GasLog (NYSE:GLOG) Q2 2018 Results Earnings Conference Call August 2, 2018 8:30 AM ET
Phil Corbett - Head, IR
Paul Wogan - CEO
Alastair Maxwell - CFO
Jonathan Chappell - Evercore ISI
Fotis Giannakoulis - Morgan Stanley
Gregory Lewis - BTIG
Randy Giveans - Jefferies
Ben Nolan - Stifel
Hillary Cacanando - Wells Fargo
Magnus Fyhr - Seaport Global
Good morning. My name is George and I will be your conference operator today. At this time, I would like to welcome everyone to the GasLog Limited's Second Quarter 2018 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be question-and-answer session. As a reminder, this conference call is being recorded.
Today's speakers are Paul Wogan, Chief Executive Officer; Alastair Maxwell, Chief Financial Officer; and to commence the call, Phil Corbett, Head of Investor Relations. Mr. Corbett, you may begin.
Good morning or good afternoon, and thank you for joining GasLog Limited's second quarter 2018 earnings conference call. For your convenience this call, webcast, and presentation are available on the Investor Relations section of our website www.gasloglimited.com where a replay will also be available.
Please now turn to slide two of the presentation. Many of our remarks contain forward-looking statements. The factors that could cause actual results to differ materially from these forward-looking statements please refer to our second quarter earnings press release.
In addition, some of our remarks contain non-GAAP financial measures as defined by the SEC. A reconciliation of these is included in the appendix of this presentation.
I will now hand over to Paul Wogan, CEO of GasLog Limited.
Thank you, Phil. Good morning or good afternoon to you all. Thank you for joining our second quarter earnings call. I'll begin with the highlights of the quarter. Alastair will then take you through the financial review and project Alex update, following which, I will update you on current trends in the LNG and LNG shipping markets before opening up the call for questions.
Turning to slide three. This has been a successful quarter for GasLog in terms of executing on our strategy. We strengthened our relationship with Centrica through signing a new seven-year charter party and rechartered the GasLog Sydney to Cheniere. We also continue to support the growth of GasLog Partners with the completion of the GasLog Gibraltar drop down.
Although spot LNG shipping rates exhibited expected seasonal weakness in April, they rose significantly later in the quarter, as high Asian LNG prices created strong arbitrage opportunities between the Atlantic and Pacific basins, increasing the demand of ships.
There were 110 spot fixtures in Q2, a quarterly record, and we saw the highest June spot rates since 2013. Although, spot rates have seen a modest pull back in Q3 to-date, they are still 79% up on this time last year as we head into the Northern Hemisphere winter peak season.
Along with increased spot market activity, there has been a notable pick up in inquiries about multi-month and multi-year shipping requirements. We believe this recent increase in tender activity is an acknowledgement by charters that as rising demand for LNG absorbs available shipping capacity, they need to lock in shipping to ensure they have access to it when required. Finally, we have declared a dividend of $0.15 per quarter unchanged from Q1, but a 7.1% increase on the same period in 2017.
On slide four, let me now expand on the commercial successes we had in the quarter, building on our existing customer relationships and diversifying our customer base. Our second seven-year charter with Centrica is backed by an XDF powered 180,000 cubic meter newbuilding LNG carrier ordered at Samsung and scheduled for delivery in Q3, 2020.
The GasLog Sydney charter with Cheniere is for a firm 18-month period and its schedule commence later this year on her redelivery from Shell. In addition, Cheniere has options to extend the charter by up to an additional 12 months at escalating rates. We're pleased with these commercial successes in the quarter and look forward to building on them in the near future.
I'll now hand over to Alastair to take you through the financials.
Thank you, Paul, and good morning or good afternoon to all of you. Please turn to slide five, where I'd like to take you through our second quarter results. Our revenues increased in Q2 and in the first half of 2018, largely due to full quarter's contribution from a three newbuilds delivered in Q1. Although, this would partially offset by the previously communicated dry-docking to the GasLog Sydney and the GasLog Santiago during the second quarter, as well as the expiry in May of the long term charter of the GasLog Shanghai.
In addition, as you can see, the total net pool performance of our spot ships increased significantly year-on-year in both the second quarter and the first half 2018, reflecting the improvement in the spot market in 2018 compared to 2017.
Our quarterly and half yearly unit OpEx per vessel per day had remained consistently at a level of approximately $15,000. Although, we did benefit from certain one-off reductions in crew-related expenses in Q2, 2018.
While unit OpEx is likely to increase in the second half of 2018 due to scheduled maintenance costs, we continued to expect that unit OpEx for full year 2018 will be broadly in line with 2017 on a full year basis, subject primarily to year-on-year movements in exchange rates.
