GasLog Ltd.
Q4 2018 Earnings Call Transcript

Published: 14 Feb 2019

[Operator:]

Good morning. My name is Gigi, and I will be your conference operator today. At this time, I would like to welcome everyone to GasLog Limited's Fourth Quarter 2018 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 conference 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 fourth quarter 2018 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 2 of the presentation. Many of our remarks contain forward-looking statements. For factors that could cause actual results to differ materially from these forward-looking statements, please refer to our fourth quarter earnings press release. In addition, some of these 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, CEO of GasLog Limited.

[Paul Wogan:]

Thank you, Phil. Good morning or good afternoon and thank you for joining our fourth quarter earnings call. I'll begin with a highlight of 2018 and update you on our strategic progress. Alastair will take you through the financial review and an update on Project Alex. I will then review the current trends in the LNG and LNG shipping markets before opening the call for questions. But before we review the past quarter and year, I would like to share with you the key reasons why we believe that the outlook for GasLog's business is so positive. Firstly, the macro backdrop for gas and LNG consumption continues to improve. Secondly, we are confident that the recent fall in spot LNG shipping rate is seasonal in nature. And the market will recover, particularly given the significant U.S. LNG supply expected to come on stream during 2019 and 2020. And finally, GasLog is delivering on its strategy. Our nine new buildings underpin a visible growth runway through at least 2022, and represents substantial progress toward our target of more than doubling consolidated annualized EBITDA by 2022. Turning now to our results on Slide 3. During the fourth quarter, we delivered record revenues and EBITDA, driven by very strong earnings from our spot ships and a reduction in unit operating costs. These factors allied to the fleet growth in 2019 also delivered record annual financial results demonstrating our platform can translate market tightness into impressive earnings and cash flow. In December, we announced that we had agreed two multiyear contracts with Cheniere and two services contracts. We ordered two new buildings at Samsung for delivery in 2021. Our relationship with Cheniere has grown significantly having secured five multiyear charters with them in 2018. These combined with the two Centrica charters continue to diversify our customer base. The decisions to partner with GasLog highlights our ability to deliver a differentiated service to our customers founded upon our core principles of operational excellence and an uncompromising approach to safety. GasLog partners continue to make its distribution growth targets and provide equity of the growth of the group. During 2019, we dropped down two vessels. In November, we announced an IDR modification, which permanently improve the partnership's expected cost of capital. And also in November, we were able to deliver enhanced returns to shareholders through declaring a special dividend of $0.40 a share and authorizing a share repurchase program. We also increased the common dividend by 7% year-on-year in 2018. Finally, as I will highlight later, we've made great progress towards our Investor Day target of more than doubling consolidated run rate EBITDA over the 2017-22 period. Slide 4 illustrates GasLog's significant achievement since our IPO. Our fleet has grown by 3.5x, and we've been one of the industry leaders in ordering the latest generation XDF ships with low boil-off rates. We've delivered this growth without a major increase in shore-based staff, demonstrating both the high quality and work ethic of GasLog's employees and the efficiency built into our operational platform. Through fleet growth and improving spot market and cost discipline, we have delivered compound EBITDA growth of over 50%. Throughout the period of low spot earnings, we never cut our dividend. And since our IPO, we have delivered 5% compound dividend growth, not including the $0.40 special dividend announced in November last year. Slide 5 shows the progress we have made towards our target of more than doubling consolidated run rate EBITDA over the 2017-22 period. The earning power of our spot vessels was clearly demonstrated in the fourth quarter. And I'm confident that a tighter market for the foreseeable future will generate the spot earnings we need to deliver on the first pillar of our growth. We've also seen significant interest in our opened new builds, which are due for delivery in the third quarter of this year, and second quarter of next year. We are currently in sharpened discussions on both these vessels. The five new builds we have ordered since the Investor Day provide around 60% to 70% of the incremental fleet growth required. Given our track record, I'm confident that we can continue to grow the fleet backed by long-term charters with high quality counterparties. Now let me hand over to Alastair.

[Alastair Maxwell:]

