FLEX LNG Ltd. (NYSE:FLNG) Q4 2021 Earnings Conference Call February 16, 2022 9:00 AM ET
Oystein Kalleklev - Chief Executive Officer
Knut Traaholt - Chief Financial Officer
Conference Call Participants
Good day and thank you for standing by. Welcome to the Flex LNG Fourth Quarter 2021 Earnings Presentation Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Oystein Kalleklev. Please go ahead.
Thank you. Welcome everybody to FLEX LNG Fourth Quarter and Full Year 2021 Webcast. I'm Oystein Kalleklev the CEO of FLEX LNG Management and I will be joined today by Knut Traaholt, our CFO who will talk you through the financial numbers as well as our recent refinancing a bit later in the presentation. As always, we will conclude with our Q&A sessions. If you'd like to ask a question in the Q&A session, you can either ask questions through our teleconference or use the chat function. So first, before we start with a reminder of our disclaimer, as we will provide some forward-looking statements in relation to future revenue guidance. We're also used some terms like time charter equivalent earnings and adjusted earnings and EBITDA, which are non-GAAP measures and are all amidst through the completeness of the – we can find in this webcast, so we recommend that the presentation is ahead together with the earnings report, which we also released today. So let's kick off with a short summary of or highlight Slide 3.
First of all, we are pleased to deliver knockout results with the best ever quarter on most financial method measures. And news came in at $215 million, slightly ahead of our revenue guidance of approximately $110 million. When I was putting the final touches on the slides last night, I put in that time charter equivalent earnings we are the best ever with our average TCE of $95,900 per day in the fourth quarter.
I recall that when I presented our Q4 2018 results, we have the bullet point with TCE for the quarter of about 95,000 in the earnings presentation. However, following our listing in the U.S. in 2019, we had to provide more stringent non-GAAP details about historical TCE earnings. And our accountants actually found out that the TCE in Q4 2018 was slightly higher at 97,005 onwards. So I apologize for the late our mistake. But that said, this is probably the first time at least I have seen a shipping company realizing after historical TCE numbers it's usually the other way around.
During 2021 we acted on improve to a market and secured eight or possibly nine fixed higher contracts with a minimum term duration of these contracts between three and five years. I think our ability to attract long term attractive term employment with super majors and all the top tier clients benefits not only that we have state of the art ships in our fleet, but also that all seafarers and onshore personnel are delivering a first class service, both in terms of safety and reliability to our charters as several of them are repeating customers of ours.
So a special thanks to the crew and onshore staff that are keeping the propellers turning despite the many challenges caused by the COVID-19 pandemic. While a lot of folks are these days heading back to the office, I can tell you that seafarers are still facing many needless obstacles when it comes to crew rotation, particularly in Asia where about three out of four cargos ends up, so we do hope that reflections and limitation will also be used for during 2020 so we can get back to normal. Hence, in Q4 our spot exposure was related to four ships. warship Flex Volunteer was trading in the spot market, while free ships were on variable higher contracts where the earnings are linked to the spot market.
With all trading ships on the water, X or spot exposure was there for about 30% in the quarter, which is significantly less than in the past. As our cost base is more or less fixed, at least in the short to medium term, this means that higher top lines trickle down directly to the bottom line and we therefore delivered all time high net income and adjusted net income of $69 million and $63 million effectively.
Adjusted earnings are slightly lower because we are adjusting out our significant gains on our interest rate hedges. While the Fed has been behind the curve on interest rates, we have been ahead of the curve securing a substantial part of our input base exposure at low levels as Knut will explain.
Earnings per share came in at $1.31 per share with adjusted earnings of $1.18 per share. Given the fact that we have locked in premium backlog coupled with our superstore and strong financial position, the board last quarter decided to increase our dividend level to $0.75 per share, which we said was a level we were comfortable with in the longer run. Hence we are again declaring a quarterly dividend of $0.75 per share, which gives our shareholders an attractive annualized running yield of about 15%.
In November, we announced a balance sheet optimization program. By de-risking our commercial strategy through adding substantial long-term premium backlog we decided to explore financial alternatives with the aim of unlocking $100 million of cash on our balance sheet.
Today we are announcing $695 million of new financing. These financings will together release another minimum $87 million on cash on top of the $38 million which we released through the sale lease pack of Flex Volunteer which was announced in November and executed in December.
As Knut will explain, we have thus already over delivered on the program initiated in November with $125 million unlocked overall, which will contribute to further grow our cash balance which by the way stood at $201 million at year end. Hence, we have a super strong liquidity position, and this enables us to quickly act on opportunities if they arise, but also it secures our ability to maintain an attractive dividend level.
Lastly, I would like to point for example 93% of available days in 2022 is already covered which gives us a pretty accurate assessment of where revenues for the year will end up.