On a unit basis, G&A fell in the second quarter compared to 2Q 2017, but was broadly flat in the first half of 2018 compared to the same period in 2017, despite the significant weakening of the U.S. dollar in the first quarter of this year.
You will notice our focus on unit OpEx and unit G&A, this is not to say that the absolute dollar amounts are not important which they certainly are, but we believe that looking at our costs on a per vessel, per day basis, demonstrates clearly the power of the GasLog platform and our ability to scale the business as the fleet grows over time without commensurate increases in vessel management costs and G&A expenses.
EBITDA was up 6% year-on-year in the second quarter and by 7% in the first half of 2018, despite the impact of the dry-dockings in the second quarter which amounted to some $5.8 million.
Moving to slide six where we've updated the chart illustrating our capital commitments presented at our Investor Day to include the newbuild vessel we ordered during the second quarter.
Unrestricted available cash balances, including short-term investments, stood at $192 million at quarter end, almost sufficient to fund the entirety of the equity payments for our newbuild program before considering operating cash flows over the next two years.
As you can see, we have yet to arrange debt financing for one of the 2019 at all three 2020 newbuild deliveries. We've received multiple financing proposals from both banks and the leasing houses and will determine and execute the most attractive option well in advance of the delivery of each vessel.
The chart on the bottom of this slide illustrates the development of our net debt on a per vessel basis. This metric clearly shows the deleveraging of our fleet during 2017. While net debt per vessel increased somewhat in the first quarter 2018 as we drew down on the financing facilities for the three newbuild deliveries, we remain in line with the average since the start of 2017.
And looking forward, we expect net debt per vessel to fall in the second half of 2018 due to scheduled amortization and the prospect of a tighter spot market feeding into improved cash generation from our spot vessels.
During the second quarter, we completed the drop down of the GasLog Gibraltar to GasLog Partners, and on slide seven, we show the highlights of the transaction. The consideration for the Gibraltar was a combination of cash, common units and assumed debt.
We believe the GasLog Partners units, yielding 8.8% of the price at which they were issued, are an attractive currency, and receiving them as part of the consideration mitigated the earnings impact of the sale and demonstrated clearly our support for the partnership.
The chart on the right hand side illustrates the accumulative drop down proceeds from GasLog Partners since the IPO in 2014. The partnership's track record of distribution growth and robust coverage has allowed for continued access to equity markets. Including the common units issue for the GasLog Gibraltar drop down, almost $590 million of equity has been recycled to GasLog.
Slide eight provides an update on the Alexandroupolis FSRU project. During the quarter, we continue to make progress on finalizing the terms under which DEPA, the Greek state utility and Bulgarian Energy Holding will take a stake in Gastrade.
We're in the final stages of preparing to commence the market tests whereby parties will be invited to express interest in committing to uptake capacity from the project. Funding options, including the EU state aid application are also being progressed. The current project plan continues to anticipate FID at the end of 2018.
Now, let me hand back to Paul.
Thank you, Alastair. Slide nine shows LNG imports by country on a trailing 12-month basis, which grew by 30 million tons or 9% for the period ending June 30, 2018.
China posted the largest increase, importing over 16 million tons more LNG, a 50% year-on-year increase, as the government continued to mandate the increased use of natural gas to combat pollution.
However, LNG demand growth has been broad-based, particularly in Asia, as demand from Pakistan, India, South Korea, Taiwan increased by a combined 12% year-over-year or approximately 9 million tons.
Slide 10 shows that WoodMac also expects future LNG demand growth to be broad-based. Whilst China is expected to account for 20% of this growth, Southeast Asia and Europe together account for over 60%. In total, WoodMac expects LNG demand to grow by a 150 million tons per annum between 2017 and 2025.
Moving to slide 11, during Q2, there was a significant increase in long term supply contracting with approximately 15 million tons per annum of new contracts, either signed or agreed compared to 9 million tons per annum in Q1.
Around 52 million tons per annum of LNG supply contracts have either been signed or agreed since the beginning of 2017, with the buyers broadly split between traditional agent purchasers, portfolio suppliers, and traders.
One notable development was during Q2 with European buyers, including Centrica and the Polish state oil and gas company committing to long term offtake. These are included in the other category in his chart.
Now, moving to LNG supply on slide 12. This year, approximately 30 million tons of new liquefaction capacity is scheduled to start up, with Yamal Train 2, Ichthys, and Prelude FLNG, all due to commence LNG production later this year.
In 2019, a further 48 million tons of new LNG capacity is schedule to come online, including large projects such as Cameron, Freeport, and Corpus Christi where Train 3 was sanctioned during the quarter. These projects should support recent ton mile increases as more gas is exported from the U.S.
