with potential growth opportunities, i.e, newbuilds or even new options that may still be out there, given that you guys generally see the first call from charters looking to secure 5, 6, 7, 10-year time charters, where would you say the time charter market is for, you know, of new vessel for 7 years or newbuild with prompt delivery. What is the level for 7-year time charter for a vessel of that vintage and then also how would you describe the demand from charters to lock up additional tonnage at those types of durations?

[Paul Wogan:]

Yes. I think we probably -- I don't know what's happened on the (inaudible) and certainly, I think before that we probably did the last couple of deals, which were done in the mid-70s, around the long run average, so when you're talking about the newbuildings, you're looking at those sort of type of rates still for the vessels. And in terms of the existing fleet, if that was -- I wasn't sure if you're asking that question, Doug, we haven't seen right now we haven't been seeing requirements for that period of time. We're seeing more sort of 1 to 3-year requirements, I think as the market tightens and people get concerned about (inaudible) ships, we will see, I think the longer term, the 5-year requirements coming in for existing ships but haven't seen that as yet.

[Operator:]

Our next question comes from Gregory Lewis with Crédit Suisse.

[Joseph Nelson:]

This is Joe Nelson on for Greg today, and thanks for taking my questions. Maybe just one from me kind of a follow-up on some of the earlier questions that have been asked. You mentioned in your release this morning, it looks like you've gone a little further down the road with capital engaging them and maybe some more engineering work for an FSRU conversion. Is that in response to maybe in anticipation of your project increase, or is that really more just a preparatory work for some of the other projects and opportunities you guys are pursuing?

[Paul Wogan:]

Yes. The good thing about the engineering work is that it's fairly generic. So it can be used for either, so as we talked about, Joe. We are looking at obviously, the Greek project is high on our list and one that we are driving -- trying to drive to conclusion but we do have others that we're working on as well. So it could be for either role.

[Joseph Nelson:]

Okay. And then I guess, maybe just somewhat of a follow-up to that, I mean, it is kind of given the cost competitiveness of an FSRU conversion, you've gone down the road of ordering some long-lead items, I mean, is it possible that you would potentially convert an asset ahead of actually having a project? And I guess, maybe related to that would having an open FSRU maybe helps the marketability as you pursue these projects in your opinion?

[Paul Wogan:]

Yes. I think the reason we went to secure the long lead items is that it gives us the option to get it shipped on station to set within 6 to 9 months, so from December this year, 6 to 9 months. We think that means that we don't literally have to grab and convert because it's very unlikely that we would see the project that would need to convert and have a ship on station quicker than that. So for us, it's a great way of finding these long lead items as a great way to have optionality and still be able to move quickly enough, so we don't have to go to expense between a full conversion taking the vessel out of service, losing the higher on it until we know that we have a project in hand. So the moment Joe, we don't have any plans to do a conversion without a project against it.

[Operator:]

Our next question comes from the line of Fotis Giannakoulis with Morgan Stanley.

[Fotis Giannakoulis:]

So Paul, I want to ask again about the vessel availability, the Poten slide, you mentioned that we have approximately 30 to 35 vessels available -- active in the spot market. I understand that approximately half of them, they are available right now, readily available during the next 30 days. How is this number changes when trading activity increases? I understand that a lot of trading is limited after different base in some -- there are no movements of cargoes between 1 base and to the other. And also how do you expect that the trading activity to grow in the future?

[Paul Wogan:]

What is interesting, I think, if you look that availability and it does obviously go up and down depending on the absolute number. If you look at July, July was actually a record month for fixtures, 36 fixtures were done in July which obviously absorbs a lot of the existing fleets. So probably then is not a surprise if you only have 17 ships coming available in the next 30 days because that's tied up on the existing ones. The other thing that is interesting is when you get to the point where we are now which 1 ship available in the Atlantic Basin, if you want to draw in more ships, those ships have to balance them from probably the Middle East. We've got 8 ships in the Middle East, 8 in the Pacific which means that those ships are tied up for longer because they're coming in positioning to take out cargoes and they have to (inaudible), et cetera, so that's how you gain some of the movement between the basins. And the other thing about was the fact that we're going towards a round-trip economics, so those ships are actually being paid quite well now to come into the Atlantic Basin. The other thing is that we're starting to see an equalization between the Atlantic and the Pacific basins. So far this year, the Atlantic has tended to pay better than the Pacific. That started to change because we're seeing more fixtures in the Pacific as we see the Australian projects ramping up and seeing more production in that area and more need for shipping. And so if you follow the brokers reports, you will see that those 2 basins are starting to become much closer aligned in terms of the price per shipping.

