FLEX LNG Ltd. (FLNG) Earnings Call Transcript & Summary

Hi, everybody. I'm Oystein Kalleklev, CEO of Flex LNG. And today, we are presenting our second quarter numbers. I will be joined today by our CFO, Knut Traaholt, who will walk you through the financials a bit later in the presentation. Before we begin, I would just also mention, we do have a Q&A session at the end of the presentation, where you can send in your questions, either using the chat function or sending an e-mail to [email protected]. And if you have the best question for today, we do have some gifts for you. So gift #1 is our Flex LNG boiler suit. We just completed the talking of 4 of our ships. So -- and these are very nice when you do some improvements on maintenance, so you can have it while doing some home improvements. We also have the new Just Flex It running T-shirt, which we will be using in Oslo Marathon next month. And lastly, we have a new edition of Flex LNG sunglasses. So I hope you do send in some good questions. It's always the most fun part of these presentations. So before I begin, I will also highlight our disclaimer. We will be providing some forward-looking statements in this presentation. We will be using some non-GAAP measures as TC and adjusted numbers. And of course, we cannot cover everything in detail during this short presentation. So we would also like you to highlight the fact you can read our earnings release, which we also presented today. So let's kick off with the highlights. So let's begin with the highlights. Revenues for the quarter came in at $86.7 million, in line with our guidance of $85 million to $90 million. This resulted in strong earnings, $39 million, translating into $0.73 per share. Adjusted net income, where we only include the realized gains on derivatives, not the unrealized gains, came in at $28.2 million or $0.53 per share. During the quarter, we carried out drydocking of 3 ships according to time and budget. And that means we have completed the drydocking schedule for the year, with 4 ships being drydocked in the first half of the year. These 3 drydockings in the second quarter was then the main reason why we have lower revenues in Q2 compared to Q1. But with all ships back in operation from the second half of the year, we are reaffirming our revenue guidance of $90 million to $95 million in the third quarter. And somewhat higher expectation in Q4, $90 million to $100 million, depending a bit on how strong the spot market will be for the ship we have on variable hire time charter. So with that, we are reaffirming also the revenue guidance for the year, $370 million and adjusted EBITDA of somewhere between $290 million to $295 million. We are also today pleased to announce that Cheniere has expected -- extended the Flex Vigilant Time Charter from end of 2030 into middle of 2031. As some of you might recall, we did an extension of 3 ships with Cheniere last year where they had this early option to extend that ship by 200 days and then get our option to extend a further 3 years. So in total today, we have 55 years of minimum firm backlog, which can be extended up to 8 years if charters are utilizing all our extension options. So with a very healthy backlog, a strong financial position with $450 million of cash and no debt maturities prior 2028, after all the refinancing we just carried out, we, therefore, should come as no surprise that the Board is declaring a dividend of $0.75 per share for the second quarter. This brings the dividend the last 12 months to $3.25 per share and yield of about 10%. So as I mentioned, we've been busy doing drydockings this year. We docked Flex Endeavour in March, Singapore. We did our sister ship, Flex Enterprise, in Singapore in April. And then we had 2 ships -- the sister ships Ranger and Rainbow docking