Slide 13 illustrates how sponsors of potential liquefaction projects have addressed costs to make them competitive and attractive to buyers. This chart utilizing Goldman Sachs' analysis illustrates by year the LNG capacity under development with a breakeven of less than $10 per MMBtu, a price level that has historically stimulated demand for long-term LNG supply contracts.
After seeing LNG projects costs spiral out of control earlier this decade, projects sponsors have simplified their designs, reducing breakeven cost to competitive levels. We expect this trend to lead to further LNG FIDs in the near-term.
On slide 14, in Q2 Cove Point joined Sabine Pass as an operating U.S. LNG export terminal and combined these facilities exported 75 cargoes, on par with Q1. Approximately, half of these U.S. exports went to Asia, resulting in a shipping multiplier of 1.9 vessels for every million tons per annum of production. This is slightly above the average of 1.8 times the U.S. exports since the start-up of Sabine Pass and continues to support ton mile demand above historical levels.
Slide 15 plots the differentials between the main global gas pricing hubs of JKM in Asia, NBP in Europe, and Henry Hub in the U.S. Ignoring some costs associated with take or pay tolling fees for U.S. export projects, the chart clearly shows the significant arbitrage opportunity in the second quarter that encouraged LNG to move east.
Whilst pricing differentials have moderated recently, the chart illustrates that based on current JKM futures pricing, the arbitrage window is expected to be open through 2020. This should create a strong call on U.S. LNG exports with consequent increases in ton miles and LNG shipping demand.
Slide 16 shows the average of TFDE spot rates from the beginning of 2011 through today. It also highlights the years 2016, 2017 and 2018 as well of the average for the peak years of 2011 to 2014.
Spot shipping rates have increased dramatically since the beginning of May with Clarksons now reporting headline TFDE rates of $75,000 per day, an increase of 79% over this time last year. The sharp increase in spot rate was caused by an increase in spot fixing activity.
The upper right table shows a 110 spot all multi-month fixtures reported in Q2, a 41% increase year-over-year and a 57% increase over the first quarter. Fixing activity was supported by increasing LNG production and charters seeking to locking shipping in anticipation of strong winter demand, particularly in Asia.
Slide 17 provides Poten's view of the LNG carrier order book. There are approximately 85 LNG carriers on order, of which nearly 70% are backed by long-term charters. Absent further newbuilding orders and given the deliveries scheduled for 2018 and 2019, the order book will represent only 7% of the fleet by the end of next year, a low level by historical standards.
It takes approximately two and a half years to construct an LNG carrier. Meaning, a vessel ordered today is unlikely to deliver before 2021. Given this visible supply and demand outlook, we expect the LNG shipping market to continue to strengthen in 2019 and 2020.
Slide 18 illustrates our updated view of shipping supply and demand through 2025. We estimate a shortfall of between 28 to 56 vessels by the end of 2022 and between 105 to 137 vessels by 2025. These ranges represent an update of the estimates we presented at our Investor Day in April.
In particular, the shortfall by 2025 has increased, as Wood Mackenzie's most recent LNG demand forecasts more than offset the additions to the order book over the past three months.
However, it's also important to remember that it doesn't require an absolute shortage of ships for a strong shipping market. When fleet utilization rises above 80% to 85%, freight rates, earnings, and cash flows improve considerably. In summary, we continue believe the LNG shipping market will need incremental new vessels over the next three to five years.
So, let me conclude our slide 19. During second quarter, we had further commercial success through the new charters with Centrica and Cheniere. GasLog, with its scale of proven operational and commercial platform, is exceptionally well placed to take advantage of the meaningful increase in tender activity we're currently seeing. This leaves us confident in the outlook for our financial performance which has already allowed us to increase the ordinary dividend this year.
Through Cool Pool, our spot vessels are ideally placed to capture the recent strengthening in spot rates, particularly if this persists into the Northern winter -- Hemisphere winter and beyond. As we previously stated, every increase of $10,000 in TCE generates $3.5 million of EBITDA for each of our spot vessels which flows directly to the bottom-line.
And finally, the outlook for LNG demand and LNG shipping macro remains robust and incremental vessel capacity will be needed to service future demand.
With that, I'd like to ask the operator to open the call for questions.
Thank you. [Operator Instructions]
And our first question comes from the line of Jon Chappell from Evercore. Your line is now open.
Thank you. Good afternoon guys.
Alastair, I want to start with you on the financing for the newbuilds. So, the third quarter 2019 delivery, obviously doesn't have a charter. So, just curious, the conversations you're having with the banks, sounds like there's a lot of potential offers on the table. Are the terms significantly different from the financing you've been able to achieve for the ships with the long-term charters?