Thank you, Paul, and good morning or good afternoon to you all. Please turn to Slide 6, where I'd like to take you through our fourth quarter and annual 2018 results. As Paul has mentioned, we reported record results with significant improvements in quarterly and annual revenues, EBITDA and adjusted EPS due to the growth in our fleet, strong results from our spot ships and tight control of both operating costs and G&A. Our leverage to the spot market is demonstrated by the $26 million of the incremental spot TCE revenue delivered sequentially in Q4 2018 or $104 million on an annualized basis. Fourth quarter unit OpEx and unit G&A declined by 28% and 11% respectively. Overall, 2018 OpEx of $14,306 per vessel per day came in below our previous guidance have been broadly in line with 2017 levels. The fourth quarter of 2018 in particular sore a number of factors, reducing unit OpEx, some of which were one-offs, and some of which are recurring. These factors range from the benefits of fleet growth, a weaker euro impacting the cost of crew wages in U.S. dollar terms, insurance and tax rebates and the successful initial efforts of our cost reduction program. In 2019, we anticipate that unit OpEx will be around $15,000 per vessel per day. This reflects our expectation that some of the factors was positively impacted 2018 OpEx were one-off in nature such as cadet training subsidies and insurance and tax rebates. This guidance also excludes one-off costs associated with tank cleaning activities to comply with IMO 2020. And OpEx will be subject to movements in FX, particularly the euro dollar exchange rate. We expect unit G&A in 2019 to be broadly in line with 2018. The cost discipline delivered in 2018 demonstrates the operating leverage in our platform as off fleet continues to grow. As a result, while our revenues increased by 39% year-on-year on a quarterly basis and by 18% on an annual basis, our reported EBITDA increased by 62% and 26%, respectively. As Paul mentioned earlier, our strong financial performance in 2018 GasLog Partners' success in accessing new equity and the positive outlook for our business, allowed us to reward our shareholders with a special dividend of $0.40 per share in Q4. The strong LNG shipping market we anticipate through at least 2021 and continued execution of our strategy may give us additional scope to enhance return to shareholders above and beyond the common dividend. Turning to Slide 7 and our financial position, which continued to improve during 2018 as we repaid a total of $206 million through scheduled amortization and the full repayment of the junior tranche for the five vessel debt facility. On this slide, we show the evolution of net debt to LTM EBITDA and net debt per vessel. While both metrics saw an increase in early 2018, as we drew down new debt on delivery of the three new buildings, the EBITDA contribution from these vessels, scheduled amortization and the strong cash generation of our spot ships in the fourth quarter accelerated that delevering trends, even included the impact of the special dividend. While leverage will rise periodically from debt drawdowns, just we received new vessel deliveries this year and next, we expect the overall trends remain downward, primarily due to our amortization schedule. As concerned our next debt security in November this year, which is the GasLog Partners' $450 million facility, we are in advance discussions with several banks and expect to complete the refinancing within the first half of this year. Moving to Slide 8, we have updated the chart illustrating our future capital commitments to incorporate the Cheniere newbuilds announced in December. We currently forecast cumulative cash payments for the equity in the ships represented by the light blue tranches at the top of this column to be $350 million, assuming 70% loan-to-value for the financing of our newbuild vessels. We classify this unrestricted cash balances at year-end 2018 of $215 million as shown by the thick green line, free cash flow generation from our growing on the water fleet, a strongest spot market and further dropdowns with the partnership having already secured the equity funding to acquire another vessel from GasLog. Moreover scheduled debt amortization continues to free up balance sheet capacity. The funding requirements reduce it significantly if we choose to finance our newbuilds at 75% loan-to-value, which is eminently achievable for newbuilds backed by seven-year charters. Slide 9 illustrates the continued success of GasLog Partners in accessing equity capital and our ability to recycle that to GasLog through accretive dropdowns. Last year, the partnership raised $277 million of equity capital from third-party investors and recycled over $200 million to GasLog through the two dropdowns and the consideration for the IDR modification. In total, GasLog Partners has recycled over $700 million of equity to GasLog in the form of cash and units since the partnership's IPO in 2014. Slide 10 provides an update on the Alexandroupolis FSRU project in northern Greece, Gastrade in which GasLog owns 20% continued to make good progress on the development of Project Alex. The first phase of the market test resulted in 20 companies submitting expressions of interest for up to 12.2 billion cubic meters per year of throughput, significantly more than the 5.5 bcm per year technical capacity of the project. Preparations for the second phase of the market test are well underway. Good progress is also being made on the FSRU and pipeline tenders. DEPA and Bulgartransgaz, a subsidiary of Bulgarian Energy Holdings, continues to work towards formalization of their respective shareholdings in Gastrade. Gastrade expects a final investment decision in the middle of this year although this does require meaningful near-term progress on critical part items, including decisions by various regulatory bodies. The project is expected to start up in the second quarter of 2021. More generally, we are seeing the very early green shoots of recovery in FSRU market, and we continue to look at projects where we can secure early entry and avoid competitive tenders to increase the likelihood of success. Now let me hand back to Paul.

[Paul Wogan:]