in June. Ranger in Denmark and Rainbow in Singapore. We guided in our Q4 presentation that we expected these drydockings to take somewhere between 80 to 90 days. And we ended up at 77 days. So we're slightly ahead of our guidance on time. CapEx, also in line with estimate about $20 million of CapEx associated with these 4 drydockings. And with that, we don't have any more drydockings for the remainder of the year. As mentioned, we will have 2 drydockings next year, probably 4 in '25, 3 in 2026, and then we have a holiday in 2027 with 0 drydocking schedule for that year. So this slide is the same slide you saw last quarter, we are just reaffirming the guidance of the year, $370 million of expected revenues. We had $92.5 million or so in Q1, slightly lower in Q2 because of the 3 drydockings and also because somewhat softer spot market impacting the ship we have on variable hire time charter. With all ships back in operation, we expect revenues to jump in Q3, somewhere between $90 million to $95 million and then a bit more variability in Q4 as spot market can really take off, especially when we look at the winter coverage fixtures being done recently. So we expect somewhere between $90 million to $100 million of revenues in Q4, and that, in total, should be around $370 million. So -- and you also see that the revenues are higher than last year, where we recorded about $348 million of revenues. And that's despite the fact that we are taking 4 ships during drydocking this year, and it's driven by the fact that we have repriced the portfolio of ships and expect the time charter equivalent earnings this year to be around $80,000, which is higher than last year. So looking at the portfolio of backlog. As mentioned, Flex Vigilant extended from end of 2030 to the middle of 2031. And as you can see, we have substantial backlog with 54 years of minimum contract backlog. We have these 2 stars. That's our first open -- fully open ships, Flex Ranger, which was recently docked. She's open in Q2 2027, and the Flex Constellation in the middle of 2027. I will come back to this later in the presentation. These are very attractive positions when you are comparing to the term rates and new billing prices for ships for delivery at 2027 and onwards. So once we have finalized marketing of these ships, we will move forward to the next open position, which is Flex Aurora and Flex Volunteer, which are fixed to Cheniere, with redelivery early 2028, if they exercise the options for the ships, which we do expect them to do. We do, in general, think that a lot of these options will be declared, given where the term rates are heading. As you can see, we also have then on the bottom half Flex Artemis, the only ship that's on a variable hire time charter, where the rate is adjusted according to the conditions of the spot market. And the spot market looks very strong for the second half of the year, and that's why we have a bit bigger range in expected revenues in Q4 compared to Q3. Looking at this slide, we have used this a couple of times, just looking at where our adjusted earnings per share is $0.53 for this quarter. Last 12 months, it's been about $3 per share. Ordinary dividend's been $3. And then we have paid out a couple of special dividends given the very strong financial position of the company, the last 12 months, then we are down from the $3.75 per share of running dividend to $3.25, but still a comfortable level and giving our investors a 10% running yield. The decision factors we also covered in great details in the past. Q2 is, of course, usually the softest quarter in terms of the earnings on the spot ships. But as you can see, most of these colors are green, as I explained the reasons for already. So with that, we will jump into the key financial highlights, Knut?

