FLEX LNG Ltd. (FLNG) Q4 2024 Earnings Report, Transcript and Summary

Hi, everybody, and welcome to Flex LNG’s Fourth Quarter 2024 Result Presentation where we will also go through the numbers for the full year. My name is Oystein Kalleklev. I'm the CEO of Flex LNG Management. And as usual, I'm joined by our CFO, Knut Traaholt, who will walk you through the numbers a bit later in the presentation. As usual, we will go through the financials. We will cover the market, and after the presentation, we will do our Q&A session. As usual, we have a gift for the best question. This time, it's the for investor who don't want to get cold feet, we have the flex LNG warm feet. So while our cargo is cold minus 162 centigrade or 260 minus Fahrenheit. Our investor can have warm feet because we have a lot of backlog which can weather us through this difficult market in the LNG market the last couple of months. Before we begin, I just going to highlight the disclaimer. We will be utilizing some non-GAAP measures like TCE and adjusted EBITDA and adjusted net income. Those numbers are reconciled in our earnings report also available today and of course there are limit to how much detail we can cover in the presentation. So let's begin with the highlights. Revenues came in at $89.5 million in-line with the guidance of close to $90 million, for those who have read the earnings report, you will actually see our revenues was $90.9 million, this is due to EU ETS, the emission trading system coming into force in 2024. And we had the income on EU ETS Carbon Emissions on $1.4 million in our charters. This is for the account of our charters. So we received $1.4 million from our charters in compensation for EU ETS and then we also surrender those to the EU. And we have a corresponding cost of $1.4 million in our voyage expenses. So net freight income $89.5 million as mentioned in-line with the guidance. Net income was driven by a sharp increase in interest rate in the Q4 after the election of Donald Trump. So we had a derivative income of $20.1 million, $5.1 million of the derivatives was realized during the quarter as a positive carry, resulting in adjusted net income of $30.8 million where we only include the realized gains and losses, not the unrealized gain and losses. That means our earnings per share came in at a healthy $0.84 or $0.57 on the adjusted basis. Recent events we were reporting back in November, we informed you then about the extension of 2 of our ships, Flex Resolute, Flex Courageous. They were at the beginning of 2024, these ships were extended from 2025 to 2027 where the charter has the option to extend those ships to 2029. And in November, we announced that the charter has -- amended the charter where they have a new firm period for 2029 to 2032 with options all the way to 2039. So we are pretty sure these ships are at least gone for to 2032, possibly a bit longer. Following our Q3 presentation in November, we also announced end of November our new 15 year time charter for Flex Constellation. So the start-up of this charter is in Q1 or Q2 2026 given where the rates are today with more probable that start-up will be Q1 as this is in our option. 15 year takes the ship to 2041. So we're adding a lot of backlog through these recent new charters at a very good time I would say given how the market has experienced the last couple of months. We also done some refinancing as we mentioned in our presentation in November adding more attractive debt $430 million releasing $97 million in cash while extending our debt maturities and lowering the interest costs. We also provide a guiding today for 2025. So despite the slump in freight rates, we are very well covered with our backlog. So we do expect that revenues will come in-line with the number for 2024. The time charter equivalent earnings, it's expected to be somewhere in the mid-70s giving revenues of $340 million to $360 million. You should note that we have four ships where we are planning to do the special five year survey in 2025 while we only took two ships out of operations last year. EBITDA, we also expect this number to be fairly in line with last year, $250 million to $270 million. So it's pretty good and steady sailing from Flex LNG. So once again, we are declaring then our dividend of $0.75 per share, taking the dividend for 2024 to $3, implying a running yield of about 12%. And this we can do given the fact that we have a fortress balance sheet and backlog, $437 million of cash. And as – I will touch upon minimum 62 years of backlog, which is about 5 year each ship. Just a kind of summary of the 2024 results. TCE, $74.9 million so this is the time charter equivalent earnings. So it's like the average rate you have obtained on your ships, $74.9 million with we were guiding about $75,000 revenue, $355 million we were guiding $353 million to $355 million our very narrow range and then adjusted EBITDA smack in the middle of the range, $271 million to $274 million we're delivering $273 million. And I think for the first time here, we do see Q4 numbers below Q3 given the slump in rates from end of September into Q4 and into 2025 for that matter. Just to touch upon our contract coverage, we have Flex Constellation, which was pictured on the front slide. She's on a 312 days time-charter. We expect to get her redelivered end of February, early March. She will then have a 12 month gap, where we will have to trade her in the spot market, which will be a bit challenging and reflected in the guidance. But once she come into Q1 2026, she will commence a 15 year charter to 2041, where the charter also have the option to extend that ship to 2043. We also have some ships with, other ships with long duration charters, Flex Rainbow all the way to 2033. As I mentioned, Resolute and Courageous, we extended in November all the way to 2032 where the charter can extend those ships to 2039. And then we have two ships with, Cheniere, which we have -- we extended back in all the way back in November 2022, where those ships have been extended to 2032 and 2031. We have two ships coming open 2029, so leaving us with Flex Freedom fixed until Q1 2027 which we think is a good window where the market will be much tighter than it is today. And then Flex Volunteer and Aurora also with Cheniere fixed until Q1 2026 where they have the option to take those ships to 2028. Flex Ranger, again, I think it's a good window of redelivery. This ship is [switching the air] (ph) to 2027. And then we have one ship on index. She's getting close to her firm period. She was fixed from delivery of yard on a variable time charter for five year with Gunvor. That is maturing in Q3 when we are planning to do the 5 year special survey for this ship. And then we will see whether the charter utilize their options. They can extend the ship by 5 single one years. Those options are also on index, which makes it, probably a bit more possible that they utilize their extension options since they are not fixed rate higher. So altogether, 62 years of minimum firm backlog, which then might go to 96 years if the charters utilize all the extension options. Guiding for 2025, I already touched upon it. It's going to be deja vu all over again. We expect numbers to be very much in-line with the numbers we delivered in 2024. And with stable business, stable outlook, we are also having stable dividends, paying now $0.75 again, $41 million in total dividend. So the last 14 year quarters, we paid this ordinary dividend of $0.75 per share. We also topped up from time-to-time with some special dividends. And, altogether this number is now $610 million of dividends the last 3.5 years, which, yeah, I think gives our investors a stable and good income being invested in Flex. So before giving over to Knut, just a reminder of our kind of decision factors for putting the appropriate dividend level. We had $0.57 of adjusted earnings per share. We are paying slightly higher dividend given the fact we have, as Knut will tell you more about, we are flushed with cash. So we think that we can pay out slightly higher than the earnings per share. The decision factors mostly are green lights except for the market outlook where short-term outlook is poor. Medium-term is slightly below average I would say. And then when we are looking at the market from 2027 onwards where we get most of our ships open, it's still compelling with long term charter rates in the mid-80s which is above the level we are delivering today. So it means that we should be able then to reach out to those ships at better rates in the future. So with that, I think it I hand it over to Knut before just to remind you about one number you will not find in this report, and it's, actually the most impressive number. It's our lost time injury frequency. So this is our main safety KPI where zero is the theoretical minimum given the fact then you have had no incidents and the number we delivered in 2024 was zero, so no lost injuries, lost time injuries frequency for 2024, which I think is impressive and shows that we are delivering superb service to our customers. So with that, Knut, hand it over to you and I come back with the market update.