Thank you, Alastair. And turning to Slide 11, both the near and long-term fundamentals for LNG shipping continue to strengthen, underpinning the positive GasLog equity story. Natural gas and LNG demand continue to benefit a country switch from polluting primary fuel sources. For example, several shipping sectors are starting to use LNG as a bunker fuel, largely driven by the requirements of IMO [indiscernible] 2020 for ships to use low sulfur fuels. [indiscernible] While this is presently not a major market, if LNG supplied the entire bunker fuel requirement, this would create an approximate 200 million tonnes per annum of extra demand or around two thirds of today's total demand for LNG. The switch to gas appears to be supporting the notable increase in long-term offtake contracting, which will underpin further liquefaction FIDs. And the LNG market is growing and evolving with more points of supply and demand. Portfolio players and commodity traders continue to increase their market presence. Inter-basin trade is increasing as more U.S. liquefaction capacity comes online adding to tonne-mile demand. This will all require incremental shipping capacity creating an opportunity for GasLog to secure charters for new and underwater vessels. Slide 12 shows the annual increase in LNG imports by country. LNG demand grew by 25 million tonnes or 9% year-over-year in 2018. While China posted the largest increase importing over 15 million tonnes or approximately 40% more LNG year on year, LNG growth has been broad-based, particularly in Asia, where demand from South Korea, Pakistan and India has grown by a combined 10 million tonnes or 16% year-on-year. Slide 13 illustrates the impact of LNG demand growth on tonne-miles. According to Poten, tonne-miles posted an annual increase of 16% in 2019 compared to overall import growth of 9%, and by 20% in Q4 of 2019 compared to Q4 of 2017. We expect tonne-miles demand growth will continue, particularly with the commissioning of significant U.S. liquefaction capacity later this year. Slide 14 provides detail on both China's historical unpredicted LNG demand growth. China's gas market continued to grow and evolve during 2018 with unification of residential and industrial gas pricing, so the addition of incremental info capacity and improved third-party access to infrastructure. The government's coal-to-gas switching programs part of this antipollution drive provides a strong secular demand growth driver. China is targeting natural gas to comprise 10% to this primary LNG mix by 2020. But there is still significantly large global average of 24% in 2017. Near-term demand growth is expected to remain strong, supported by significant growth in re-gasification capacity. A recent Bloomberg article reported that Chinese government target of 247 million tonnes per annum of re-gas capacity by 2035, and near fourfold increase on-to-date. However, as shown on Slide 15, Wood Mac forecast broad-based demand growth between 2018 and 2025 with China only accounting for 19% of the near 150 million tonnes forecast net demand growth, while Southeast Asia and Europe together account for nearly 70%. Slide 16 illustrates recent LNG purchasing activity. Building on the Q3, 2018 momentum, we have seen -- we have continued to see significant long-term offtake activity by both traditional buyers and commodity traders. In addition, both LNG Canada and Golden Pass took FID with the project partners underwriting their respective equity volumes. In total, 95 million tonnes per annum of long-term offtake commitments have either to be announced or signed since the beginning of 2019 compared to just 25 million tonnes per annum in 2017. Slide 17 shows how these offtake agreements have supported new liquefaction FIDs. [indiscernible] LNG Canada, and just last week, the 16 million tonnes per annum Golden Pass project were all recently sanctioned. News flow also suggests the further FIDs will take this year in Mozambique and Russia. Wood Mackenzie believes that 2019 will be a record year for capacity additions and new LNG project sanctions. Slide 18 shows how U.S. exports have positively impacted shipping demand. Poten reports 318 cargos were exported from the U.S. in 2018, with 141 delivering into North Asia, a trader that requires more than two ships per million metric tonnes of LNG exported per annum. The average shipping multiplier implied by U.S. 2018 LNG exports was over 1.9x, significantly above the global average of 1.3x. This is particularly significant given the 36 metric tonnes -- million tonnes per year of new U.S. liquefaction capacity scheduled to come online by the end of 2020. Moving to Slide 19. The left panel shows the evolution of headline spot rates during 2018. While the timing of the annual [indiscernible] in rates was similar to previous years, the amplitude was markedly higher as the market strengthened significantly during the second half of 2018. This is caused by the frontloading of China's LNG buying. Shipping capacity being used to sloping storage and an increasing number of multi-month chart is being fixed for the winter season, which limited shift availability in the spot market. However, only small number of vessels were able to capture the Q4 peak headline rates, and then for our new shore period, as shown by the chart on the right, a relatively warm North East Asian winter combined with ample gas inventory levels has recently lead to a fall in both spot fixture activity and the average duration of those fixtures. As a result in following normal seasonal trends, utilization in spot rates have fallen in recent weeks with Clarksons currently reporting headline TFDE rates of 60,000 per day. However, we e anticipate a return to higher LNG shipping activity levels and stronger spot rates as we move through 2019 into the northern hemisphere cooling season and new large LNG projects, particularly in the U.S. and to production. Slide 20 updates our capture rate analysis, which attempts to explain the relationship between lagged headline spot rates at the time charter equivalent earnings of our spot vessels. The fourth quarter capture rate of around 90% was driven by high utilization of our spot fleet and round-trip economics. However, it is likely that the relationship between lagged headline rates and the spot TCE will weaken in the first quarter leading to average spot earnings across the fourth quarter of 2018 and the first quarter of 2019 that are broadly in line with mid-cycle levels. I believe average earnings across 2019 and 2020 for our spot ships will be strong and volatility in spot rates will reduce. Turning to Slide 21. Poten reported that 53 ships delivered last year and 61 were ordered. Many of the 2018 deliveries are intended for projects that have yet to begin production. There are 105 LNG carriers on order today. While there were a number of orders placed in late 2018, Poten's data suggests that pace of speculative orders has slowed significantly with the majority of LNG carriers due for delivery in late '21 committed to multiyear charters. It takes between 2.5 years and 3 years to construct an LNG carrier, meaning a vessel ordered today will likely deliver in mid to late 2021. With this visible supply outlook, we expect demand for LNG shipping to strengthen as we move through 2019 and into 2020. Slide 22 shows how forecast LNG demand alongside the current order book impacts the supply and demand balance for LNG carriers through the end of 2022 based on Wood Mackenzie and Poten data. The shaded area represents low and high vessel demand scenarios, up slightly from our previous range to more accurately reflect the last three years of export data. As you can see, the market is expected to be tight through at least 2021 based on Wood Mackenzie's latest demand growth estimates and the underwater fleet plus order book. An absolute shortage of ships is not required for the spot market to be strong. When fleet utilization rises above 85% freight rates and cash flows improve considerably as we observed in the spot market during the second half of 2018. So let me finish on Slide 23. We're very proud of how we continue to execute on our strategy in 2018, which underpinned our status as a leading independent LNG carrier owner and operator. Our record financial results demonstrated our ability to capitalize on a tight market. This allowed us to significantly enhance our shareholder returns, which will continue to be an area of focus for us. We remain confident of a tight spot LNG carrier market through at least 2021, an outcome, which should generate significant cash flows from our six spot vessels. This backdrop should also allow us to continue growing our fleet and recharter our open ships as well as diversifying our customer base to include other high quality counterparties. With that, I'd like to ask the operator to open the call for questions.

[Operator:]

[Operator Instructions] And our first question is from Chris Wetherbee from Citigroup. Your line is now open.

[Chris Wetherbee:]

So maybe wanted to start just sort of on the chartering market, obviously, we've seen a deceleration typical seasonality here as we moved into early 2019. You have a couple of vessels that you could be put away on longer-term charters. Want to get a sense of maybe what your perception of the market was through the timing of potentially getting some deals signed there? And whether or not you thought you could be adding incremental customers to the portfolio this year?