So turning to Page 4 and our fleet status. As you can see, charter coverage for 2022 is already in 93% with substantial charter coverage also for 2023 and 2024. During Q1 we have a couple of ships coming of shorter term charters and going on longer term charters. In February, Flex Freedom will be redelivered for 10-months’ time charter and the labeled on our minimum five year charter with a super major.
Flex Constellation is currently serving a minimum fee time charter with a large trading company. Flex Endeavour, Ranger and Vigilant was delivered during last summer to generate on time charters with a minimum duration of 3 years to 3.8 years which [Indiscernible] also taking one or two additional vessels from us during third quarter this year.
In fact, while 8 Flex -- was also redelivered from a shorter term times charter and we recently secured our short term flexible time charter of 55 to seven months, which match exactly with the delivery window for ship number four and off number five which are near. In January and February we also delivering Flex Courageous and Flex Resolute on are three plus two plus two year time charter with a super major after these ships also being employed on shorter term time shelters in 2021.
As mentioned in the third quarter presentation, you can see that several of our ships are coming of shorter term time charters and on all commencing longer term charters with higher earnings, so without this reprising of portfolio at better levels for longer periods.
Flex Rainbow was recently extended by one year with a large trading company, so we will now get back in early 2023. With few modern ships available in the market near term, we thus find Flex Rainbow well positioned.
Flex Volunteer is the ship that we elected to keep in the spot market during 2021, which was a smart move given the strong spot market last year. The spot market so far in 2022 has however been rather challenging. So we don't have high expectation when it comes to earnings for this ship in Q1 this year. And I will provide more information about the spot market a bit later in the presentation. Our expectation is that Flex Volunteer or Flex Aurora will be the fifth ship going through Cheniere for a minimum period of three and a half years starting in Q3.
Lastly, we have three ships on variable hire contracts, this being Flex Artemis on a minimum five year variable hire, contract with GunVault as well as Flex Amber and Flex Enterprise. Both Flex Amber and Flex Enterprise were recently extended by another year and the charter has one additional extension option for these two ships, so these ships will come open during 2023 or 2024, which is still ahead of the large new building order book in 2025, so we also appeased about the prospect of securing these ships good contracts when they are really delivered to us unless we decide to trade them spot. This really depends on the market or spot and term market and where we think we can find the best value.
Slide 5 of earnings visibility I've already covered our backlog extensively on previous slide. On slide 5 we also illustrate how our charter coverage develops over the next couple of years and percentage of coverage base each quarter. Most of the backlog is now fixed higher, but we also maintain some variable higher backlog which gives us exposure to the spot market. We also do have some ships coming open in this period. And as mentioned, we will decide whether to employ them in the spot or shorter term market or whether we will be fixing them on longer term contracts. So time will tell, so stay tuned.
Slide 6, so let's jump to the revenue guidance which is probably the analyst favorite slide as they know can have an easy job of updating their financial models. This slide show the revenue guidance for the year. In May last year, following our recent fixture of several of our ships, we provided the revenue guidance for the remaining quarter of the year, given the de-risking of chartering strategy. That guidance we over delivered on with revenues for the year of $343 million. Given the fact that we have covered 93% of available days in 2022, we can also provide a good estimate of our expected revenues for the year.
We do however have Flex Volunteer trading spot atleast during the first half of the year. And we have three ships on variable hire so the achieved revenues will depend on the spot market development, as well as us being able to successfully achieve the high uptime which we have done in the past.
As I will touch upon a bit later in the presentation, the spot market has been weak in the first quarter and this impacts spot expo ships adversely at the start of the year. So we do expect that the revenues will be slightly below the levels we achieved last year when the spot market was booming at the start of the year, and when we have substantially higher exposure to the spot market. Nevertheless, we do think that the revenues will not come in significantly below the level during Q1 last year.
As we do have higher charter coverage, we do however expect to have news to be quite a lot higher in Q2 this year and somewhat higher in Q3. Whether we will see another freight market boom in Q4 this year is too early to tell. But since we do expect that Cheniere will utilize the option to take the fifth chip, we expect our spot exposure to be slightly low in Q4 this year, and thus we expect to have in us to be somewhat below the level we managed to achieve in Q4 2021.
Overall however, revenues are expected to be in line with the healthy revenue levels of 2021. So we expect that 2022 will be another year for us, which is maybe not too surprisingly with…
Turning to next slide. Turning from the analyst’s favorite slide to the investors favorite slides, dividends. We have covered all dividends philosophy in length during the second and third quarter presentation. So I'm not going to repeat all the factors and considerations we evaluate when setting the appropriate dividend level. However, I still want to repeat that we use a balanced and measured approach to conclude our sustainable dividend level with the aim of distributing or to take cash flow over the cycle.
