MISC Integrated Annual Report 2020

///// Sustainability / Financial Review / Business Review / Leadership / Governance /// MISC Berhad / Integrated Annual Report 2020 7 142 MISC Berhad / Integrated Annual Report 2020 7 143 /// Governance / Leadership / Business Review / Financial Review / Sustainability ///// Section Section MOVING FORWARD With expectations that the dissemination of vaccines will slowly lead to the normalisation of international trade, global LNG supply and demand is forecasted to recover in 2021. In the longer term, global LNG demand is expected to grow by approximately 50% from 370 million metric tonnes per annum (mmtpa) in 2020 to 550 mmtpa by 2030. Global LNG supply in 2021 is expected to be increased by 17 mmtpa in comparison to 2020 of 366 mmtpa. In Northeast Asia, China remains the key driver of growth. The deferral of new LNG project start- ups in 2020 is expected to lead to a stagnant in demand for LNG shipping in the near future. Coupled with the high tonnage supply of uncommitted vessels to be delivered from 2020 onwards, this could cause the LNG shipping trade unable to grow significantly in the short to medium term. Climate change concerns that are being addressed through IMO regulations are leading to the scaling up of investments in greener vessels and bunkering barges. LNG as marine fuel for international shipping is expected to reach nearly 30 billion cubic metres (bcm) by 2030, accounting for around 4% of the global fleet and 10% of international bunker sales. While challenges are expected to persist, the LNG Business is well placed to take advantage from opportunities in the horizon in conventional LNG shipping, LBV, as well as the growing VLEC segment. We are well placed to capture significant growth in the LNG bunkering segment leveraging on our operational experience and capability building in operating one LBV in the region. We continue to explore business opportunities in L2P solutions utilising our FSRU conversion designs and leveraging on our experience in managing FSUs. The focus for 2021 is on execution and delivery excellence. These include delivery of the remainder of the four newbuild VLECs to STL before commencement of the TCP, as well as the execution of the LBV charter with PETRONAS. We will also be focusing Very Large Ethane Carrier: A Step Forward in the New Frontier In July 2020, MISC recorded a major milestone in the development of our business with the purchase of six VLECs at a cost of RM3.09 billion, marking our foray into the global ethane market. This milestone helped us to diversify our portfolio ensuring our long-term business viability and is testament of our business resilience during this challenging period. In more recent times, ethane has become an increasingly important global-trade commodity due to its use in ethylene production which is the main feedstock for a wide range of plastics such as polyethylene, polyesters and other ethylene-based derivatives that are vital for the manufacturing industry. Competitive ethane cost, healthy production yields and lower plant operation margins have made ethane an attractive proposition for manufacturers, and thus fuelled the growth in investment in ethane-based projects worldwide. It is projected that ethylene demand growth in China alone, in comparison to world demand, will increase from 18% in 2020 to 23% in 2030. The burgeoning ethane trade has opened new areas of growth for MISC in terms of VLEC opportunities. China is a key market for VLEC as Chinese petrochemical producers have announced their plans to import ethane from the US. The LNG Business has successfully gained the early mover advantage in this segment with the 15-year time charter agreement with STL to operate six VLECs. These six newbuild VLECs each has a carrying capacity of approximately 98,000 cubic meters (cbm), and are the largest vessels of its kind in the world. They are constructed at the South Korean shipyards of Samsung Heavy Industries Co. Ltd. and Hyundai Heavy Industries Co. Ltd. MISC took delivery of the first VLEC, the Seri Everest , on 30 October 2020. The Seri Everest has achieved international recognition and has been named by the Maritime Reporter and Engineering News as ‘one of the Great Ships of 2020’. Subsequently, on 17 January 2021, the Seri Everest successfully completed her inaugural full cargo loading which marked the largest ethane loading in the history of ethane shipping to date. The cargo was loaded from the newly constructed Orbit Ethane Export Terminal in Nederland, US. The Seri Everest is the first second-generation VLEC to export ethane from the new terminal. In January 2021, MISC took delivery of the second VLEC, Seri Erlang . These two vessels will be joined by their four sisters, to be delivered throughout the first half of 2021. Upon delivery of all the VLECs, MISC will become the largest transporter of ethane in the world. The VLECs are capable of transporting large scale ethane over long distances whilst ensuring the highest level of safety and reliability. With only eight other VLECs currently operating globally, the addition of these six VLECs to our assets has enabled the Group to gain a strong foothold in this niche segment to cater to increasing future demand. LNG ASSET SOLUTIONS on the ongoing construction of four LNGC newbuild projects, namely two LNGCs for Diamond Gas International Pte. Ltd. and the two LNGCs for SeaRiver Maritime LLC, a wholly owned subsidiary of ExxonMobil Corporation, (delivery in 2023) which are currently under construction at the Korean shipyards. We will continue to be selective in pursuing new growth opportunities in the conventional and non-conventional asset classes. We are confident that our stellar track record, coupled with prudent and focused strategic approach and customer centricity mindset, will enable us to successfully grow the business sustainably.