[Paul Wogan:]

Hi there, Chris. It's Paul here. Thanks. Yes, I think, in terms of timing -- what's really interesting is that we were probably taken a surprise as much as anyone else by the real strength of the markets in Q4 '18. We expected the winter market to be strong. But I think the fact that China frontloaded it's buying of cargoes and then held a lot of that on floating storage taking somewhere 20, 30 ships out of the market really turbocharged it. And we saw those very high headline spot rates. So I think, if you look forward and our supply and demand, we think that's sort of supply and demand picture gets replicated again in the forthcoming winter, but without having to put ships on storage if you like. So we think the worst of the very -- in the first phases of what is going to be a quite and strong market over the next few years. And so as we look at what's the right time for us to be putting re-chartering ships, et cetera, we think that we are going to have some opportunities, especially as people look at the forthcoming winter to be able to look at some attractive time charter opportunities. I think with what we've seen with the recent seasonal falls in the market, now it's probably not the right time for us to be looking to do that.

[Chris Wetherbee:]

Okay. That makes sense. And in the context, so how do we think about your positioning in the Cool Pool and sort of how you want to manage that. I'm guessing if you're assuming that there is a potential for some good earnings power coming again this year you don’t want to have leverage to that earnings power. So should we assume sort of relatively static fleet size dedicated to the Cool Pool?

[Paul Wogan:]

Yes, I mean, I think in terms of -- for us in terms of what we see having those six ships in the spot market at present, I think, is serving us well. And I think we have said this on the long-term basis, we probably would be looking to keep at least two or three ships in the spot market so that we have visibility on that. But in terms of the number of ships, we want to keep it in the spot market at the moment. I think, we given our view of the market that we would like to sort of keep some exposed to that, but also be cognizant of the right time to put some more ships away. And I think, again, we've been quite clear, as we do that, we would probably look to put some of the ships that Blocker has way on time charter because they have a need for more longer-term fixed ratable revenue than we do as a parent.

[Chris Wetherbee:]

Okay. And then last question for me, just wanted to kind of touch base on your leverage target. Maybe we can think about them in the context of 2019 and then maybe a little bit longer-term than that obviously a nice help from the market is going to push to deleveraging push here over the course of the last several quarters. Just want to get a sense of where you think it might go by the year-end '19? And then if can you give us some bigger picture of thoughts on where you'd like to kind of get those numbers over time?

[Alastair Maxwell:]

Hi, Chris. This is Alastair. So you are right, we're very pleased to where the balance sheet sits today and we did have a following wind in Q3 and Q4 of last year. Honestly, again, as I said in my remarks, leverage tends to move up and down a little bit as we take delivery of newbuildings and we have two in 2019, one shortly and then one in July, and then we have five ships delivering in 2020. The 2020 can be quite a heavy year in terms of taking delivery of new ships and drawing down on debt, to finance those ships. And when you look at net debt on an LTM -- sorry, EBITDA on LTM basis, clearly it takes some time for that to be through. So I would expect looking forward to 2020, but we will probably continue to delever somewhat partly as a function of where the spot market is. But I would expect as we go beyond that leverage to continue to pull. We don’t have a hard target for you -- so all other things being equaled probably down into the five times.

[Operator:]

Thank you. Our next question is from Michael Webber from Wells Fargo. Your line is now open.

[Michael Webber:]

Paul, just to delve into what we're seeing in Q1, the weaknesses is a bit more significant than I think we probably expected or the market expected. We didn’t talk two kind of rates. It realized Cool Pool rates that's inside of mid-cycle. It implies utilization is pretty soft for the Cool Pool, probably softer than what we would be implied by kind of the headline rate. Can you talk to specifically where Cool Pool utilization is right now? And then, of the factors you listed in terms of new deliveries, and obviously a pull-forward of volumes in Q4. I know there is an estimate on tonnage has been released under the market as well. Is there anyone factor that maybe weighing on dedicated sparklers like the Cool Pool more than others?

[Paul Wogan:]

I don’t think, I just said on the last one. So I don’t think that there is anything that's sort of dragging particularly on the Cool Pool. I mean I think what we saw was, as I said a little bit earlier, Mike, we saw that the Chinese having been [indiscernible], but having been burnt in the first -- in 2017-18 decided they were going to move very quickly to bring in the LNG they needed. That combined with a sort of fairly mild winter so far in North Eastern Asia has meant that, that sort of product that was taken in earlier has been drawn down. So that is definitely having an effect in terms of the demand picture there. And that is definitely having an effect on both the headline rates and the utilization of the ships of the moment. I do think, though it's pretty temporary, as I said, I think as you work through this year, I can't stress enough. The new production coming on is primarily coming out of the U.S., which is very high tonne-miles. I think we have something like 40 million tonnes of new production coming on this year, 35 ships are due to deliver. The supply and demand balance comes to play fairly quickly. So I think that's why we are pretty confident as we look forward that we're in for a strong period. I haven't got the exact utilization metrics in front of me for the Cool Pool right now, but I'm getting we're below sort of -- we're somewhere, I would guess around sort of 50%, 60% at the amount, something like that.

[Michael Webber:]

Yes. That would make sense to get to that -- that kind of figure for Q1. Along those lines of maybe the market being weaker than expected in Q1, you mentioned there's a lot of capacity coming on in the U.S., lot of commissioning work, have you seen -- started to see maybe an uptick in inquiry for, maybe 12 months, maybe six month to 12 month term charters? Just around be looking to pickoff cheap freight maybe some of the more kind of depth traders in the market trying to step in and trying to pick that off? And how does that -- you mentioned last quarter kind of really trying to avoid maybe related risk in 2022-2023, has Q1 changed the way you think about your term exposure or what you're willing to take in [indiscernible].