Thank you, Oystein. Let's have a look at the key financial highlights for the quarter. Revenues came in at $86.7 million and was impacted by that 57 days of scheduled drydock of the 3 vessels in the second quarter. It's also impacted by seasonal lower earnings of the variable hire contract for the Flex Artemis. On the operating expenses, we see a slight increase this quarter to $17.3 million. And this is explained by timing effects of spares and maintenance. Last quarter, we were a bit below budget. And this quarter, we have paid some of those OpExes. So OpEx per day is $14,600. But if you look at the first half of the year, the average OpEx per day is at $14,000. Interest rates continue to increase. So we have an increase of interest expenses to $27.2 million. However, this is offset by a gain on derivatives of $17.1 million. Included in that is realized gains of $6.2 million versus $5 million in the first quarter. And if you look at the comments on this slide, we also then compare with the first half of the year. So we see we have realized gains of $11.2 million versus a loss of $2.4 million last year. So despite the rapid increase in interest rates, we see the positive effect of our hedging strategy, where the net paid interest is only $10 million higher despite the rapid increase in the interest rate levels. Last quarter, we completed the balance sheet optimization program, and therefore, also booked the write-off of debt issuance cost of $10 million. So that's no longer applicable this quarter. So for the second quarter, we end up with a net income of $39 million or $0.73 per share. And adjusting for the unrealized gains on derivatives, we end up with adjusted net income of $28.2 million. And that results in adjusted earnings per share of $0.53. Looking at the balance sheet, it's still robust and clean. There are 2 main components. It's cash of $450 million and our vessels, the 13 vessels with an average age of 3.6 years, with a book value of about $2.3 billion. That gives an equity of $870 million on solid equity ratio of 31%. If we look at the cash flow statement for the quarter, we have $47.5 million in cash flow from operations and $9 million in change in working capital. We had $16 million in drydock expenses and then amortized about $26 million. We paid out last quarter, $0.75 per share in dividends, resulting in $40 million. And we end up then with a solid cash position of $450 million. Having a deeper look into our interest rate portfolio. We have made no changes to the derivatives during the quarter. So we maintain a high hedge ratio of 62% to 65% in the coming quarters. It's a mix of SOFR-based interest rate swaps and LIBOR-based swaps. As LIBOR has exceeded to be -- [ ceased ] to be quoted, these LIBOR swaps will transition into SOFR swaps during the third quarter. If we look at the components here, we have $820 million of swaps. And then we also have $201 million of fixed rate leases in the portfolio. So on the interest rate swaps, these are valued today at $58.7 million on our balance sheet, and provides a solid hedge in the coming quarters and also cost visibility. Looking at our funding portfolio. In Q1, we concluded the balance sheet optimization program. The funding portfolio is then consisting of about 50% of long-term leases and 50% of debt, which is split in term loans, and a $400 million non-amortizing revolving credit facility. The revolver gives us flexibility for cash management when we have a cash position of $450 million, which means that we can repay the RCF at any point in time and therefore, also reduce interest rate cost. The maturity profile is pushed out. First maturity is in 2028. And as you see here, it's spread out, with the last maturity in 2035, subject that -- we exercised a 2-year extension option on that financing. This portfolio is provided by a diverse and strong and supporting group of banks. It's split out in various regions. So we have banks from the U.S., from Europe and then also increased our exposure in Asia. So this gives us a rock-solid foundation to support the company coming further. And with that, I hand it over to Oystein for an update on the market.