So, Jon, I think the first thing to say is, we fully expect to put that ship on to charter before we take delivery. Actually there's a -- we're having a number of conversations with people that say it's got a very attractive price and a very attractive delivery date.
And so, again, I would expect that ship to be chartered before she's delivered. In terms of the terms, no, I wouldn't expect those to be materially different from the way that we financed our other newbuilds in the past.
Okay. And then with the three in 2020, I know 2020 is a long time away, but there's also a kind of consensus view that the interest rate environment will be rising. How proactive do you want to be with locking in the financing for those ships? Do you want to kind of wait until much closer to delivery?
So, again, one of the ships that doesn't have a charter and we're working hard on fixing that ship as well. I think that tradeoff, we're not concerned by our ability to procure financing for the ships, I think tradeoff is always how early do you do it, what does it cost you in terms of fees, the committed financing versus the risk of leading it later.
I think I would -- and the other debate we have is the merits of packages of financing where you have diversity of ships and charters in a package which can be attractive to banks, but just doing things on a more piecemeal basis.
Right. Yes. I understand. Paul, I know you guys are reluctant to kind of give too much commercial transparency and specific charter rates. But Houston charter seems pretty interesting given the timing of it. I mean locking it away in mid-June when rates are kind of at a yearly peak and putting it through the first quarter of 2019 which also should be a seasonally stronger period.
So, maybe without giving us the number exactly, when we think about charters so you guys tend to think about the long term averages in the industry 70,000, 75,000. Given the timing of this one, would it be realistic to think that maybe the rate was at or better the high end of that range?
Yes. And Jon, you're absolutely right, we don't give detailed information on individual piece of business. But that that vessel as well being an XDF vessel at that point in the market was in a very attractive position. And so, what I can say is that the rates were in excess of the sort of average rates that -- the long run average rates that we talk about.
Great. And then just finally, I know you want to keep some spot market exposure given the optimism about the market. But are there rather contracts similar to the one that you signed for the Houston where you can maybe guarantee some utilization to the stronger part of the market and get a slightly above average rate?
Yes, I think that's the balance where sort of we're looking at all time. It was a GasLog Partners ship we saw us put one ship on Cheniere along with one ship from GasLog Partners, we now have six ships in the spot market. I think you'll see as being thoughtful about how we -- what we do with those ships Jon.
Right now with the market strengthening and with the interest in the multi-month, multi-year charters, I think it -- you -- we -- our view is that you're probably better to do -- you're likely to do better -- sorry -- in the future than you are right now. But, certainly, as we work through this what we think is going to be a very strong market, I think you going to see us taking the opportunity to put some of our ships back on to long-term charters. Thank you.
Okay, that's great. thanks Paul, thanks Alastair.
And our next question comes from the line of Fotis Giannakoulis from Morgan Stanley. Your line is now open.
Yes. Thank you. Paul, you mentioned at your press release about the 42 million tons of new liquefaction capacity that comes on line next year. Assuming oil prices staying stable and with what we know right now, what would be the impact on LNG prices? And also how the shipping rates will be impacted? How much demand this 42 million tons, they will -- shipping demand they will bring to the market?
Yes. I mean, I think, the good thing is that, as we see -- there's two things happening up here. As we see the new supply coming on, it's all being taken up. We haven't -- there were concerns at one time that we might see new supply not being taken in and shut in, et cetera. So, that's definitely not the case.
As we see more product coming to the market, I think it's good in terms of keeping the rate -- the price, if you like, of the LNG at a reasonable cost, because I think that's very good for continuing to stimulate demand. So, I don't think it helps us if we have a very, very high LNG price.
The good thing I think about a lot the volumes that are coming on next year, is a lot of it is U.S.-based volumes. And as you can see, with the multipliers that we're getting that really does increase the demand for shipping.
And you can see again from the pricing signals between -- especially, Henry Hub and JKM, there's an expectation that that sort of price arbitrage will be staying open through 2020 -- the futures pricing looking that way. So, I think it's set fair at the moment, Fotis.
Thank you, Paul. And regarding the new round of potential projects and FIDs that you described. At what point the off-takers or the producers will start chartering vessels? And I would assume that this is going to be the main growth target path for GasLog.
What is the competition out there -- how many companies they are out there that they have a balance sheet that they have a capacity and the willingness to pursue these kinds of opportunities that might arise from new FIDs?
Yes, you're absolutely right. I think -- there's a continued build out of what's taken FID already, Fotis. And some of those people -- a number of them still are looking to take vessels in, which is why we're quite pleased with the positions we've got in in 2019 and 2020.