Thank you. So let's start off since it's Q4 with a bit of a review of the full year and in particular here the operational days. As you may recall, in 2023, we had four dry dockings and this year we have had two. 33 days of dry docking, which is actually 7 days below our budget, and net of the off-hire days for dry docking, we're delivering 99.7% technical uptime, which is a very strong performance. On the TCE, you see here stable TC, $75,300 for the fourth quarter and close to $75,000 for the full year. This shows also the stable revenue streams that we have. On OpEx, we are, for the year and also for Q4, delivering slightly below our budgets and guiding, which is a strong testament to our cost discipline. For 2025, we are seeing that a number of our ships are coming close to their schedule and maintenance on running hours, in particular for the auxiliary engine and main engines. So, in combination with higher crew cost, and that is crew cost for crew changes, in particular crew changes in Asia, we are now guiding an OpEx per day of 15,500 for the year. If we look at the revenues, as I mentioned, we have revenues of $90.9 million, of which $1.4 million is related to EU ETS. And as a reminder, we are subject to EU ETS when our ships are in Europe and having port calls to Europe. This is a cost for the ship owner, but under our time charter agreements, we can reimburse and get that reclaimed from our charters. Revenues received there from the charters will be booked as operating revenues, while we correspondingly will book the same amount as Voyage expenses. EBITDA, we are delivering smack on guidance, and one of our important numbers is the adjusted net income where we adjust for non-cash items. And for the fourth quarter, we're adjusting $15 million for unrealized gains on the interest derivative portfolio and [$0.5 million] (ph) loss on FX portion we have. And as we presented also on the Q4 presentation, we concluded some refinancing in Q3. That refinanced [tree ship] (ph), leaving the Flex Endeavor unencumbered. So, therefore, you would also see a lower debt balance and also cash balance on the Q3 numbers. The long term lease for Flex Endeavor was concluded on the 3rd October and then releasing the full amount of $160 million. So during the quarter, we had $52 million on cash flow from operations, then the scheduled debt amortizations, and then close to $41 million we paid out in dividends. That leaves us with a very strong cash balance of $437 million. This is a reminder that how we keep our balance sheet, it's fairly clean. It's ships and cash, and then we have debt on the other side and the book equity. And as we show here, our book values are more or less reflecting all time low values, but we still maintain a fairly decent book equity ratio of 30% given our backlog. And most importantly, our debt funding portfolio, very attractive mix of both bank debt and leases, where we also include RCFs to manage our cash position. During the quarter, we converted a term loan, at bullet term loan with one of our banks to an RCF and thereby increasing our RCF capacity to about $414 million, and that we use in between quarters for cash management and reduce interest rate cost. And net of the RCF, we see here our net debt balance, and what -- on our interest rate exposure, the $530 million in the dark blue is basically our net debt exposed to the floating rate market. Remaining here is fixed rate debt and hedge debt, which I’ll cover in the next slide. Also on the debt maturity profile, our first debt maturity is in December 2028. That's related to Flex Resolute. And given that she was -- we announced a contract extension for her on the Q3 presentation, that is a very manageable residual to refinance. We see here a Gone Fishing sticker. You see 3 hooks -- we did announce three contracts or contracts for three ships on last quarter, even though we have a very attractive debt funding portfolio, we will consider refinancing of these three ships, in particular given the long duration of those contracts. We have been managing our interest rate risk very actively. Last quarter, we did some amendments and added more duration to secure coverage during these high interest rate environments. So we have extended duration, which has also yielded very well, which is shown in the both realized and unrealized gains during the fourth quarter. This is a mix of traditional interest rate swaps and also fixed rate leases and fixed rate portions of our leases, which is primarily in our Japanese operating leases. So in conclusion, and also this -- we get a lot of questions about dividend sustainability. This slide can be read in conjunctions with the decision factors for our dividend. We have stable cash flow. We have a very healthy balance sheet with $437 million in cash. We have barely non-CapEx liabilities and first debt maturity in 2028. So that is what is here to support both our commercial and financial flexibility and dividend story. So with that, I hand it back to you, Oystein.