[Paul Wogan:]

I wouldn't say it's changed it significantly. As I said, we were surprised to the upside, which is always nice by the strength of the market. But I still think that we -- I think going into this next winter, I think having seen the effect on the rates last year and the lack of vessels that are available to move cargos, I think we will continue to see people wanting to take cover into the winter period. In the question here what was interesting when we had a similar situation previously, I'm talking here our 2012-13 et cetera. You had people coming to market saying they wanted to take tonnage for a year or two years and you had owners saying well actually if you really want to take my ship then you have to for a longer period, three years, five years, et cetera. I would not be surprised to see that happening in the market. I think, right now, as I said earlier, would not be the time that we would be looking to pick ships away on a -- even though we have a strong view going forward, psychologically it's never a good time to try and fix when the market is sort of lower or coming down. But certainly there is interest in a number of traders and portfolio players to make sure that they're covered over the winter period. And there is also -- there is still continue to be a lot of interest around longer-term charters. In the prepared remarks, I did make reference to the fact that on our two newbuildings are uncommitted. We are in negotiation on those ships for longer-term periods as well.

[Michael Webber:]

Just to follow-up on that, if I think about 2017 and 2018, some of the bigger players in the U.S. Gulf really stepped in to start building out their freight book and call maybe August of 2017, that moved up to June of 2018, just given the fact the rates are a bit softer than expected and there's a tonne of commissioning work this year. Do you think it's realistic to think that that kind of busy period, if you were really stepping in early on freight gets pulled into properly into the second quarter this year? Is it kind of keeps marching in?

[Paul Wogan:]

Yes, it's difficult to kind of … [Audio Gap]

[Michael Webber:]

And you mentioned term business. Where that term rate will clear right now? I know, earlier in the year you've had -- maybe some speculative might be the wrong term, but newer players that were chasing your business that maybe kind of weighed on your ability to really push pricing that might have eased, but now you go kind of a softer immediate market. Can you maybe talk to where that term rate is now relative to the year ago and whether you will be able to push that in the first half of the year?

[Paul Wogan:]

Yes. I think you're correct. I think some new entrants that were putting pressure on the rights. We backed away from those chapters. We have a very, I think, disciplined view on the rates -- on the returns that we need from our ships. And therefore, if we're not able get those returns than we won't do it. So it's certainly for us there's not growth at any means. But I think as we see in the year progressing going into this year there is a general strengthening in those longer-term rates Mike. And I think, especially with us having the good position on the existing ships, I think that gives us the opportunity to capitalize on those near-term positions.

[Operator:]

Thank you. Our next question is from Jon Chappell from Evercore ISI. Your line is now open.

[Sean Morgan:]

This is Sean Morgan up for Jon Chappell. So one question on the newbuilds. Did you -- is it a requirement of Cheniere and Centrica to line up newbuilds on those charters as kind of a condition precedent to getting the charter or in this that … [Audio Gap]

[Paul Wogan:]

And so the requirements [Audio Gap] in both cases where they are taking one exporting cargos from the U.S. Gulf, because they are importing their cargos, but stemming from the U.S. Gulf. The larger ships certainly have a real advantage in terms of the unit freight costs for those longer voyages. So there is definitely a view that they wanted to take those longer voyage -- larger ships of the longer voyages. And the second is really around the timing of when they wanted those ships to deliver. We could have held back and put some of our existing ship -- existing newbuildings into that -- into those charters, but sell those existing newbuildings in a very good position and we felt that it was, the right move to actually go in order other ships keeping those ships open for other opportunities that we're seeing in the market. So a little bit of both really in terms of definitely those ships being, I think good vessels for the U.S. export volumes, which are likely to go long haul.

[Sean Morgan:]

And then the timing of the financing for those vessels-- is that -- how close can you guys wait until delivery to line-up financing? And are we going to see getting more update on that as we go through the year?

[Alastair Maxwell:]

This is Alastair. So we are working actively on our newbuild financing program. The first vessel was delivered in March. It's already financed. And then we are someway down the road on putting financing in place for the delivery in July of this year, which is held 2212. And then subsequent to that, a little work has already started. We will be looking at the rest of the newbuilds delivering in 2020 and 2021. What we need to do is to get the right balance between putting financing in place in good time for the newbuilds ships on the one hand and on the other hand making sure we are not paying commitment fees for extended periods of time before that delivery, so getting the balance right within those two things.

[Sean Morgan:]

And then just finally the announced merger between Hyundai and Daewoo, how do you guys see that impact in the market for newbuilds on LNG carriers?

[Paul Wogan:]

Yes, I think, actually -- certainly, having two major players rather than three is probably going to put some pressure on pricing I think overtime. I don't necessarily see that there is going to be a big rationalization if it goes ahead -- there is big rationalization in the number of those. But certainly, I think there is going to be pressure from that combined entity to try to put up prices, and we've been seeing that already in the market. So I think there will be enough capacity around for the overall demand in shipping. I don’t think we will ever work on the fact that there would be less capacity. But I do think it actually probably drives newbuilding prices up and probably which is price -- existing asset prices and puts, which is a good position -- it means we are in good position with the newbuilding fleet that we've secured at the moment.

[Operator:]

Thank you. Our next question is from Randy Giveans from Jefferies. Your line is now open.

[Randy Giveans:]

Hey few questions. So does the recent positive FID of the Golden Pass LNG provide any additional charting opportunities for GasLog? Or do you think all those cargoes will be transported by cutter owned carriers?

[Paul Wogan:]

My guess is that they will create opportunities for independent owners. And maybe if look at -- when they did the original growth in Qatar exports back into the 2006-07-08, lot of that went to Qatari companies, but a lot of that went to international companies as well. So I would be -- I would expect that they would probably come with something -- along the similar playbook, Randy.