But the next round of FIDs are going to create the additional demand for shipping. And if we see those taken in the next few months -- for the brownfield sites, you'll probably see those coming on in 2022, 2023 and then for the greenfield sites, probably more into 2023 and maybe 2024. But there's a lot of them looking to move quite quickly on that.
What's been interesting is, we started to see a return to long-term buying. We talk about the 52 million tons of long-term SPAs that are been signed or agreed since the beginning of 2017, which is helping those projects to take FID.
If you look at those buyers, there's a lot of those buyers who have got the strength in the balance sheet to take a decision on taking a long-term shipping. So, I think in terms of the participants in the market, we don't have a concern around their ability to lock into the shipping at the right time.
Can you also comment about the trade war rhetoric, especially between -- from the U.S. side. How this impacted at all the interest of the Chinese in signing contracts? What are the implications? Is there any -- do you see any risks on this potential new FIDs because of this trade tensions between U.S. and China?
Yes, I mean obviously, the trade tensions certainly don't help. I mean that's, without a doubt. What's interesting so far on the LNG side is, of course, that LNG has been conspicuous by not being included in any of the tariffs.
And of course, as China has this commitment to move away from coal to gas to try to control to its pollution, it's to their benefit to have access to LNG wherever they can get it at the cheapest price.
And I think energy and gas could actually be part of the solution for this rather than the problem in terms of a good way to sort of try to rebalance the balance of payments between the two companies.
However that said, it does I think, create a measure of uncertainty in the market and I think it probably makes it more difficult to commit to long-term commitments out of the U.S. But conversely it may help other projects, I think, for example, a great example would be Mozambique where that wouldn't be affected by tariffs and you may see the Chinese taking long-term contract there.
And finally, you see LNG being moved out or being pushed out of the Chinese market from the U.S. because of the tariffs that has to be replaced from somewhere else.
So, that will bring other LNG from other areas, which will create the open market for the LNG. We don't see this trade discussions actually bringing down the demand -- the overall demand for LNG. So, it may just be a case of where it's coming from and where it's going to.
Thank you, Paul. One last question about the FSRU business. The whole discussion has been, focus has been concentrated on the Alexandroupolis project, but I remember you mentioned that you're looking for other opportunities. Is there any additional color that you can give on projects that you are controlling -- that you will be controlling the vessel fully instead of having smaller equity stake?
Yes. I mean we continue to look at other projects. I think our preference is for projects like this Alexandroupolis one where we can get in early and we can have -- make a meaningful contribution to sort of getting the project up and running rather than just going in for an open tender, because right now with the overhang of FSRUs that becomes very competitive.
So, there are a couple of projects we're looking at similar to the Alexandroupolis where our know-how et cetera would be very useful.
But our real focus right now is on driving this Alexandroupolis project forward and getting that done. And you may have seen with all the discussions on the other side of the trade talks, the EU and the U.S., President Trump came out with his -- the -- he is going to build nine to 11 new LNG terminals and then at daylight, you're saying well, certainly want to build new ones and by the way three we really earmarked and we're going to put money into in Cypress, Croatia, and Greece, which is our Alexandroupolis projects. So, very nice to see the EU coming out with a stronger commitment on Alexandroupolis.
Shall I -- shall we assume that you are going to be pursuing these European EU-backed projects or there are other projects in other parts of the world?
I think both Fotis.
Thank you very much Paul. Thanks Alastair.
Thank you. And our next question comes from the line of Greg Lewis from BTIG. Your line is now open.
Yes, thank you and good afternoon gentlemen.
First Paul congratulations on the Centrica contract on that newbuild. I kind of just wanted to talk a little bit about that. And so as you -- as that vessel and you are in the market obviously for looking for some other long-term charter vessels for some of your newbuilds. Is the competitive landscape solely in that segment that you're looking at? Is it solely for newbuilds or is there are vessels that are on the water that have availability and could do that work in 2019 or 2020 or even 2021? Are vessels like that even able to bid into these or tender into these potential contracts?
Yes, the existing ships can tender if they want to, Greg. We haven't seen a lot of competition from existing ships tendering in, I think because they're anticipating this very strong market and to sort of commit that forward there is a little bit of reluctance. So, we haven't seen great competition. But if you have an open 174 modern ship right now, you could certainly tender in for one of these future tenders.
Okay, great. And then just the other question I had was around the spot market. Just kind of curious in terms of thinking about overall supply, where it is today? And maybe what you think it's going to look like 12 months out, 18 months out as some vessels get delivered, other vessels go on charter just sort of -- and whether it’s a vessel number of percentage growth -- like how should we be thinking about the number of vessels actually trading in the spot market 12 to 18 months out?