Okay. Thank you, Knut. Let's dig into the market a bit. Yes, 2024 was a year with record low growth in export volumes. We put in a recent history, on our Kepler platform, we couldn't find any year with less growth than 2024, but I can't rule out that this could have happened sometimes in the '70s or '80s. So I just put in recent history. Actually, growth in the market was lower than 2020 when you had this wave of U.S. cargo cancellation. In 2020, the export market actually grew 1%. It is only 0.2% this year. It's a combination of factors. It's been some delays on liquefaction plants. And then, of course, it is been the sanction on the expansion of Russian capacity, particularly the Arctic LNG 2, which I will come back to later. But despite the sanction on Russian LNG plants, Russia had managed to grow their exports 4% last year, and Europe was one of the big takers of Russian LNG. U.S., only 1% growth in 2024. Nigeria have resolved some of the issues with feed gas problems and managed to show a healthy growth both in Q4 '24 and for the full year. On the import side, it's been a year where Europe has stepped back. Europe has had the benefit of two very mild winters in a row prior to this winter, resulting in Europe coming out of the winter season last year with very high inventory levels and they stepped back from the market, giving more room for Asian countries, particularly then China, which grew healthy last year, getting close to the record levels they had prior to the invasion of Ukraine. So I believe they ended up at 78.5 million tonnes or 79 million tonnes, the record high is 80 million tonnes. And then India are up actually 14%. This has changed a bit in the past with the cold winter and the big inventory draws in Europe. Europe has been making a comeback in the market as we've shown on this graph. Before the invasion of Ukraine by Russia, Europe imported around 80 million tonnes and then during this energy crisis of 2022, they really were the buyer of first and last resort increasing their import all the way to 127 million tonnes, primarily sourcing a lot of spot U.S. LNG at that time. Imports stayed stable in 2023. But then given the two mild winter, they came out of last winter season with high inventories. So imports in 2024 slumped to 103 million tonnes, but this is changing now with a colder winter, less renewable output, especially in Germany. We see that the inventories in Europe are well below the last couple of years and we do expect Europe to come out of the winter with low inventories with a big need for restocking during the summer months and this is also reflected in the price of LNG. So we have this graph here showing the three main indices for natural gas prices. It's the Henry Hub in the U.S., which is the main benchmark price for natural gas, hovering around $3 to $4 cheaper -- one of the cheapest gas sources you can have. Then JKM, meaning Japan-Korea market. So this is more like the spot LNG price in Asia although most of the Asian players, the big nations like Japan, China, Korea they have a lot of LNG, they buy on long-term contracts linked to oil price hub. So this is the spot price. And then you have the more like deregulated European market where the main benchmark for Northwest Europe is TTF, Title Transfer Facility which is our virtual higher pricing hub in the Netherlands. So generally, what we have seen now is that prices have been picking up and picking up to a level where LNG becomes expensive for $15 million per million Btu, meaning oil price at above $80, resulting in more of the Asian nations turning to more affordable energy like coal. So we see here that the pull from Europe is pushing up prices where they kind of killing off the arbitrage, meaning it is more profitable to send the U.S. cargoes to Europe rather than Asia despite actually shipping being now more or less for free. So this change in trading pattern in the latter part of '24 and into '25, have resulted in a big slump in the freight market, which I will also cover later. Looking at Asia, had a good start of the year, pulling a lot of cargoes up at record high levels. And then we see a bit lower growth from Asia at the end of the year as Europe came for full force into the market. Stable market in the kind of -- mature markets being JKT, meaning Japan-Korea-Taiwan. Taiwan did grow their imports quite a lot, but Japan and Korea are fairly stable. China, as I mentioned, growing fairly steady and the same goes with South Central Asia. Then going -- turning back to Russia and the sanctions. There are a couple of big LNG export plants in Russia; two of them are not sanctioned, this is Sakhalin, primarily exporting to Japan, Korea, China and then Yamal which generally can export cargoes to Asia via the Northern Sea route with specialized LNG tankers. But when the ice is thick, they like to export those cargoes into Europe, and Europe has been a willing buyer. As you can see on the graph on the left-hand side there; Europe, a record high import of Russian LNG last year. Some of the newer project, as I mentioned been sanctioned, particularly then Arctic LNG 2, it's a big plant. The first train is up and running, but they are -- have not been successful in placing those cargoes in the market. And the second train is also ready for commissioning. So we'll see how this develops, whether there will be a grand bargain with EU, Trump, Russia, Ukraine and whether this part of the deal will be a lifting of the sanction on Russian gas and LNG, then some of these cargoes might come back into the market, at least seems to be some signal from part of the EU that they are willing to make certain concession