[Randy Giveans:]

And then looking at the Cool Pool, looks like the vessels earned close to, I don't know, 100,000 a day in 4Q '18. So based on that 45-day lag that you mentioned in the presentation, do you expect this to be higher or lower in 1Q '19?

[Paul Wogan:]

I think, we -- as we were trying to show in the presentation -- there were sort of a smaller number of fixtures done as the liquidity bolstered the product time for the ships disappeared towards the end of December. So certainly, in terms of our Q1 numbers, I think they are going to be quite a bit lower than we saw in the Q4. But as I said, I think, if we look at it over the year as a whole, we think this is a timing market. We think we see quite a lot of strength on the annual numbers that will be coming in.

[Randy Giveans:]

And then I guess lastly, GLOG shares had quite the ride, I guess, in 4Q '18 starting the quarter below $20, getting about $23 in November than falling, I don't know, around $16 at Christmas time. However, you didn't purchase any shares last quarter, but opted for that special dividend. Are share repurchases a possibility or even a probability in terms of use of free cash going forward?

[Alastair Maxwell:]

Randy, so as we said at the time, we announced the repurchase program, which is the same time we announced the special dividend. I think we viewed it as a very useful tool to have in the toolbox, particularly when you go through times of market dislocations, volatility and dislocations. I think we did see Q4 last year and then with December last year and into January of this year. I'd say two things. I think first of all our priority in terms of capital allocation is going to be to fund the continued growth of the business in terms of our existing capital commitments and then these other attractive newbuild opportunities come along to make sure that we can fund those as well. I think, secondly, it's more likely that if we do have significance of this capital that that would be distributed by means of further special dividends. But we wanted to have that tool in the tool kit as I said, and we wanted to be in a position that if we do go through market dislocations like we did recently, but we're in a position to take advantage of it.

[Operator:]

Thank you. Our next question is from Chris Snyder from Deutsche Bank. Your line is now open.

[Chris Snyder:]

So my first question is if you guys kind of talk about the capacity for China to drive further LNG demand growth, demand there is quite seasonal. However, there seems to be import capacity bottlenecks during these peak seasons. So could you just talk about maybe will we see the demand growth in the summer months? I know there are some things going on there to increase import capacity. Could you just provide some color on that?

[Paul Wogan:]

Yes, I think it's a good point. I think they were importing just over 50 million tonnes last year. I think their import capacity was about 65, 67, and of course, if you have high seasonal demand and that puts a lot of strain on it. I think there's a huge push right now for more import capacity, which I think is quite a bit due to come on stream quite quickly. The other thing that's quite interesting though is that a lot of the LNG that goes in doesn't actually get regasified. So you have some of the import terminals, which operate above the 100% main plate capacity. And what they are doing is distributing that as comes to storage LNG and distributed in trucks in LNG. And in fact, when I was in China recently, I went along to one of the facilities there and watched in wonder as truck after truck after truck just lined up to take the stuff away. So they've been quite sort of thoughtful in terms of how they make sure that they can get the best use out of what they have. But I think one of the metrics we had is I think the Chinese Government recognized certainly the infrastructure shouldn’t be a bottleneck here. So they have a view that they want to have something like 235 million tonnes of regas capacity by 2035, which is 4times where they are right now. So both in the short and long-term, they are making quite to be big moves to make sure that isn't a bottleneck.

[Chris Snyder:]

I think, I guess it won't be the worst thing in the world if we see more LNG floating storage demand over the near-term, clearly we saw how that has the positive impact in Q4. So next question, pre-FID momentum has certainly picked-up. While much of the supplies have to come online to 2022 or 2023, could you speak to any near-term benefits as the market time is adding a backlog of demand, maybe for example our charterers feeling more comfortable signing long-term contracts just because there is a more visible demand pipeline?

[Paul Wogan:]

Yes. And I think it's -- I think, there's a bit of a combination because what's helping the FIDs to be taken is the fact that we are starting to see a lot more long-term sell and purchase agreements are being put in place. I think we said from the start of 2018 through to now, it's about 95 million tonnes as opposed to 24 million tonnes in 2017. And not only giving people confidence to go and take FID on the actual new projects themselves, but also, I think, gives confidence to the project to take some of the shipping on long-term contracts. So I think it's beneficial both ways. So I think as you see those projects coming on, there will be, I would say, a large number of long-term requirements for shipping. And I think it's one of the good things for us in GasLog right now as we look and say, we are one of the few shipping commodity markets -- shipping markets certainly commodity, we just got a really long-term secular strong growth trend there. And I think we can take an advantage of that.

[Chris Snyder:]

And then just last one. So clearly liquefaction capacity is ramping at the fastest rate ever in 2019 and 2020. But I think there is a view that we could see bit of LNG oversupply in 2020, just kind of as demand continues to ramp. So my question is -- on one hand you guys ship productions versus clearly positive, but also you would imagine if there's oversupply ways on LNG pricing, which could limit trading and arbitrage opportunities. Could you just maybe provide some color on how this could potentially shakeout if we were to seeing mid-2020, we actually have an oversupply of LNG?