Okay. Thank you, Knut. So let's have a look at the markets, starting with the volumes. So these are the volumes from January to end of July. In that period, we see that the export growth is about 3%. U.S. was flat in Q1 due to a shutdown of Freeport, but with Freeport up and running again, U.S. volumes are increasing and are the main contributor to volume growth. We have also had shutdowns in Norway, and Norway is back exporting. So they are also adding $1.6 million, same as Algeria. On the import side, we continue to see strong growth in Europe, adding 5 million tons in those 7 months. We've seen less demand for Japan with nuclear restarts, but China bouncing back. China, after they loosened up the COVID restrictions, we did see Chinese demand rebounding from March. And in the second quarter, Chinese import growth was about 20%. So then looking at the gas prices, they have been incredibly volatile the last couple of years, driven mostly by supply events as well as, of course, COVID. So looking back the last 1.5 years or so, of course, we saw high gas prices coming out after the invasion of Ukraine and also the strong demand in end of '21. We had the Freeport shut down middle of last year, which started to bring prices up. And then, of course, we have the Nord Stream explosion, which cut off a lot of Russian pipeline gas to Europe and actually sending the price of gas as high as $100 per million BTU. For those who are not too familiar with million BTU, that's 5.8 million BTU in a barrel of oil. So that means that we are talking here about gas prices equivalent to about $600 per barrel of oil. And of course, when prices are going to these kind of levels, demand goes down because of the high prices and switching to coal or propane or oil products. So with the spike in price, we've seen a lot of demand subversion in Europe, especially, which are more reliant on the spot market. And we saw gas prices basically falling from a high of $100 per million BTU in August last winter to about $10. And we then -- a level where natural gas actually very competitive towards oil. You see the dotted line here. It's LNG being sold at oil price with about 20% discount. And of course, when prices go down, again, we can see more demand. And now lately, the last week or so, we have had the situation where Australian workers are contemplating strikes, which could cut off almost 50% Australian volumes or 10% of global volumes. So these are really big numbers. When we look at the Freeport explosion, which cut off that plant, we were talking about 3.5% of global volumes. So these are almost 2.5x bigger volumes. And I will come back to the situation in Australia. And with that, of course, we have seen a rally in European gas prices the last week or so. And we do expect gas prices to head upwards in line with the future curves there as there will be more demand when we're going into the winter. So look at -- let's have a look at the situation in Australia. There are several mega projects in Australia. As you can see here on the map, the uncertainty today is around 3 different projects, which are -- last year exported about 41 million tons, close to 50% of all Australian volumes. So here, we are talking about industrial actions where workers are contemplating a strike, which will affect the Northwest Shelf, a plant operated by Woodside, the Gorgon and Wheatstone projects operated by Chevron. So these projects are mostly selling all of their volumes to Asian buyers, given the short distance to these big markets, which are pan-China, South Korea, taking the vast majorities of these cargoes. So if there is a shutdown, it will really cater supply crunch, where Asian buyers will have to compete for Atlantic basin cargoes, mostly U.S., and drive prices up where we have seen already the fear of this happening and driving up prices. Of course, we don't expect shutdowns at a similar period of time as we have seen when we had the Freeport explosion, which is more a technical issue. But that said, we have seen similar actions happening on the Prelude project in Australia last year, where industrial action closed on exports from June 10 to August 25 last year. So this is still unresolved, but it's something to keep an eye on. Another interesting topic is the supply of Russian gas. So what we are repeating in [indiscernible] is that Europe has really said they don't want to have Russian pipeline gas. And also with the Nord Stream pipeline exploded, it's not feasible to move those volumes. So the share of Russian pipeline gas in European Union's natural gas demand has been on a sharp fall. And of course, this gas has been replaced primarily by LNG. Europe has been incredibly lucky. First, we have had the COVID shutdowns in China. And then we have seen the economic growth of China probably being on the slower side of expectation, which has resulted in Europe being able to source a lot of volumes from the spot market and U.S. cargoes, especially the flexible U.S. cargoes going to Europe. But not only the U.S. cargoes, actually, when we look at Russian LNG, it's very welcome in Europe, and actually, Russian LNG into Europe has just kept on going, as we can see on this graph on the right-hand side, Russian LNG to EU, 37% of the cargoes went to EU in 2021. It actually grew to 47% last year. And so far this year, 51% of Russian LNG is going to European countries. And why? It's because the European buyers can't really afford to not take the Russian LNG, given the tightness of the LNG market. So looking at the European gas market, which has been [indiscernible] the last couple of years, European gas inventories now are at a very high level. We are very close to the 90% threshold that EU was targeting for November 1 already today. But again, there are -- the winter has not started. And of course, once we're getting into the winter, European consumers will start to utilize the storage level and deplete it, as is the seasonal pattern. So I had some scenario analysis of how vulnerable Europe is to supply crunches. And we have 4 different scenarios here. So it might be a bit confusing here on the right-hand side, but we look at -- once the heating season start, which is first of