[Fotis Giannakoulis:]

Thank you, that's very helpful. I want to ask you about your discussions with your customers on both long-term contracts. And in particular, about the 3 vessels that they are at the GLOP and they are going to come out of contract in 2018. Have you had any discussions? Is there anything that in the background that you can give us about the extension of these vessels? And if these discussions do not develop the way that you expect, are there any thoughts for swapping these vessels with other vessels in your portfolio in order to support the cash flows over GLOP?

[Alastair Maxwell:]

Alastair here. we talked about this on the GLOG call last week and so I think the answer is we are having multiple conversations with multiple people of options for those vessels, of course, the first one doesn't redeliver to us until May of next year, the second one is in September, I'm sorry, is in July, and then the third one is in September, so we still have quite a bit of time to go. And we are clearly expecting the market to be in a stronger place when we get into 2018 relative to where it is today. But we're having multiple conversations with multiple people, I think that we don't feel we're in a hurry to do anything. And including having conversations, obviously, with Shell. I think that as we go through 2017, 2018, we definitely expect ourselves to be in a better position. We also, if necessary, as Andy said on the call last week, if we need a strait of vessels in the spot market short period of time, we're prepared to do that. You asked about parent support in the shape of swaps as well. You will probably know from our public disclosure that there is an agreement between GasLog and GasLog Partners, that we would enter into a (inaudible) charter to make them hold for the distributable cash flow on Sydney, which we deliver in September of next year. And if we need to do that, then clearly we will do that. And in addition we have compensations around things like swaps from time to time, it's something which is on the menu, it's executable, but I don't think it something which we have any concrete plan to do today.

[Fotis Giannakoulis:]

Thank you very much Alastair, that was very helpful. One last question about the market and Paul you mentioned about the Chinese demand that is increasing rapidly. Apart from China, because China, since it has bought a lot of volume, where else do you see that there is going to be demand for long-term volume that can support offtake agreements and new projects, new FID's? And if you think that Chinese, the agreement between China and the U.S. will have any impact on this FIDs and if it does, we can see project supported by Chinese and long-term contracts out of the U.S?

[Paul Wogan:]

Yes. I think first of all, where we would see that additional demand coming from would be the places where you're getting LNG as a substitute for indigenous gas production, which is falling away. So the big market for that places like Thailand, Bangladesh, Pakistan. I think Pakistan recently announced that they were expected to have a market of 30 million tons by 2025. It's a huge increase. So the thing about those companies is they have the existing best infrastructure, they got the pipeline, they're used to using gas, they want gas to replace gas, and so those I think are the big markets. In terms of -- then I think it becomes a question of will they sign long term contracts, have they got the right if you like credit rating, things like that. Obviously in China, that's not an issue. Thing was interesting for me and this was something that already came out from our conversations this week with Wood Mackenzie, was that, there has been a lot of talk, or I certainly thought, there was a lot of talk around the fact that the Chinese market was oversupplied. They're advising is that they think that by 2018, they're actually under contracted compared to their demand was actually quite an eye-opener for me. Now given the growth that the Chinese want to have in the gas consumption, given a lot of that consumption is in the coastal market, which is much easier to serve through LNG than through the costly pipeline structure in China, we would expect to see a lot of that coming in there. Therefore, I think, we will see the Chinese taking decisions to look into longer-term gas. So I think that is definitely an interesting market. And then, of course, we talked about Korea as well and some of the changes there given the change in government, the environmental focus, the desire to use gas in replacement for coal and nuclear. And again, Cogas I think in the U.S. has signed 3 MOUs around developing new projects, I think to fund them on the long term and again that would be long-term as SBAs in my opinion.

[Fotis Giannakoulis:]

Thank you, Paul. One last question, a little bit broader about your growth plans. And you are dominant in the LNG shipping markets, you're expanding in FSRUs, I'm wondering if there are any thoughts of other type of expansion? We are hearing about the small-scale LNG carriers and small-scale liquefaction projects, smaller vessels like what the Stolt-Nielsen is looking, or even investments in power projects? Are there any thoughts of future expansion in these areas outside of FSRU with traditional LNG carrier markets?

[Paul Wogan:]

I think at the moment, 2 things that we spoke. I think we got our plate full at the moment with potential projects for LNGs and FSRUs which is a nice place to be. In terms I think our core confidence, I think, what we're good at is floating projects. So to move into the power space right now is probably not something that they would look at. On the smaller scale, though, I think its 2 things. One is you need to be clear were the value is coming from, how you're going to make a return on it and so to just go into that market, I think, speculatively probably would not be attractive, but I think a customer pull where we worked with one of our customers to provide them with maybe break (inaudible) on cargoes that we're bringing in and allow distribution, et cetera, would be something that could be of interest to us. So that certainly is but it would be more of a customer call that us making announcements certainly that we're going to go and build 5 small LNG vessels.