Yes, it's a very good question. And what we've seen recently is there were very high number of fixtures in the second quarter. Some of those were for really spot fixtures as in voyage from the U.S. to China or similar.
But a lot of those with the multi-month jobs is where people were -- so we defined spot as anything less than a year. So, whereas most multi-month where customers were coming in and wanting to make sure that they got hold of shipping, especially to cover them through this coming winter, because they see that as being very tight.
I talked previously about last year when I was talking to a trader who had the opportunity to move cargo actually from Europe into the East, had a great arbitrage opportunity, I was unable to do it, because just physically could not get hold of shipping. They just -- it wasn't a matter of the price, it just wasn't the physical shipping there. And I think a lot of charters cognizant of that have come and taken shipping for the winter period.
So, the numbers of ships which are trading actually spot and are available for a short-term cargo, I think is becoming less and less, because we're seeing more of their ships going into the systems of that portfolio of traders.
So, as we look out over 2019, a lot of the ships that are in the market are delivering -- are going to go into their projects, but a lot of them have been taken in by portfolio of traders trying to make sure they don't get a short in terms of shipping and they're able to trade.
Okay. Hey thank you for that color. Hey guys have a great summer.
And our next question comes from the line of Chris Wetherbee from Citigroup. Your line is now open.
Hi, guys. It's James on for Chris. I wanted to ask you about the newbuild orders and looking out what would it really take for you to add to your current book and when do you think that might start occurring?
Hi, James. I -- we have two in committed vessels at the moment, which we're comfortable with. We think we have those in a very good position and we'll be able to put those on long-term contracts. So, we're unlikely to commit to any more vessels whilst we're still putting those away.
But I think there are quite a few opportunities at the moment for newbuildings based on long-term contracts, so doing them back-to-back as you have seen us do in the past. And so we're unlikely to look at uncommitted vessels prior to putting our existing ones away, but you may well see us ordering new vessels based on long-term multiyear contracts.
And based on your view and your interaction, when do you think that might start occurring given that you do have the two vessel without charters and you would probably prioritize that above doing back-to-back?
Yes, I think we're focused on both of those at the moment. And as we said there has been a pickup in activity certainly starting in the second quarter and continue in the quarter. So, I think we would be hopeful that we can continue to find multiyear charters in the near future.
Okay. And then also I want to ask about timing of fixing throughout the cycle. You mentioned that as the cycle progressed, you might put more and more vessels pick from the spot for the month charter. So, do you think that will be something happens very quickly when you sort of [Indiscernible] reach a certain multiyear you're comfortable with or is it something more along the lines of like fixing it at a gradual rate of vessel to per quarter or per year throughout it?
I think it will depend a lot on the demand, but we are probably more likely to take a phased view on that. I don't think we would likely to put for a four ships away at one time or whatever. We will probably look to put one or two, fix one and then step back and see how the market progresses.
Got it. And then follow-up on the question for me. You have been talking about the traders and the impact that they're having on the market. Actually wanted to ask what sort of impact are you seeing with them on essentially route miles per cargo?
I think when you see traders entering the market, what they're really looking for is to maximize price arbitrage rather than maximize shipping efficiency. So, I think, what we've seeing with traders is the flexibility that they want optimally -- that they want the ships to go to slower speeds, maybe go midpoint between the Pacific and the Atlantic for a while to decide where they can get the best price.
So, actually what all that does is actually adds to the sort of ton mile, ton hour, if you like, demand for shipping. So, having the traders in there is itself has I think been positive for shipping demand. Thank you.
And the next question comes from the line of Randy Giveans from Jefferies. Your line is now open.
Howdy guys. Thank you all. So clearly short term spot rates have rallied this summer. One year time charter reached still in the mid, I guess, $70,000-$75,000 day range. Have you seen any changes in asset values, either on the newbuildings or secondhands during the last, I don't know, six to eight weeks?
Hi Randy. It's Paul here. I think we -- certainly in terms of the newbuildings, we've seen a push by the shipyards to increase those prices. We talk to about a range. If you take $200 million plus or minus 10% that probably gets you to where the prices have been over the last sort of seven to 10 years.
And I think we're coming up with sort of bottom of that range and we're seeing the shipyards trying to push that up to sort of towards the $190 million type of level on the back, I think, of orders from LNG ships, but also in anticipation of further orders, I think, in other areas such as the container vessels, et cetera. So, certainly some push there.
In terms of the actual -- existing ships, that's obviously positive for the asset prices for the existing ships. But given the fact there's not really a very liquid secondhand market in vessels, there isn't really a comparative for that. I think we've probably seen some of the -- some of the brokers' estimates starting to push up a little bit on existing ships, but haven't really had proper data points for that.