October, what is the level of inventory levels there? And you will see, as you get to November, December, January, February, March, this storage level will be declining as we are using from the storage levels. So how much they are declining? It really depends on a couple of factors. It's -- the biggest factor is whether the winter will be cold or not. And then it will also be about how much gas will Europe be able to source from the LNG market. And that's why we have seen the rally in the gas prices last week or so, because if in the event, Asian buyers are competing for marginal spot cargoes, LNG supply will be more restrictive. And in such a situation where you have a cold winter and restrictive LNG supply, Europe could end up with very low level of gas coming out of the winter this season despite the high storage level today. So looking at the market we are operating in is the freight market. The spot market's been acting as usual. We have had the spot market cooling down as we're getting out of the winter. And once we're getting closer to winter, spot rates are going up and following the seasonal pattern, today, we are already above $100,000 per day for modern tonnage. And if you look at the future curves on the left-hand side, which is the dotted blue line, we see that the future curves are pricing ships for the winter in excess of $200,000 per day, in line also with what we have seen in the past. But keep in mind, there's been a lot of traders and the portfolio players. They have been taking ships on longer-term charters. So the numbers of fixtures in the spot market has gone down, and also the spot fixtures being done today are primarily relets, where charters are fixing ships to each other, not independent owners. Looking at more term rates, where we are more active. Of course, term rates are driven by, of course, supply and demand, but they're also driven by new building prices and interest rates level. So we have seen new building prices picking up about 30% the last 2 years. And of course, when people are doing a tender for new buildings, those people investing this amount of money in our ship, they need a higher breakeven level in order to defend such investment also when interest rates are picking up. So today, new building prices are at around $265 million with a couple of more ships for -- available for delivery at '27 before we are starting to have only yard slots open for 2028. So today, the 10-year rates, as you can see here in the light blue line, is hovering above $100,000 and then at about $115,000 for the 5-year time charter rate. So this is one of the reasons why we are also very optimistic about recontracting our ships. We have 2 ships open in '27 competing with these ships and then 2 ships also in '28, where we do think that once we are recontracting ships, we will be doing that at higher levels, which we have also done and evidenced in the past. Looking at the order book, we had a lot of contracting of new builds last year. With these higher prices, we have seen fewer contracting these days. But the order book is big, and it's also reflecting of the fact that we have a lot of new volumes coming to the market. And it's reflecting the fact that still we have a lot of steam propulsion on water with 35% of the fleet consisting of steam ships. And we do see more and more of these ships leaving the shipping market and have to be replaced by more modern fuel-efficient tonnage driven by economics, driven by regulation and also to -- from next year, actually carbon taxation in the European Union. If we look at the order book today, most of the ships are committed to long-term charters, only about 10% of the ships in the order book are uncommitted so far. Looking at the -- what you could call the cargo market, the LNG supply. We've seen continued FID projects taking the final investment decision, latest one being Next Decade's Rio Grande, which announced they're going ahead with the Rio Grande project. And we've also seen 2 other projects in U.S. this year. Venture Global's Plaquemines Phase 2 and Port Arthur also earlier this year. So we have about 100 million tons of project in North America under construction or where they have taken the final investment decision, and then $73 million rest of the world. And there are still a lot of projects chasing FID. The project we deem probable or highly probable to do so is about 85 million tons in North America, 68 million tons of the rest of the world. So we do see a very strong growth in the market. The nameplate capacity today is 465 million tons. We do expect LNG supply this year to be about 420 million tons. We are not able to have 100% utilization on these projects. And then this -- if you add all the projects under construction, you are getting to 634 million. But there are still projects trying to get FID. And if you put in all the highly probable, you are ending up at a very big number, 788 million. So that is one of the driver for all this contracting of new LNG ships. So with that, I think we conclude today's presentation. I'm just going to run through the highlights quickly. Revenues for the quarter in line with our guidance. We have strong earnings, $39 million, or $28.2 million if you adjust out the unrealized gains on our derivatives, giving earnings per share of $0.73 or $0.53, respectively. We have completed our drydocking program of the 4 ships on time and budget. We just recently had an extension of our Cheniere time charter for Flex Vigilant, bringing that ship into 2031. Revenues for the second half of the year will pick up as we have completed the dockings and as we do see a stronger spot market. And we are confirming the guidance we already provided in February, $370 million of revenues for the year, adjusted EBITDA of $290 million to $295 million, driven by higher earnings in Q3 and Q4. So with that, we are happy to declare another dividend of $0.75, bringing the dividend the last 12 months to $3.25, giving, again, as I mentioned, 10% yield. And we can do that easily given our high backlog and strong financial position. So with that, I thank you for joining the presentation. We will then gather in some questions and do a Q&A session. Thank you.