[Operator:]

Our next question comes from Noah Parquette with J. P. Morgan.

[Noah Parquette:]

We have like over a year of data and at this point 4 vessels at Sabine Pass. Can you give us color on what those ships are doing, the ones that go to Asia, what they're doing for the next cargo, if they are just [ballisting] back or if there's some sort of triangulation or backhaul cargo that they're able to pick up?

[Paul Wogan:]

Yes. Good question though. I don't have the definitive answer to that, except to say that we've been seeing quite a lot of activity in the Middle East certainly, so what you may see some of the vessels that continuing to trade in the east, dropping down into Australia, et cetera. But also the way that you've seen the circulation of the vessels recently has been through the Middle East and especially Qatari volumes going into places like South America, Egypt, et cetera. So some of the ships have been finding their way back into the Atlantic through that. And then some of them have actually been [ballisting] back when you tightness in the Atlantic and availability of ships that some of the charters have been willing to pay for repositioning cost to bring vessels through, so little bit of a mixture, I would say.

[Noah Parquette:]

Okay, that's great. And then just one other question on, would love to hear your thoughts on the Japanese ruling on destination clauses and how that would affect on your shipping?

[Paul Wogan:]

Yes. I think it's something to sort of being happening -- that sort of destination clauses have been sort of slowly falling by the way side as we have seen new products coming on in Australia and the U.S. which does not have the destination clauses. I think you're right, the recent ruling in Japan is going to make it very difficult for people to supply into that world's biggest market with destination clauses. On the one side, it was helpful during the really tight market in 2012 when people were discharging or taking cargoes to one area, discharging, just reloading it and taking it back again, it certainly has a [mild] demand. But I think overall, for the market, for shipping market it is better that we don't have destination clauses because it does allow trading to happen. And I think once you have trading happening, the cargoes go to where the best pricing is for that cargo, and when we see that happening my experience in shipping in the product tanker market and crude oil market is that actually adds to the ton-mile demand, adds to the ton-time demand if you like because people are waiting to see where the best market is, et cetera. So I think overall, we would be big supporters of destination clauses that are coming out of those contracts.

[Operator:]

[Operator Instructions] Our next question comes from the line of [indiscernible] Landmark with Burnley.

[Unidentified Analyst:]

It is going late, but I just wanted to, there is a couple of kind of short-term tenders out there for 2, 3 years, starting next year and, kind of, the market charter is that rates are quite below what you people will get for newbuild, kind of more in line with the prevailing spot rates. I was just wondering what kind of that tells you about the market expectations for '18, '19 and '20, assuming this is correct?

[Paul Wogan:]

Yes. If you look at what's been happening, we've had one charter in the market for multiple ships and trying to get multiple owners to offer in. I think from what we understand, they were able to get 1 ship with a fairly low rate and then we're unable to replicate that with other ships and kind of pulled away from the market, how to think about it. So I think there are outliers there that are willing to do lower rates, and that's fine and we're happy for that low-hanging fruit for the charters to disappear. But I'm not certain that has any depth in the market at really low rates. I think people are seeing what's happening in the spot market, seeing that is strengthening and sort of saying why would I want to commit it at this some point, at low market rate.

[Unidentified Analyst:]

And I guess on U.S. cargoes, this is a big delta again on the vessels requirements. And kind of based on the destination it seems to be going elsewhere than kind of what the contracts suggest, so just kind of wondering if you have seen any trends in terms of, is this just 44 new players reshuffling or is it more deferrals also amongst the (inaudible) quarters?

[Paul Wogan:]

I think if you look at Sabine, what's important to remember, is this the (inaudible), then Cheniere takes that sort of ramp up period and trades it and then at certain point, the offtakers come in and take that cargo. So we'll be a little bit careful and not reading too much into it, but I think with a portfolio of players, in particular, we've been a second most active shipper -- shipping company out of Sabine. And certainly, our customers have been taking it over the place with that. So it's Cheniere and it's the portfolio players, I think, just doing what we expected, which is going to where the best arbitrage is, the best pricing for the product rather than sort of being focused on certain destinations.

[Operator:]

I'm showing no further questions in queue at this time. I'd like to turn the call back to Mr. Wogan for any closing remarks.

[Paul Wogan:]

Yes. Thank you very much, Liz. And thank you to everyone on the call today. We appreciate your interest in GasLog, and we look forward to speaking to you again soon. Thank you.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone, have a great day.