MISC Annual Report 2019

Market Review Global LNG trade grew by a record amount in 2019, surpassing the previous record set in 2010 at the height of the Qatari megatrain projects. The net global LNG trade rose by 13% year-on-year. On global LNG supply, although the US (10%) and Russia (8%) led the charge to commission the largest volume of new LNG supply, it was Australia (22%) that took the crown for the world’s largest LNG exporter of 2019, displacing Qatar (21%) for the first time in a decade. On the demand side, Japan remains the largest importer of LNG accounting for LNG imports with 22% in 2019, followed by China (17%) and South Korea (11%). China’s import growth, though no longer the fastest growing market, was still robust at 14% year-on-year. LNG’s import growth was largely driven by Europe’s ability to absorb LNG volumes with a 67% year- on-year increment. The year 2019 marked ‘A year of records in the LNG industry’. The year produced the highest level of liquefaction final investment decisions (FIDs). Total sanctioned capacity was 70 MMtpa in 2019—surpassing the preceding all-time high of 50 MMtpa reached in 2005. 2019 also marked the highest volume of liquefaction start-ups with 39 MMtpa of commercial starts in 2019, narrowly surpassing the record set in 2009 of 38 MMtpa. As the LNG market dealt with a growing surplus of LNG supply in 2019, the spot and short-term market was vital in balancing global LNG trade. More cargoes found home in the flexible and liquid short-term markets of Europe. The volume of LNG delivered under spot or short-term contract more than tripled since 2009, and now accounts for 32% of total global LNG trade. With the development of LNG projects progressing to reach FIDs at greater pace, demand for LNG shipping is expected to grow to support this new requirement. A rush of new orders at the end of the year helped push the LNG shipping orders total for 2019 to 50 conventional LNG ships. LNG ship deliveries came to a total of 41 conventional LNG ships added to the fleet in 2019. This brings the total number of active LNG ships in the market to 600. Charterers continue to opt for more efficient vessels and shorter long-term charter periods (five to 10 years) resulting in increased uncertainty in terms of investment return and higher asset residual value risk to ship owners. Although the prevailing market continues to be more competitive, the outlook for the LNG industry is promising with additions of new supplies and compliance to environmental regulation promoting its use. The LNG shipping market will continue to expand and innovate to support this development. Key Developments In 2019, we have successfully secured time charter contracts with Exxon Mobil Corporation’s wholly owned subsidiary, SeaRiver Maritime L.L.C for two LNG carriers to be chartered out for 15 years starting from the first quarter of 2023. Another notable highlight in 2019 was a partnership with Mitsubishi Corporation and NYK to jointly co-own two LNG carriers that will be delivered in 2021 and to be chartered out for a period of 18 years. In line with our strategic priorities to develop non-conventional LNG solutions to broaden revenue stream, we secured a time charter party with PETRONAS in collaboration with Avenir LNG to provide one LNG bunker vessel (LBV) for 3 years beginning the first quarter of 2020. This marks our first venture into LNG bunkering business and this strategic development will support our expansion into non-conventional LNG solutions. In 2019, we have continued our efforts to enlarge our market presence by participating in pre-qualifications and tenders for LNG shipping, LBVs and liquefied ethane carrier requirements globally as to ensure that it is Management Discussion & Analysis At the end of their lifespan, vessels can be converted for other use in the energy industry #whatyoudontknow able to maintain its long term revenue and profit stream. We also continued to expand our international footprint in 2019 to North and South Americas via our spot vessels. Moving Forward The LNG market continues to grow in response to strong demand mainly from Asia that currently accounts more than half of global LNG imports. As such, we see a sustainable future both for the business and the environment. Those are driven by the demands for fuel switching, green policies and economic growth. FIDs of new supply projects are expected to remain strong in 2020 reaching ~60 MMtpa, with Qatargas VI-VIII (31.2 MMtpa), Port Arthur LNG in the US (11 MMtpa), Rovuma LNG in Mozambique (15.2 MMtpa), and several smaller projects close to investment decisions. The expected demand growth provides significant opportunities for investment in L2P projects. Despite the challenges in terms of LNG competing with coal and other renewable energy sources, the strong policies implemented by the governments will drive the demand for clean energy and this is complemented by the competitive price of LNG against fuel oil as well as the abundance of its supply. With the conventional LNG shipping becoming increasingly competitive, market players have also aggressively focused into new ventures such as FSRU and LNG bunkering. We are expecting a lot more developments, especially in LNG bunkering infrastructures and LNG- fuelled vessels following the implementation of the IMO 2020 sulphur cap regulation. The continuous focus on strategic priorities coupled with our proven track record on technical know-how, will put MISC in the best position to capitalise on the opportunities presented by these developments in the industry. LNG Asset Solutions 93 OUR BUSINESS PERFORMANCE ANNUAL REPORT 2019 92 MISC BERHAD PEOPLE. PASSION. POSSIBILITIES