Okay. Let's start the Q&A session, Knut. And I think we have received quite a lot of questions today as well, even though I think most of the analyst reports coming out this morning was -- this is boring stuff, no news, everything as expected, but we'd rather be boring and profitable than funny and losing a lot of money. So let's see. Okay.

We have good group of questions, and thank you for sending them in. Let's start with the contracts. And [ Wolfburn ], he questioned if it's a surprise that Cheniere declared the option on the Vigilant that early. And can we expect any other options to be declared by Cheniere and soon?

Yes, Wolf is a loyal shareholder. Now, it's not a surprise at all. Actually, if you read the press release we sent out last year when we did this deal with Cheniere for 3 ships, which we extended then, we wrote the fact that the Vigilant had an early option due Q3 this year. It's not Q3, even though we report in Q2. So it comes at no surprise. And they also have an early option to extend the Endeavour in spring next year, where the period is slightly bigger or longer, 500 days. So I would expect that to happen as well. So no surprise, as planned.

And then a follow-up on the contracts from Fredrik Wessel in Pareto Securities. In the fixed-rate contracts, are there any inflation adjustments?

No. We have them on a fixed-rate level. Of course, there are some [ fact ] in those contracts. That's why we're making some money. However, we have hedged the risk in terms of inflation. Usually, there is a pretty strong correlation between interest rates and inflation. So if inflation goes up, interest rates tend to go up, as we have seen very much so the last couple of years. So we are -- as Knut have shown, we hedged a lot of interest rate, so we have covered the inflation risk in that sense. And actually, our cost of interest rate, interest rate per day, is higher than OpEx per day. So it's actually a more important risk to cover.

Then we have some questions around the contract portfolio. We today announced a 54-year of firm backlog and 8 years, including the options. And then we talked about open vessels in 2027 and '28. So the question is, what's the likelihood of the options to be declared?

Yes. I would say right now, given where term rates are for ships, ships have become a lot more expensive. I showed now that ships have been -- new building prices has gone up 30% in 2 years. But keep in mind, we ordered ships back in '17, '18. So they've gone up from $180 million to $265 million. So -- and rates for new builds, $100,000 or -- rates are lower, although most of the options we have are typically at a higher rate than we have on the firm period. So I think the likelihood of options being extended is very high. Whether all the options will be exercised, it's hard to say, but I think most of the options will probably be called by the charters and all kind of backlog is then -- most probably longer than the 54 years we have firm.

Okay. Then moving on to drydock. We have a question from [ Hakon Lunde ], who works in the offshore drilling industry. And they have a concept in the drilling industry about continuous class, where they do maintenance and class renewal while in operation in order to reduce time at the yard and off-hire. Is that a concept that could work in the LNG for Amber Flex when doing drydocks?

I think it's a bit different if you are on a semi-submersible drilling rig, and you can spend $50 million, $100 million during the special survey on the ship. We -- of course, we do have a continuous maintenance all the time. We do have class inspections regularly. And of course, prior to us going into our dock, we want to minimize the stay at dock. So what we are doing is to prepare everything in advance. So once we are doing the discharge, we use the ballast leg to prepare all the maintenance, starting to take down equipment, so they are ready to be maintained. And I think we evidenced that now, we guided 80 to 90 days dock stay for those 4 ships we had planned this year. We managed to spend only 77 days on those 4 dockings, average 19 days. And I think if you compare that with most other LNG owners, we are comparing very favorable on time and also on cost. Because staying in a dock is costly.

And he follows up with another question on the new buildings. It's been mentioned that they have some new gadgets slightly different from our vessels. So while we are in drydock, do you plan to do any upgrades of the vessels?

It's not major upgrades. Of course, we always do software upgrades. There are maybe some new energy-saving devices or we are putting in some more sensors, but not major upgrades. We have the most efficient engines that's a 2 stock, people ordering ships today are still the 2 stock. Actually, very few people are ordering the mega ships, which we have 9 out of the 13 in our fleet is mega ships because they are quite expensive. Usually, they have 1 or 2 high-pressure compressors running at 300 bar. People today are maybe as often opting for cheaper engines with lower pressure, which result in not as good combustion and more [indiscernible]. There are some other gadgets. You have the air lubrication system. But so far, there are some mixed results on these systems. I think if you are to order new ships today, of course, shaft generator is quite popular. It's basically if you have a bicycle and you have a dynamo on the bicycle in order to make lights. So rather than running the auxiliary engines, you can use the dynamo. But of course, if you use the dynamo, you also create friction. So it's not like you get free electricity, you have to burn more on the engine, but you can use less of the auxiliary engine. So that's around the Board way of saying that we plan no bigger upgrades because the ships are state-of-the-art, and we order them because we could get state-of-the-art ships at the right time at the right price compared to what it is today.