in order to leave this war behind us. Then looking at the export market, there is a lot of volume coming to the market, a lot of volume which were already sanctioned or given the green light prior to Biden putting in the moratorium on new export licenses, January 2024. And of course, as we expected and mentioned when we had our Q3 presentation in November, we did expect that President Trump would remove these limitations very quickly, which he did. So there is a lot of new project in the U.S. ready to be FID. We see on this lower -- on the right-hand side here, we have picked out some of the key contenders to get FID either this year or next year, being Lake Charles, Delfin LNG, Sabine Pass Expansion, Woodside Louisiana, CP2 and possibly, as well as Alaska LNG. However, there is a lot of trade disputes going on. We saw overnight China coming in, putting a tariff on U.S. LNG, similar to what they did back in 2018-2019, when we had a period of time with 13 months without China sourcing any LNG from U.S. So the Chinese have made contracts with a lot of these U.S. expansion projects. And in case this tariff stays in place, we would expect them to resell those cargoes possibly to European buyers and rather source more LNG from Qatar, Australia, Russia, West Africa. So this is still up in the air a bit. These trade wars are volatile. Suddenly, there is tariffs and then there are 30 days grace. So we just have to monitor the development. But in any case, there is a lot of LNGs coming to the market. And unless there is a really big trade war here, we do expect a lot of new U.S. project to come into the pipe here, also given the fact that Europe also is expected to have some trade conflict with the U.S., where President Trump is really forcing Europe to be buying more LNG from U.S. Touching upon the freight market which is the market which we are active in. As I mentioned, the market was paving quite normal during 2024, actually a bit firmer during the summer months that than we expected. But once we came into the winter season rather than the market or the freight rates shooting up, which is usually the case, they slumped and they have continued to slump throughout 2025. We are now at a rock bottom level at around $10,000 per day, which makes it very -- uneconomically, especially for the older tonnage. What are the drivers is of course, the change in trading pattern where most cargoes are going through Europe, cutting down the sailing distance, and this is freeing up a lot of ships. As you can see here on the left-hand side of the graph, a lot of ships in the -- around 35 ships available in the market, this is softening then the freight rates. We also saw during last year, a big growth in spot fixtures. As kind of the cargo prices have come down, the panic has been alleviated. More of the charters are tapping into the spot market given the vessel availability, fixing their ships on spot voyages rather than fixing them on longer-term contracts. So in that regard, I think we have done well. We have been utilized that window during 2021, '22, '23 and also into '24, fixing a lot of ships on longer-term contracts rather than just playing spot. Looking at the most inefficient ships, the steam tonnage, generally we could say there are three type of ships there. It's the older steam ships. There is still around 200 of these ships in the market. And then there are the high fuel or dual fuel diesel electric ships and then we have the modern ships, the two-stroke, which has, of course, better economics given that they are larger and has a much more efficient propulsion system. Rates for steam tonnage, we pegged it here on the Affinity and Clarkson numbers at $2,500 per day. If we look at the further number today, the number for the -- the rate for steam tonnage, it's actually 0. So we have been talking about this for a long time. It's overdue scrapping cycle for steam tonnage. These ship have been surviving because you have had generally quite good markets, especially in '22 and '23 and into at least the three -- first quarter of '24. So given the slump in the market and making these ships unattractive, we do expect to see a big uptick in scrapping this year, next year and the coming years, driven not only by economics, but also by environmental rules which put a disadvantage on these ships, except for the FuelEU Maritime, which I'm going to cover also lately. In terms of newbuilding prices, they have stabilized at around $255 million per ship. Delivery window now generally being 2028, elevated newbuilding prices and also fairly high interest rate in recent history is also then driving up long-term charter rates in order to invest in new ships, you need a rate at least in the mid $80,000 to get a reasonable return on such an investment. So longer-term rates are holding up for those oil contracting ships for delivery, 2028 and onwards. Looking at the order book, it is a big wall of newbuildings hitting the market and is one of the reasons why we try to fix our ships until '27, '28, where we think the market looks better balanced. For '24, we were expecting 68 ships for delivery given the soft market, there's been some slippage, which usually happen in a soft market. So only 60 ships for delivery last year, meaning there will be more ships for delivery in '25, 93 we expect; and then 83 ships for delivery in '26 and '27. As you should note here, most of the ships or almost all of them are built towards long-term charters, given the elevated newbuilding prices and given the size of the order book, there's hardly any speculative ordering left. There are a few ships which are uncommitted for delivery in '25, '26, '27. And then from '28 onwards, all those ships are either for long-term projects and also the Quatari, which has expanded their fleet by more than 120 ships in order to renew their fleet and also to have more ships for a big expansion going on in Qatar. So if you look at the market there, we have been in a phase with limited growth now in the last 2 years, and then the growth will pick up in '25 continue to grow in '26, '27 onwards, which will rebalance the market together with scrapping of older ships. So when it comes to older ships, we put out the different types of ships there. As I mentioned though, less efficient ships being the steam turbine ships, and that's why they have a big penalty on the EU Emission Trading System, cost per day for a steam ship $7,000 per -- EUR7,200 per day. This tax is paid in Euro. Euro and Dollar is more or less the same today. So you don't really need to be -- have a FX conversion to calculate the dollar amount. The other generation, the tri fuel or the dual fuel diesel electric EUR5,600 a day. And then the more modern ships, the MEGI and the X-DF, which our fleet consists entirely of. We have nine MEGI ships and four X-DF ships, they have a smaller kind of EU ETS drag, EUR4,600 per day. However, EU, they don't like to make things simple. So while I think most shipowners support this system, we generally like a predictable carbon tax, which is penalizing the less efficient ships. EU has also implemented this year what they call a FuelEU Maritime, which is a system for decarbonizing maritime fuel. Since LNG is a cleaner burning fuel, you will get kind of reward for burning LNG compared to very low sulfur oil or heavy fuel oil with a scrubber. There is a huge penalty if you are not complying with the FuelEU Maritime regulation, the penalty being EUR2,400 per metric ton of VLSFO equivalent. It's a complicated world. So, we've taken the numbers from the shipbroker Affinity and calculated what will that benefit be. So you can see on our ships, we will get the benefit from -- pretty big benefit on -- from the FuelEU Maritime, more so on the MEGI, which we have nine of, because they have hardly any methane slip. Slightly less benefit on the X-DF because of they have a higher methane slips than the MEGI ships and then a further penalizing of the dual-fuel diesel electric or tri-fuel diesel electric due to the high methane slip. However, the steam ship, which doesn't have any methane slip. They do, however, have a huge fuel consumption. That's why they are being penalized by the EU ETS, but they also get a huge benefit from the FuelEU Maritime. I don't really think that they can -- it's unconceivable that they will be able to sell these kind of rewards to other, but they can enter into certain pooling arrangement where they can reduce the penalty or kind of swapping cost for all the parts of the fleet. For example, if you have older container ships, bulkers or tankers. So in general, we think this system is unnecessary and given how it's structured today, it's actually favoring the steam ships because they are burning a lot of LNG, which is a clean fuel. So we just put up a good old quote from Ronald Reagan and modified it to 2025, the nine most terrifying words in English language in 2025, is not the government, but I'm from the EU, and I'm here to help. So more about the EU. They like to make a lot of rules. Some of these rules are also driving business costs. Most recent now the CSDR. We have also gone through the Corporate Sustainability Reporting Directive. We are listed two places, in Oslo and in New York, and then we have to comply with both sets of rules, both the U.S. rules and the European Union rules. This is driving up cost for us. It's not like we want to avoid reporting on sustainability. We actually have provided our ESG report every year since 2018 where we give full disclosures on a lot of numbers according to the Sustainability Accounting Standard Board. On top of that, we have added the Global Reporting Initiative. And based on feedback from investor, we also added the Carbon Disclosure Project and our ranking will come out on Thursday. Last year, we had a B ranking on the Carbon Disclosure Project reporting. And our ESG report for 2024 will also be available probably around April. However, having to deal with two sorts of regulation, which is quite costly in terms of consultants, auditors and such and given the fact that 95% of our trading today is on New York Stock Exchange, and the fact that New York Stock Exchange is planning to widen their opening hours or trading hours to 22 hours a day, we have decided to propose to the Board for the approval of the Annual General Meeting in May to delist in Oslo and rather save that money, so we can rather spend that on -- focusing on one set of reporting requirements instead of having to deal with two conflicting sets of reporting requirements. So with that, I just think we are going to run through the summary before going for our Q&A session. As mentioned, revenues in-line with guiding, we are delivering very strong results, $45 million or $31 million, depending on whether it's the net income or adjusted net income, giving EPS of $0.84 or $0.57. We have added a lot of new backlog during Q4, putting us in a very good position to deal with the slump in the freight market during 2025, as we are guiding very similar results for 2025 as we achieved in 2024. And with a big backlog, a big cash position, once again, we are paying out $0.75, giving you guys $3 in dividend per share, or a yield of 12%. So with that, I think we head over to the Q&A session. And Knut, you probably have some questions ready.