Okay. That's fair. And then last question, can you give some more color on your joint venture with Stolt-Nielsen and Golar to use the Avenir LNG to grow you exposure in the LNG bunkering sector, specifically expected start date for that, costs for GasLog EBITDA assumptions.
I saw that that had been reported in the shipping press, but we don't comment on market speculation around it.
All right, then. How about the Alexandroupolis project? Can you give some expected kind of start date there, cost, EBITDA assumptions for GasLog, say in 2020, 2021?
In terms of the starting date, we've always said that we wanted to match that up with the Bulgaria-Greece Interconnector Pipeline which is scheduled for 2020 -- maybe into 2021. So, that's where we're aiming for on that.
In terms of the EBITDA, really for us that's all around the equity contribution that we have in that project. But also our ability to potentially sell one of our ships into that following conversion as an FSRU. We thus then obviously operate in that FSRU. Thanks Randy.
All right. I will stay tuned. Thanks again.
Thank you. And our next question comes from the line of Ben Nolan with Stifel. Your line is now open.
Yes. Thanks. Hey Paul, Alastair. So, I had a handful of questions. One relates to maybe your current thinking on the Cool Pool. Obviously, all three of the groups that are in there have big aspirations of putting the spot vessels on long term charters, yourselves included.
And also if I'm not mistaken, it's restricted to just trifle diesel electric vessels, but increasingly everything is being ordered is not that. So, do you see that evolving? How do you -- do you see it -- the Cool Pool continuing on and how do you envision your involvement in it?
Yes, I think, Ben, when we set up the Cool Pool, we did it intentionally to make it flexible, so that people could bring their ships in and out. Because recognizing the fact that there will be at certain times opportunities to put ships on longer term charters and that I would just need to be able to have that optionality.
We've always said we would like to keep some of our ships trade in the spot market, but we would also -- with six ships open, we would like to put some of those ships on longer term charter.
I think you need to -- as long as we can keep the number of vessels in there at a meaningful level, which is probably in the double figures, I think it continues to be a very good way to do the pool.
But as you correctly say, there are two ways you can expand the pool, which I think is something that we would be interested in. One is to bring in new owners, which have some of the ships. But the other is then to expand on the type of ships that you put in there, be that the new XDF ships or MEGI vessels or even steam ships.
The only thing you need to do then is to make sure that the -- if you like the pool points that you allocate to each different type of ships, fair and equitable for the owners. But there are number of ways that you can expand on that pool.
And just following there, would you expect that to happen or is that in the works?
I think it's the pool -- I don't think pool as a concept can stand still. So, I think you have to continue to development them. So, I think that's something we are looking at.
Okay. And my next question relates to what -- this has been a pretty heavy year in terms of new vessel ordering thus far. And as you say, and I agree with it, I think there probably ultimately needs to be more orders to keep up with demand. But some of those new orders have been coming from new entrants.
And so some of the things that we thought might be barriers to entry like capital availability, what have you, have not necessarily held up. That kind of leaves me to my question, is there a point at which you think it's going to make more sense to do larger scale consolidation or something such that it becomes kind of a big boys game?
Yes, good question. I think you're correct in terms of the barrier to entry capital. Although, I do think it is still a barrier to lots of different shipping companies in terms of getting in. What's interesting, of course, is -- to a certain extent the easy part is to place the order. The difficult part is to put the ship on a long-term contract or have the ability to operate it well. So, I think that's going to be interesting as we move forward.
But, yes, I think there is benefit in consolidation. I think there is benefit in size. I think it's one of the reasons that we at GasLog have looked to grow our business and our vessel fleet quickly in a way that we have done to benefit from that scale and size. And I think if there are opportunities to do that through -- inorganically through M&A rather than organically, then we would certainly look at that in the future.
Okay. And then lastly just out of curiosity, it seems like a lot of the new orders have been 175,000 to 180,000 cubic meters. Obviously, there's been a change in the propulsion technology. But is that the new standard? And if it is, does it mean that the smaller ships are little bit less in favor or how do you think about the 140s-150s, in a world where everything there is 180,000?
Yes, I think in general, you usually -- you do see in shipping a move towards larger vessels for economies of scale. But I think there's something specific happening in this case. And that, most of the vessels that are being ordered right now are looking towards that build out of the U.S. as the supply base.
And in terms of -- especially if you're thinking that those vessels are going to go East, the additional size is a big factor. So, I think part of it is that. I would not be surprised to see in future, as we have new projects coming on in different parts of the world, ships of different sizes being built.