Then we have questions for finance. And basically a recurring question on our cash piles, why we are not repaying debt in order to reduce interest rate cost? It's a recurring question, and it's something that we get, and it's related to the RCF or the revolving credit facility we have. Basically, we use the RCF for cash management. In between quarters, we repay with available cash to bring down the interest cost, which is actually the question here. And that makes sure we have cash available and funds available when we need it. And it follows up on the classical principles of raising capital when you can and have it available. So for this RCF, when we don't utilize it, we pay 70 basis points in a commitment fee, and that's a pretty cheap way of having capital available. Following up on the market, a couple of questions there. We have Charles from [indiscernible]. Short question, is the winter coming?

Short answer, yes? We are in August. Once we're getting into October, the winter will be coming. So what I think will referring to maybe is [indiscernible] when I've shown the European storage levels of gas, of course, they are very high today, reflecting the fact that muted demand over the summer, muted demand over last winter, when we had the third La Niña, pretty warm or mild winter in Europe. What will happen this year? Let's see, this year is different from the last 3 years. The last 3 years, we have had a La Niña. This year, we have El Niño. El Niño typically means colder winters in North of Europe, wetter winters in south of Europe, usually warmer winters in Asia. So even though inventory levels look high today, you have to also take into account that all the Russian gas that used to be there to support gas consumption in Europe is more or less gone. So the storage is becoming much more important, and the drawdown of the storage levels will probably be much quicker, especially in a cold winter because you don't have the same kind of baseload of gas into the market. So the winter will be coming. It will be interesting to see. We need to have as much LNG to the market as possible in order to not create this kind of wild price swings we have seen in the past.

Yes. So that brings up to another question from [ Sharif Al-Maghrabi ]. We have in the presentation talked and is also in the news now about the potential strike in Australia. So what's the impact on the ton mile? And there is a risk of seaborne volumes will drop. And where will then the importers pick up the slack?

Of course, this is so much volume. It's unprecedented. 10% suddenly of all volumes going away, with some Freeport going away, it's 3.5%. So -- if that is -- volumes are curtailed, prices will skyrocket. It will not be enough LNG in the market for sure. And hopefully, we can only hope it will not be long-lasting. We have seen a similar situation here in Norway, where oil and gas workers have been contemplating striking and actually, the government have intervened and said this -- the consequences are too big. We are the biggest gas exporter to Europe, we have a public arbitrator and just setting the term by fiat. I think Australia should certainly consider something similar. If it happens, of course, you will free up a lot of ships in Australia, which are usually doing that kind of transportation from Australia to Japan, Korea, China, Taiwan. So JKTC, all those ships will be available, 40 ships. If you multiply maybe 1.3, 1.4, it's a sizable number of ships, maybe 60 ships will be available in the market. Probably not will be available immediately because people will be holding them back, because they don't know how long the strike will be. They're going to fix the ship on a 3 months or 2 months of charter, and suddenly, the strike is over and they are left out of the ships. So you will equate inefficiencies. And you will have ships going to longer routes to U.S., to Asia. And I think, actually, shipping market will also be tight because the uncertainty about when will volumes come back. Of course, when Freeport shut down, they had like a time line when the volumes would be starting up and people could relet the ships. When you have a strike, that's more uncertainty and certainty, people will be holding their ships. So I think LNG's product market will be immensely tight, and then shipping market will also benefit. But it will not be a good situation. And actually, I hope it not happen because we need LNG to stay at a cheaper level if we're going to attract new consumers.