All ready.

Okay.

So maybe we should start taking two steps back and looking at natural gas market and we use abbreviation for certain pricing hubs, JKM, TTF and also Henry Hub. There is a question here if we can explain more, what these hubs are and the interlinks between them?

Yes. I think I did it in the slide with the gas prices with Henry Hub being the main index in U.S., JKM being the spot price for LNG in Asia, meaning Japan, Korea market and then TTF being the virtual gas hub in Netherlands, which is a big importer and a kind of a central hub in the pipeline network in Northwest Europe. Of course, there are a lot of other gas hubs. Last year, 2024, the average price on the Waha gas hub in the U.S., which is West Texas, the average price was 0. So actually, they were producing more gas than they would export. So they have to give it away with a price of 0. So this kind of -- in U.K., for example, you have the National Balancing Point, but these 3 indexes, Henry Hub, TTF, JKM are the most relevant.

Do you see pricing on TTF and JKM? When do you see cargo moving the other way around?

Yes. We had a good question earlier today about that, why kind -- what is the sweet spot for these kind of prices? In general, if you are doing shipping, you would like to have sailing distances as long as possible because that is driving up demand for shipping. So I think in a sweet spot scenario, we would have Henry Hub at around where it is today, $3 or so. Generally, there is a liquefaction toll. So you need to have a certain margin to move that cargo to Europe. So if Henry Hub is $3, we'd probably like to have $7, $8 in Europe and then maybe $8 to $9 in Asia because then you incentivize people to send the cargoes to Asia rather than sending them all the cargoes to Europe. And at the same time, you would like to have gas pricing coming down $15, is at a level where people would rather like to burn coal. If we are to replace coal with natural gas, we need to get prices lower. If you have $10 -- a barrel of oil is 5.8 million Btu, meaning that $10 gas price means $58 per barrel of oil. So then it's also cheap comparable to oil. So that's the level where we want to have it, where it's not destroying demand, but actually stimulating demand and stimulating substitution away from coal.

Yes. We touched upon in the presentations with the new President, Mr. Trump in office, day one scrapping the moratorium. Do you see any movement in new FIDs or when do you expect to see these FIDs being taken and new projects can progress?

There's lots of projects now. So the people who have these projects, they have not been idling now for 13 months since the Biden moratorium. So while this moratorium has been in place, I think everybody understood that this moratorium would be removed whether or not Trump won. So even with Kamala Harris, we would expect the moratorium to be lifted, although probably it would take a bit more time, with Trump, it was removed immediately. So while this process has been ongoing, those project have been signing off new SPAs or Sale and Purchase Agreements for LNG, what you call the offtake agreement. So typically, if you have a big LNG export, it is quite capital intensive. You would probably like to have contracts for 80%, 90% of that volume in order to make that investment. So a lot of these project now have a very high level of contracted LNG, which means there are a lot of the projects are also ready to push the button this year on green light for expansion. And then typically, it takes 3, 4 years for first cargo to be produced. Plaquemines now, which is owned by Venture Global, which recently did the IPO in the U.S. market. They managed to do the first cargo after 30 months after the FID. On the previous project, Calcasieu Pass, it was also something similar. I believe it was 28 months. So although it's not like 30 months and you get full production, then you need to ramp it up over a period of time. So in general, I think 3 years to 4 years is a good. So if they do the FID this year you could see those volumes coming from '28, '29, as we've also shown in the graph where we expect the growth to come from those projects. So first, we will have growth from the pipeline of projects already under construction being mostly Qatar and U.S. and then there's a new wave of FIDs. However, it's not very constructive with the trade rhetoric from Trump, which tend to scare away buyers because if suddenly there are tariffs, that might make it uneconomically to take those LNG cargoes to those import nations, who have acquired them. So we would like to see a toning down of the trade rhetoric that would be very helpful for LNG market for sure.

Yes. That leads into the next question because they push forward one-week and Trump introduces tariffs. And there's a lot of question on geopolitical risk and in -- but in particular, on tariff against China. And how do you see that play out?