[Paul Wogan:]

Yes, it's interesting. I think if you go back a couple years, Wood Mackenzie were saying that they thought there was going to be oversupply right now, and there would be shut-ins of U.S. production, which we haven't seen. And I think what happened is the strong price signals, which are available now through JK and in Asia, NBP in Europe, et cetera, and then Henry Hub itself, are allowing those pricing signals to sort of move the cargo to where it's needed. And what we've seen is each time we've seen a sort of moderation in LNG pricing. It's actually stimulated demand. And the interesting thing as well, once you see people swapping out with gas, it's very rare that they go back to one of the other sort of more polluting primary LNG sources. So I think the price mechanism has been what's been able to make the market clear over the last couple of years. And I think we will probably see that. We're still seeing relatively low, despite of very cold winter in the U.S., relatively lower Henry Hub prices. I think the demand in Europe and in Asia is able to react to those prices and absorb the production.

[Operator:]

Thank you. Our next question is from Greg Lewis from BTIG. Your line is now open.

[Greg Lewis:]

Guys, [indiscernible] talked about the potential merger in Korea shipyards, but even beyond that, could you talk a little bit about the progression of newbuild pricing as you've seen that develops since when you've first started ordering what I guess a little over a year ago to where we are now in terms of how new -- where newbuild pricing is?

[Paul Wogan:]

Yes, I think -- Hi Greg, its Paul here. I think a couple of things to say on the newbuilding. One is we were forecasting, I think at this time last year that we would see an increase in LNG newbuilding prices. And was that happened? It probably hasn’t been as pronounced as we expected. And I think part of that reason is that you need other shipping areas to also be ordering at the same time because there's a certain amount of flexibility around the berks. We haven't seen the big orders from container vessels, et cetera, which we may well have expected. But nonetheless we've seen a slow increase in the values. I think the other thing that's happened though is that as the yards have filled up with LNG capacity, it's actually pushing out the availability of yards so that -- we talk about somewhere between 2.5 years to 3 years to build an LNG carrier. As you see more of this capacity taken, that pushes out when the yards are able to build the ship, and also makes the yards more comfortable. So as they move to three years plus in terms of that order backlog, that again gives them more confidence to push on the pricing. So I think we'll continue to see that as a factor. And I think you'll continue to see the shipyards pushing the pricing up albeit probably more incremental than a huge step change at this point.

[Greg Lewis:]

And then just talking a little bit about the liquidity or the depth of the spot market, we've seen kind of rates really see-saw over the last couple of months. As you, if you, as you characterize the spot market -- and I know some people characterize it as any vessel rolling off contract in three years or maybe as we think about one year, is there any color in terms of how you can -- how you would characterize the spot market in terms of size right now as we think about vessels that are actually up for contract like within the next 12 months?

[Paul Wogan:]

Yes, actually it’s a really good question, Greg, but really difficult one to answer. And the spot market is not only ships which haven't got long-term contracts against them, but it may well be ships that have been put on long-term contracts to a portfolio player or to a trader et cetera, which from time to time will not be required in the program and therefore coming to the market. I think what happens in a very tight market is those players tend to hold onto that tonnage because they want to make sure that they have that tonnage available if they have a cargo. So it kind of builds in a little bit of inefficiency into the market. I think what we tend to do is look at what is the -- so that market can kind of be bigger or smaller depending on what those players are doing. I think what we tend to look at is what's the forward availability of vessels in the market? I think if you go back to this time last year, you were probably looking at something like 30 or 40 vessels that you'd see over the next sort of two, three weeks. At this point in the market, even though we're seeing the market softening, we're looking at around 20 vessels that are sort of available in the market. Usually that's the kind of a bit of kind of an inflection point. So it's not -- it isn't a very oversupplied market right now, even though we're seeing the rates going down, which again gives me some view that this market could turn quite quickly in terms of the rates.

[Greg Lewis:]

And then just one more from me just because getting a fair amount of questions on this lately is, clearly there's been a lot of orders and there's been a lot of contracting of those newbuilds in the order book. Any sort of rough estimate you could give around on the -- as we think about, obviously, we know GasLog, but as we think about the total order book out there, any sort of sense for how much of that of the newbuild order book is actually already contractive?

[Paul Wogan:]

Yes. We think about -- of the 105 ships, we think about two thirds of it is contractive, one third isn't. The ships coming out in '19, I think, 30 odd ships, about five uncontracted, and then for the next couple years, it's about 17. As I said, a couple of those ships uncontracted ships in our order book belong to us. But we -- we are hopeful that we can put those on longer-term charters. And there are discussions that are ongoing at the moment, but around two thirds of it.

[Operator:]

[Operator Instructions] And our next question is from Fotis Giannakoulis from Morgan Stanley. Your line is now open.

[Fotis Giannakoulis:]

Paul, I wanted to ask you about the upcoming FIDs. You mentioned Mozambique, you mentioned Russia. And -- but we also saw that the last three FIDs they were without offtake agreements. Is this a new trend? Are we expecting to see more FIDs without end-users buying the volume? And how does the decline in the LNG prices right now impact the new projects that you are expecting to come online?

[Paul Wogan:]

It is interesting to see some of that may just being willing to underwrite the production themselves. I think it probably going to continue to be a combination of those things. So I think if you look at Mozambique, for example, where the Anadarko project there. They are very much focused on getting the long-term supply contracts in place before they take FID. And then some of the other projects in the U.S. Gulf next decade to [indiscernible] et cetera would need to do the same thing. So I think it's likely to be a combination of that. But you have seen BP, for example, stepping into the ENI floating production and taking all that out to allow that to happen. So it's interesting in a number of different ways that this could play out, I think.

[Fotis Giannakoulis:]

And about the Alexandroupolis project, I noticed there is a line there in your slide that a lot of things have to happen in the near term in order to reach the mid-year target. Is there a risk -- a reasonable risk of this deadline is being mixed. Can you give us a little bit more color there? And also if you can comment, some of your peers, they are looking other opportunities related to FSRUs getting into the sale of LNG to end-users in small scale. Is this something that this Alexandroupolis project can give you the opportunity to participate in? Do you have interest in getting to the small-scale sales of LNG?

