Integrated Annual Report 2021

2021 has proven to be an extremely challenging year as the pandemic continued to disrupt the businesses and economies. While the pandemic could have derailed many targets, we had set ourselves, key focus areas on project execution and delivery excellence which has kept us on track. The LNG shipping market has gone through a boon and record-breaking year on both ends especially for spot markets. These market fluctuations have a low bearing on the GAS Business segment as majority of our contracts are on long-term charters with secured terms in place. However, the competition has intensified with more new players jumping on the bandwagon including speculative players investing in new shipbuilding without contracts in place. Other competitors have willingly sacrificed their margins for a stake in the market as evidenced from the recent LNG carrier (LNGC) shipbuilding tender results. Moreover, the shift towards net-zero GHG emissions has accelerated with stricter IMO regulations on emissions conditions and targets that will impact our fleet. ZAHID OSMAN Vice President, Gas Assets & Solutions VICE PRESIDENT’S REMARKS Additional enforcement on COVID-19 standard operating procedures (SOPs) could have potentially delayed the deliveries of our newbuild LNGCs and very large ethane carriers (VLEC) in 2021. Vessel operations and maintenance including dry docking could be worse with longer offhire periods due to additional SOPs or rising infections among seafarers and workers. However, our perseverance, meticulous planning, and close collaborations with our stakeholders and customers have allowed us to overcome majority of these challenges. During the year, we made significant progress on key project milestones by focusing on project delivery excellence. In addition to one VLEC delivered in 2020, we have received another five VLECs in 2021 with Seri Elbert being the sixth and final VLEC for our long-term charter contract with Satellite Chemical Co. Ltd. (STL). This is a significant milestone which has made MISC the single largest owner of VLECs by capacity in the ethane industry and signified our success in diversifying into new asset class as well as establishing a strategic footprint in China. Two LNGCs namely Diamond Gas Crystal and Diamond Gas Victoria that we co-own (via Asia LNG Transport Dua Sdn. Bhd.) with Nippon Yusen Kabushiki Kaisha (NYK) and Mitsubishi Corporation were also delivered in 2021. They are managed by NYK to serve the charter contract with Diamond Gas International Pte. Ltd. (DGI – a wholly owned subsidiary of Mitsubishi Corporation) in meeting their LNG transportation requirements worldwide. In addition, steel cutting activity has started for our two wholly owned LNGCs at Samsung Heavy Industries (SHI) shipyard, to be delivered in 2023 for the SeaRiver Maritime (SRM – a wholly owned subsidiary of ExxonMobil) charter. Setting sights on future options to drive growth with new solutions, we have completed Phase 1 study on minimum manning floating storage units (FSU). We also executed a Memorandum of Understanding (MoU) with Wison Group, an engineering, procurement and contraction (EPC) firm which focuses on the energy and high technology industries, to develop and commercialise LNG-to-Power (L2P) solutions mainly focusing on floating storage regasification powerplants (FSRP). As much as we hope that the pandemic will be a thing of the past, the outlook for 2022 remains uncertain with new COVID-19 variants that are surfacing. For the year ahead, the LNG shipping industry will continue to leverage on the LNG suppliers’ market where demand is expected to increase, as world economies become entrenched as part of the energy transition towards greener alternatives. The GAS Business segment currently faces a two-fold challenge. Firstly, is on how quickly we can replenish the revenue streams, as we have several long-term charters which are coming to an end soon, resulting in a significant impact to our revenue contribution to the Group. Secondly, we are facing the issue of managing old tonnage which may not be competitive and economical for longer service due to stricter industry emission requirements. Despite this, GAS Business is well-placed to take advantage of new opportunities and changing trends in both conventional LNG shipping and other unconventional gas carrier markets due to our distinguished reputation, technical and operational experience, as well as ship management know-how. As one of the Group’s main cash contributors, our strategy is to strengthen the core business and enhance our competitive advantage by accelerating our entry into unconventional gas carriers and commercialising future options to generate cash sustainably. We have identified a three-stage plan to achieve this: 1. Continue to maximise cash from existing assets by maximising utilisation and availability of existing vessels, including trading vessels for spot markets; 2. In the near term, to further strengthen and diversify our asset portfolio by expanding in new asset classes, including VLECs, and selectively seeking opportunities to add conventional LNGCs; and 3. In the long term, to explore opportunities presented by new technology and asset solutions, including exploring potential business opportunities in liquefied carbon dioxide (LCO2) carriers and minimum manning FSUs. In addition to our commitment to operational and delivery excellence, we are committed to the decarbonisation agenda by identifying several focus areas. This includes rejuvenating our fleet by investing in modern and more efficient vessels while phasing out older ones that do not meet evolving emission requirements. On top of this, we plan to leverage on existing synergies between our different business units to further enhance our vessel operational efficiency. I am confident that with a dedicated pursuance of our strategic objectives, backed by our sterling industry track record and customer centric approach, we are ready to achieve our growth aspirations regardless of the challenges that may lie ahead. ZAHID OSMAN Vice President, Gas Assets & Solutions Zahid Osman was the Vice President, Gas Assets & Solutions until 31 December 2021. He is currently the Vice President, Corporate Planning GAS ASSETS & SOLUTIONS BUSINESS REVIEW MISC Berhad 122 Integrated Annual Report 2021 MISC Berhad Integrated Annual Report 2021 123