So, for example, 160,000, 165,000 vessel for Mozambique, if it's going into India or other places. So, I don't think it necessarily says that everything is going to be a 170,000 to 180,000, but certainly for the long haul vessels, I think that is becoming very much a standard. At those cost to the vessels that, you get into both the size limit that can really get through the Panama Canal when you get that sort of 180,000 cubic meter size.
Okay, great. I appreciate the answers. Thanks Paul.
And our next question comes from the line of Hillary Cacanando from Wells Fargo. Your line is now open.
Hi. Thanks for taking my question. So I just have a macro question. So there has been talk about China potentially developing their own shale gas reserve. Is that -- in your view, is that a real possibility that could potentially impact China's import of LNG?
And also what's your view on, I guess, expansion of like Russian pipe gas? I think last year China and Russia signed a MoU to get more piped gas from Power of Siberia. So is that kind of like realistic event, wanted to get your thoughts on that?
Hillary, hi, Alastair here. So the first question on China shale gas, I think that in some way the answer is that China is going to need access to a lot of gas from a lot of difference sources.
I think that it is the priority for China to develop their own shale gas resources. I think they are making some progress in certain basins, but I think it's taking them longer than they have thought and I think that there were some logistical and technical and geological challenges. But I'm sure that they will continue to push forward with developing those shale resources.
I think that despite that, there will still be continued demand for LNG imports partly because of the flexibility of LNG and partly because of the location of where all the demand centers are up in the northeast and along the coastal areas of China. And the shale resources are quite remote from some of those large demand centers.
You also talked about Russian pipe gas. It took -- I don’t know how many years it took to negotiate the contract between Russia and China for the Power of Siberia line, which is due to come on stream in late 2019.
There are discussions ongoing around on Western route which would supply gas from you -- West Siberia and any Siberian fields into the Northwest of China and then have to be piped east from that.
They don’t usually make much progress, but nonetheless I think that it's a priority for China to have diverse sources of gas. And I think they're going to need access to multiple sources to meet demand.
Okay. Well that's helpful. Thank you very much. And also I wanted to get your view on the FSRU market in general. So, are you concerned that all about the oversupply in the market and how long do you think that it would take to clear the market?
Yes. I think we haven't gone ahead and ordered newbuildings for FSRUs. We've been quite I think restrained in terms of looking to put a project in place and then put the shipping in place.
And I think we're quite pleased about that right now because I do think there's an oversupply of vessels. In terms of how long that take, it really depends on the projects that come forward. We could well see a number of projects taking FID quite quickly which would mop-up the overhang of vessels in the market quite quickly.
And certainly there's a lot of people looking to put those projects together. And I think by their nature, they are more complicated than a normal shipping projects and do take a longer for a gestation period.
But my guess is that probably somewhere between 12 and 24 months to see a clearance of the overhang in the market. But I do think long-term that the FSRU market will be very interesting market because I do think there is continued demand from a number of countries for LNG which in the quickest and easiest way to do it is through FSRUs.
Thank you for that. That's it from me. Thank you.
[Operator Instructions] And our next question comes from the line of Magnus Fyhr from Seaport Global. Your line is now open.
Yes, hi. I just had one question left kind of regarding the near-term guidance, if you can give any. I mean spot rates have moved up here in the third quarter from a very weak second quarter. Are you currently getting round-trip economics? I mean, maybe you can talk a little bit about the utilization as far as that has gone during the third quarter.
Hi Magnus. Definitely the utilization has certainly improved in the third quarter and as half the terms in terms of positioning costs and repositioning costs.
So, I would say not all the time are we getting round-trip economics right now, but I would say in a lot of the cases that we're getting at or close to that. So, yes, hopeful that we will see a significantly stronger Q3 than a year previous.
Okay. And just as far as the operating cost, I know you've been focusing on getting those down. Should we use kind of second quarter numbers as a good guidance going forward or is there more room to improve there?
Magnus, Alastair here. As I said in my remarks, we would expect OpEx, you need OpEx for the vessel per day to be somewhat higher in the second quarter -- sorry second half of the year compared to the first half of the year.
We did have some one-off benefits in the second quarter which affected OpEx. First quarter OpEx was a little bit higher. We gave a number of explanations for that around in turning of maintenance, dry-docking expenses, and FX impacts.
But again reiterating for the year as a whole and I think that's the best way to look at it because there are always timing differences. For the year as a whole, we expect OpEx to be broadly in line on a unit basis for where it was in 2017.
Okay, great. Thanks for clarifying.
I show no further questions at this time. I would like to turn the call back over to Paul Wogan, Chief Executive Officer for closing remarks.
Yes, I'd just like to say thank you very much to everybody for joining us today. Look forward to speaking to you at our next quarterly earnings, and in the meantime, hope you have a wonderful summer. Thank you.