MISC Annual Report 2018

MARKET REVIEW Global LNG trade grew by 9.6 percent year on year in 2018 with China accounting for the largest share of this growth. The high level of growth is a continuation of the expansion of the past two years as large waves of new liquefaction projects continue to come onstream. At the same time, the LNG market became more spot-orientated, with more single spot deliveries as well as cargo contracts being traded with shorter term maturities, smaller volumes and destination flexibility. In 2018, spot trade accounted for more than 25% of all trade volumes, up from around 20% in 2014. There was a continuing trend of reducing vessel charter lengths, to match the shorter LNG supply contracts and growth in spot trade. The typical contract term charter fell to seven years from 12 years. With growing demand for LNG expected in the foreseeable future, there have been new entrants venturing into the conventional LNG shipping space. These players were willing to build vessels speculatively and accept low returns as long as they managed to penetrate the market, creating an increasingly competitive environment. Consequently, LNG players have also begun venturing into non-conventional LNG solutions, such as LNG bunkering and Floating Storage Regasification Units (FSRU) in hope of securing long-term value accretive contracts. During the year in review, the market saw a healthy delivery of newbuild LNG carriers bringing the total number of active LNG carriers in the market to 565 from 492 in the previous year. The expansion in the global LNG fleet is well supported by the growth in LNG demand, leading to a robust LNG charter market towards the end of the year. KEY DEVELOPMENTS 2018 In 2018, we further expanded our LNG carrier portfolio, taking delivery of Seri Camar in February and Seri Cemara in April, both of which are on 15-year long-term charters with PETRONAS. These vessels join three other Seri C carriers that were delivered in 2016 and 2017. These five Moss type LNG carriers have increased MISC’s LNG fleet size and reinforced our position as a reliable and safe transporter, as well as providing sustainable income to the business, in line with MISC Group’s 2020 targets. We also leveraged on our LNG operational expertise and delivered additional value to our customers in March 2018 when Seri Amanah successfully commissioned and cooled down a new shore tank at Toyama LNG terminal in Japan. Our clients’ trust in our ability to commission this new import terminal is a testament to our excellent operational track record in the LNG shipping business. Another notable highlight was the completion of a LNG ship-to-ship transfer from ‘mother vessel’ Seri Bijaksana to the ‘daughter vessel’ SS Lucia Ambition in Brunei bay, Labuan in June 2018. The transfer was a collaborative effort with our charterer PETRONAS LNG Ltd, Sabah Port Authority and local stakeholders. This reflects our service-orientated focus on the needs of our customers. In view of the evolving marketplace, LNG Business segment diversified into the mid-scale vessel segment in 2018 with a two-vessel purchase and leaseback deal with LNG Shipping S.p.A, a subsidiary of Italian oil giant Eni S.p.A. MANAGEMENT DISCUSSION & ANALYSIS LNG ASSET SOLUTIONS LNG carriers allow natural gas to be transported in liquid state, making it feasible to be transported across oceans without pipelines. The containment systems on board the vessels are capable of storing the natural gas at below the boiling point of -162° Celsius. At this temperature, the gas turns to liquid, occupying a volume 600 times smaller. MISC’s fleet of LNG carriers consist of two types of containment systems, Membrane and Moss types Floating Storage Units (FSU) are flexible LNG storage solutions which are an alternative to land based facilities The Moss type vessels have self-supporting spherical tanks making them more robust and resistant to sloshing. They provide a higher degree of operational flexibility for worldwide trading capability including the ability to load cargoes at Floating Liquefied Natural Gas (FLNG) units MOSS TYPE LNG CARRIER 5 VESSELS The membrane type system is more space efficient and is able to have a higher capacity than a Moss type vessel of the same dimensions MEMBRANE TYPE LNG CARRIER 24 VESSELS FLOATING STORAGE UNIT 2 UNITS HIGHLIGHTS OF THE YEAR OUR BUSINESS OUR LEADERSHIP OUR PERFORMANCE OUR COMMITMENT TO SUSTAINABILITY OUR GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 50 TH ANNUAL GENERAL MEETING 95 MISC BERHAD ANNUAL REPORT 2018 94