Yes. This time, there -- no big surprise, the Chinese has been preparing for this. So they had the playbook ready. So once he put on that new tariff, they had a ready playbook for what to do. And not surprisingly, like they did last time, they are slapping on a tariff 15% on LNG -- last time this happened in '18, '19. They started with 10% tariff increasing it to 25% and you had this 13 months window, where they didn't import a single LNG cargo from the U.S. And then finally, they had like a trade Phase 1 where China again started to import a lot of LNG and actually committed to import a lot more LNG from U.S. together with soybeans and oil. So I'm not surprised that they are coming with that sort of retaliation. As I understand, Trump will talk to Xi Jinping this week already. But I think it's not going to be sorted out very quickly. China has a huge trade surplus. Donald Trump is a very mercantile list in terms of trade. He thinks that the trade deficit with every country should be more or less 0, which doesn't really make sense from an economic perspective. So we would expect this to last for some time, whether there will be a grand bargain, maybe a trade agreement phase two, let's see. I think for Trump, his favorite President is Reagan, and he made certain similar agreements with the Japanese in the '80s. And I think that is the plan, and we'll see how that develops. I think in general, anyway, the cargoes, they will be produced and it's just where they will end up. So in case China import less LNG from U.S., then Japan and South Korea, Thailand other countries will import more also Europe and then China will just have to substitute the U.S. LNG with other LNG. And very soon, they will also have the alternative of sourcing LNG from Canada from the LNG Canada project.

And that moves us over to fleet and the fleet balance. There are sort of two questions here. Starting off with opportunities. There are uncommitted ships in the newbuilding fleet and there are also existing modern ships in the fleet. Do you see that open up some opportunities in this market for attractive acquisitions or M&A opportunities?

Yes. There is -- just a cup -- handful of uncommitted ships. There is very few and we know -- certainly know who the owners are of those ships. In general, I've been saying this for years, so I don't want to repeat myself too much, but we have a very good company. We have very happy customers who are repeating customer comes back and extend the ships with us for longer periods. As I mentioned, we deliver very good operations. You saw the technical off-hire, 99.7% uptime. As I mentioned, lost time injury frequency, our key health and safety measure was zero, which is the theoretical minimum in 2024. So we have a good operation. We have a good set-up. We have good access to financing being both equity capital markets and debt market. So we could easily scale this company more. We are always open if somebody who have modern ships, who would like to consolidate and be part of a bigger company, then we are open to grow our company, and we can do that easily without adding much cost. So we are open to consolidation. Buying ships is very easy. You just pay the highest price, higher than anybody else, then you will be able to grow your fleet. What we try to be is disciplined. So we are paying the right price and a price that makes sense for the Flex LNG shareholders.

Then on fleet balancing, the question said you -- we've talked about the steam tankers and scrapping. And the question here relates more to you see conversion projects to import terminals either for the steam tankers or the tri-fuels.

Yes. I think.

But that helped the fleet balance in the short-term.

It's not enough, it's like 200 steamships, so that you can't have 200 FSRUs. So I think, really a lot of these older ships, typically, they were put on a 20, 25-year charter when they were built. And we have shown in the past, we have had certain graphs about this on the roll-off of steam tonnage on existing legacy contract. So there is a lot of steam ships coming open and they will find a very hard time in the spot market. Nobody wants to fix those ships. As I mentioned, [firm analysis] (ph) is quoting rate for steamships today at zero. So we do think that scrapping will certainly pick up. Steel prices are still pretty well -- at the well level. So you get $15 million or so for scrapping that ship, which has no future. So we think that some -- a lot of these ships will be scrapped. Some might be converted to FS as a floating storage ships, some may be FSRUs, some may be power ships, which actually will drive demand for LNG as those needs to be fueled by LNG. And actually, the tri-fuels are better candidates for FSRU conversions, but we do expect some of the first generation of dual fuel diesel electric, we will also find a difficult time in the market because they are subscale. And as I mentioned on this environmental metrics, both EU ETS and the Fuel Maritime they score very poorly.

And on the steam tankers, we talked about scrapping due to high cost for the [20, 25] (ph) year special surveys, and they are earning zero today. So Clare Pennington asks, so the cash burn, what kind of they -- OpEx levels are they for either cold storage or in operations? How long will they survive?