And on top of that, we have the problems with the Panama Canal. So how is that affecting Flex and the LNG industry in general?

We have had the worst drought in Panama since the canal opened in 1914. Water levels are very low. Remember, this is a big canal. And when you're putting ships through it, you need -- you are losing water from the canal into the sea. So you have to refill these water balances from reservoirs. And these reservoirs are at a low level. And the typically one transit, you are losing 50 million gallons of water, which is 190 million liters. So Panama have had to reduce the number of transits to keep the water level. So this has created a super tight market in the Panama Canal, waiting times today, if you don't have a slot, is almost 20 days. And that's August. Last November, we saw them going up to 26 days, but that's winter season. The winter season is always more busy. You have the high season for container ships going for the shopping season. You have more exports of LNG and LPG and typically more routes to Asia. So Panama clogging is a problem that's not going away. Even though the drought is going away, Panama is jammed. And the reason is Panama Canal was built for container traffic, increased container traffic, the Neo-Panamax container ships. And this was decided before the sales revolution in America, where suddenly U.S. became the biggest LNG exporter and the biggest LPG exporter. And the canal has not been scaled to suddenly also take all that traffic. So that will be on inefficiency. We see it more on the LPG side in Avance Gas, where we have routing ships away from Panama because it's too much waiting time, and it's too difficult to fix a ship when you don't know the schedule.

So then there is a bit of a crystal ball question. What's your view on the LNG commodity prices in the short end and longer?

Right, of course, it's -- I believe forward rates are not always a good predictor of prices, but I think it's pretty accurate in the near term. Forward prices will stay tight for the medium term or the short term. There will be a lot of demand for the winter market, so prices will go up. There's not coming a lot of new LNG to the market near term, which means the market will stay tight. Europe will not get access to Russian pipeline gas, so there will be a tight market. From '25 onwards, there are coming a lot more liquefaction plants. And hopefully, that can bring down prices, because otherwise, we are pricing out consumers. And actually, we would like to get prices down to $10 and less because then we can finally do something with coal. Because LNG should be utilized not only to replace Russian pipeline gas, but also coal. And if you are to do that, which is immensely important in terms of pollution, greenhouse gas emissions, then you need to get the price which is affordable for developing countries and not only European consumers.

So that rounds up the questions, but we'll include one more. It's Lucy Hine from TradeWinds. What's your guidance for your time to complete the Oslo Marathon?

Guidance. I'm giving guidance on that as well, no? To that, I've been too so accurate on the guidance for our financials. Number one, we are attending Oslo Marathon, the Flex -- the whole Flex team in actually exactly 1 month, but we are not running the full marathon. We are running the half marathon. We don't want to have too much tear and wear on these guys. Let's see. My goal is I challenged my guys to beat me. Hopefully, I can beat 1 or 2 of them. Last time, I -- since I ran my last half marathon, I've been doing 24 of this quarterly presentations. So that hasn't helped my weight. That weight has gone up. So probably 15 minutes longer time than last time, so below 150 then.

Good. That rounds up the questions. Thanks a lot for all of the questions.

And Lucy, if you are there. If you are going to Gastech early September for the big gas conference, I know you like to run marathons. So then, of course, I will bring you -- I had one of these -- Just Flex It T-shirt, so you can run that -- use that next time you run marathon. Not the half marathon like the lazy guys like me, but the full marathon. Okay?

Then we need to round off with the winner of the Flex kits for the questions.

I guess we -- Hakon Lunde, we ended up at. I wonder if this is Hakon Lunde, which I knew from my childhood. Let's see. Okay. We'll reach out to him and give him the T-shirt so he also can run half marathon or full marathon, of course, the Flex glasses and the boiler suit. But if he works for drilling, I'm pretty sure he already have a boiler suit. Okay.

Congratulations, and thank you for all of the questions.

Okay. Thank you, guys. And we'll see you in November. Thank you.