[Paul Wogan:]

Yes, so the deadline, I think, we were careful as we put in there because you're absolutely right Fotis. What's interesting with this project is that we -- it's a common -- it's a project of common interest with the EU. And so it has the possibility for EU funding to make it happen. That means that we are actually in the hands of legislatures both in Greece and in Europe in terms of the timing of this. So what we can do all we can to push along that timing. What we're saying is, we just have to be careful when we are talking about it, because if we get a delay from the EU coming back on something that we've submitted them et cetera, that can't push the timing back. So that was why we have to be careful. Unlike in other areas the straightforward shipping area where delivery of the ship is very much down to either Samsung or ourselves, but we have much more control over it. This is one way, there's a little bit of that less control. And so that's why we are cautious on it. I think the Alexandroupolis project itself, what's really interesting is the amount of interest that we got in that gas rate good enough first expression of interest. If you look at the project in Croatia, which is just taken FID, they actually got less than half, I think, of what they were the capacity of it, and still to get FID. And here we are with over twice the interest. So I think originally we thought that there would be a lot of opportunities for additional capacity from that to serve a smaller some other areas if you like. So I think we just have to wait and see when there we get that sort of committed expressions of interest in there if there is a capacity left in that project. And I think for us that will be very interesting how we could use that and something certainly that we would look at. And I think overtime, we do see that there is going to be an increase in -- on wood movement of LNG. And I think that would given out sort of capabilities in the marine sector, would be an area that we would certainly be looking at.

[Fotis Giannakoulis:]

So this is going to be only related to the Alexandroupolis project, it would be -- so if there is excess capacity in wages. Are you -- or you might be also look at some point to get into a small sales or even bunkering business buying smaller size asset vessels to serve this kind of customers?

[Paul Wogan:]

I think, for us -- as we see this sort of spread move out of the LNG, I think, we could be looking at a lot of different areas. I don’t think we would have necessarily a lot to add into the bunkering space, for example, but certainly if we get that in concert with one of our customers et cetera, then I think that would be of interest to us. I think small scale again, it would be something that would be interesting, but I don't think we would just go into it on a speculative basis. It will be something where we could develop either around a project or come into a project that was looking to support for further support.

[Fotis Giannakoulis:]

And then can you comment a little bit more about the potential demand from the small scale or from bunkering? You mentioned that if all the ships would convert, they will absorb approximately two-third of the current market, that's a significant potential here. But on the other hand, when we see analyst like Wood Mackenzie, this portion of demand looks insignificant in their forecast at least for the next five to 10 years. Is this something that they are missing? Do you think that the market might be underestimating that they may at where -- which areas do you think that they might be underestimating the potential demand from small-scale and bunkering?

[Paul Wogan:]

Yes, I mean, it's interesting. I mean, we just sort of wanted to give some view on the size. It's difficult to kind of do a forecast on what we think that size of the market is. I think Shell in one of their recent presentations was saying that they thought that bunker market, for example, could be 50 million metric tonnes by somewhere 2025 to '30. If you think about that right now, we all got very excited about China around the size of the Chinese market. That's around that same sort of size. So I think Wood Mac maybe being conservative, but it's difficult to put a kind of -- to put a number on it. I think that market could be a lot stronger than people are allowing for Fotis.

[Fotis Giannakoulis:]

One last question about chartering the vessels, I see on the Slide #5 that you have -- you're opening a newbuilding as an assumption of $70,000 rate, your existing vessels so that you are looking at something like $70,000 to $80,000 given the recent increase. Can I understand this is a definitive trade for illustrating purposes? But how shall we think about the earning potential or an TFDE vessel with a lower boil-off rate and fuel consumption versus a DSP vessel. And also when you go to your charters, is it just a matter of pricing when they ask for tonnage the difference between newbuildings and TFDE vessels or there is also a priority first they need to charter the newest vessels and then they will go to [indiscernible]. Is there a discrimination against the [indiscernible]? That's my question.

[Paul Wogan:]

Yes, so I think if we look at the rates, I think we sort of, I think our view is on the long-term kind of average rates of somewhere kind of in the 70s -- mid-70s something like that. I think that’s what we're kind of making assumptions on as we go through this. I think that the market as we stand at the moment, the prob market certainly is a lot stronger than that. So I think your earnings are potentially stronger that the earnings we could get in the next two or three years on the prob market, I think could be higher than that sort of mid-cycle rate. And certainly, we would hope that would be the case. There is definitely a difference in sort of the fuel consumptions and therefore the cost of the vessels. I think with that though, it's the delivered cost of the molecule is one thing. The other is where -- how you are going to be using the ships. So certainly for the U.S. production, as I talked about it a bit earlier, the larger ones that we bought in 80 vessels, I think suit that because a lot of that is expected to go long haul. We have been speaking on existing vessels to charters where actually they wanted much smaller ships because of restrictions into terminals. And so the new modern ones and for all, 180 XDF simply don't work at that point. And so I think that's the second thing. And then in terms of -- is it just down to pricing? We haven't seen anybody saying oh we really don't want to take a TFD vessel. We must have the newest XDF. It is, I think around those vessels are very suitable, work very well. But we would need to have something that's competitive with the other options.

[Operator:]

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Paul Wogan, Chief Executive Officer, for closing remarks.

[Paul Wogan:]

Yes. Well thank you to everyone today for listening and for your continued interest in GasLog. We certainly appreciate it. And we look forward to speaking to you in the next quarter. And in the mean time, if you get any questions, please contact the Investor Relations team. Thank you very much.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.