The OpEx is quite similar. So our steamship, let us call it, $15,000 a day in OpEx. Of course, you can put a ship in lay-up, then you can either do it a cold lay-up or a warm lay-up, warm lay-up being that we have a crew on board. So if you have a crew on board, basically, you will have those running costs. Then there is a cost of lay-up that really depends on where you are laying up the costs, the ship, if there are certain port costs or not, this varies. You rather want to have cold weather, so you don't get too much barnacles on the hull. But in general, these ships have lived out their life. They are not economically. So of course, you can put a ship in warm lay-up for a short period of time. But given the numerous ships coming here, the wall of ships coming in '25, '26, '27, we don't really see that the market turning up very quickly, and that's why we built the backlog. So I think that it is better probably to retire those ships. Time value of money is quite high today. Even after the Fed has cut their interest rates, the interest rates is like 4.5%. So if you are delaying that kind of if you scrap the ship, you get a $15 million payout. If you are instead waiting and incurring costs, and then if you're incurring those costs with the lay-up, they will also have other implications. You will lose your certificates, there is -- what you in generally what we call [indiscernible] certificate. You might have extra cost for rebooting the ship, which will drive also the cost of reactivation. So in general, I think the steam ships really aren't lay-up candidates. They are scrapping candidates today, which are going to be helpful in terms of bringing back the market balance to 2027. I believe last quarter in November, we had a graph showing how we and SSY expect the market balance to develop, where we see that the market going back to a better balance in 2027 and where they then are assuming 53 steam ships to be scrapped within that time frame. Last year, it was eight ships, market was okay last year. Now market is not okay. So we do think that this number of steamships, 50 or so ships to be scrapped. It seems actually a bit low now given the outlook.

Then, moving over to our fleet, and there are basically questions related to two of our ships, it's Flex Constellation and a 15-year contract. I think we covered this last quarter as well. But it's a question, is this related to or linked to a particular liquefaction project or an SPA?

No, it's really linked to our portfolio. So we haven't disclosed the charter. I think two trade wins have done that for us. But what we have said is a huge Asian industrial LNG buyer or agglomerator. So they buy a lot of LNG. It is one of the biggest LNG buyers out there. They buy LNG from a lot of different projects, and they need to renew their fleet of ships finding the most efficient ships and this ship will go into their portfolio where they source LNG worldwide from various projects.

And then following up on 15-year contract in this period. Are there another or a lot of other 10-year opportunities or similar tenders out there?

Right now, it is a pretty slow market. It's really the cargo owners or the charters who can pick and choose what ships they want, given where the rates are today, most people are doing. As I've shown on the graph earlier today, spot fixtures has gone up a lot. That typically happen when there is too many ships in the market. Nobody really are in any rush to fix ships on longer-term contracts. They rather just tap into the spot market whenever they have a need for a ship. I expect that to continue until the market tightens. And also then when people expect it to tighten. So typically, what happens is that of course, people are dynamic here. So once you see that the market is gradually tightening, somebody want to be smarter than other and kind of jump on the wagon before it leaves and try to fix some ships on longer-term charters before the rates picks-up. So that is something that -- not sure that is going to happen this year, but probably when we are getting into '26 and '27.

And another ship is then Flex Artemis on a variable hire contract. I believe the question is more of a reminder, how does this variable hire contract work?

Yes. It is a -- we fixed that ship on a variable hire contract back. It was the first term deal we did. We did that end of 2019, and we announced it was with Gunvor, which is one of the big LNG traders. Initial period, firm period was five years for home delivery. That ship was delivered August 17 from DSME, which is now called Hanwha 2020. So, she going on a variable charter where the rate is set for each voyage with a certain floor. So the rate cannot be lower than a certain floor, and it cannot be higher than a certain ceiling. So in that range, we will get a rate and the rate will be pegged depending on the spot rates observed for modern tonnage, meaning MEGI/X-DF, MEGA, the two stock ships. This firm period is coming to an end then in August 2025. The charters do have five single-year options. All of those options are also at a similar index, so meaning that if they declare the options, they will also benefit from having a rate linked to the spot market. So right today, of course, they are paying a rate at the floor, maybe not too surprisingly. And once we are getting closer to August, we will know whether they will extend that ship. If not, we will do the five-year special survey of that ship and have ready for the winter market. It's a very attractive ship. It's together with Resolute and the Freedom, the most efficient ship we have with a so-called full re-liquefaction plant. So they have two compressor where they can take the boil off down to 0.035%, meaning that we can kind of -- from a ship, which is a thermos, minus 162 Centigrade. You always have a heating up of that cargo and that heat creates a gas vapor. We utilize that gas vapor to burn as fuel on the ship. On these three ships, you have a full reliques system where you can basically reliquefy almost all of the boil of gas. So in case, you are waiting or you have to take down speed, you can regulate that with these compressors. We also have four ships which are partial reliques system. So it's one of the best ship, so hopefully, they will continue with the ship as a happy customer, but we will know once we're getting closer to the final maturity of that contract.

I think that concludes the Q&A session. So it's time to announce the winner.

Yes. Okay. Do you have an idea?

We have received a lot of good questions from Clare Pennington from Independent Commodity Intelligence Services.

Also known as ICIS, but it's not the ISIS.

The friendly one.

Yes, it's the friendly ICIS, yes. So okay, thank you then Clare. You have been asking me a lot of question during the year. So you will have this swanky socks. As I mentioned, cold cargo, but you will keep your warm feet. I will send you two of these pairs. And that concludes today's presentation. It's my 30th Quarterly Presentation. So I'm looking forward to Presentation 31 in May. So thank you, everybody for listening in, and I hope to see you soon again.