I know consensus estimate predicted at even higher dividend for the quarter given off the low earnings, and I can admit that 64% payout ratio probably would not impress much. However, when we high stock quarterly dividend level to $0.75 last quarter, we also communicated that we wanted to set a dividend level, which we think is attainable over the longer term. Despite our substantial backlog, our earnings will bounce a bit up and down given our exposure to the spot market.
So if you look at the year overall, we generated adjusted earnings per share of $2.71 per share. We can declare dividends of $2.3, and we acted on the opportunity to buy back shares with a total of $0.15 per share utilized for this purpose. Hence, total shareholder distribution for the year was $2.45 per share, which translate to a 90% payout ratio.
In addition, we took delivery of third of our three last new billing during 2021. And the net CapEx in relation to this was about $17 million or $0.33 per share. If we add these capital expenditures, we actually spent $2.78 on shareholder distribution and CapEx during the year, which is slightly higher than adjusted earnings per share.
Despite the high payout ratio and some CapEx, as mentioned, we still managed to go work as pile during the year from $128 million at the start of the year to $201 million at the end of the year. So with that, I think it's a convenient time for Knut to provide some more details about the financial numbers and our balance sheet optimization program, before I will wrap up with some market updates.
Thank you, Oystein. So we'll start with some key figures for 2021. And at the left of the graph, we see the total operating days, which with the 70% increase in total operating days, illustrates the new fleet new building program or fleet growth trend where we have the full earnings capacity from the second half of the year. The TCE numbers for that Oystein already mentioned was just in shy of $96,000 per day for Q4. For the total year, the $15 per day increase year-on-year is mainly driven by the super strong performance by the three versus on variable higher contracts and the Flex Volunteer trading in the spot market.
Going to the cash free breakeven, we’re also delivering on strong cost control with the breakeven for the year at $43,700 per day is compared to the guiding one year ago about 45,300 per day. During the year, the OpEx has been affected on average about $600 per day by COVID related costs where $400 per day is direct COVID related costs, while about $200 per day is indirect COVID related costs. These are typical terminal restrictions, making a crew handovers more challenging and therefore some more expensive. Despite the Western world opening up, and easing travel restriction as Oystein mentioned, we still experience restrictions book, recruit changes and we'll also -- we also expect COVID related cost going into 2022.
We then turn to slide nine. With a larger plate, we are also delivering all time high revenues for the quarter, about $150 million and about the guiding of $110 million given in Q3, and also all-time high revenues for the year with $343 million in total. This translates into an adjusted net income of $63 million for the quarter and $145 million for the year. That's a giant leap compared to 2020 and reflect our fleet growth market exposure strategy combined with the top LNGC markets.
Similarly, the adjusted EPS $1.18 per share for the quarter translating into a solid $2.71 per share for the full year. The adjusted net income and adjusted debts are adjusted for fluctuations in the fair value of interest rate swap, where we recorded the gain of 7.4 million for the quarter and 18 million for the total year. As interest rates have continued to increase during 2022, the fair value of our interest rate portfolio has further increased by a million so far this year.
If we turn to Slide 10, and we're moving to the cash flow. So despite Q3 dividend of $0.75 per share, or total $40 million, which were paid out in the quarter, we increased our cash balance with $63 million to a total of $201 million at the end of the year. And as Oystein mentioned, due to strong cash flow from operation and the release of about 38 million under the balance sheet optimization program related to the Flex Volunteer re-financing.
And we can turn further to slide 11. On our balance sheet, which is extremely straightforward, we have a fleet of more than state of the art LNGC vessels with an average age of 2.2 years, and with the book value of about 2.4 billion on average book value about 180 million per vessel.
In addition, we have a solid cash position, as already mentioned of $201 million. The balance sheet is funded by a portfolio of attractive long term leases and bank facilities about $1.6 billion, or 65% of our balance sheet. This results in $890 million in equity, or 35% equity ratio.
On the next slides, we'll look more into the development of the balance sheet optimization program. So we'll turn to slide number 12. The Flex Volunteer transaction announced in November and executed in December was the first transaction under the $100 million balance sheet optimization program. And today we announced two new financing under the same program, which will support the target of freeing up liquidity with reduced cost of debt and maintain our industry leading cash breakeven rates.
We have received the two credit approved term sheets for an aggregate amount of $695 million for the financing of five ships, and an additional uncommitted accordion option to upsize the bank facility with $125 million and adding an additional ship to the facility. The new financings are subject to final documentation and normal closing conditions and is expected to be closed during the second quarter.
On the bank facility that is split in a $250 million, non-amortizing RCF and $125 million term loan facility both with a turnover of approximately six years. The total facility is repaid on an average age adjusted repayment profile of 22 years and we have allocated all amortizations to the term loan, so we will have a bullet RCF.
That will give us significant financial flexibility. And we will be able to reduce interest costs by managing the utilization of the RCF when we have large amounts of free cash. The accordion option gives us the flexibility to consider the best funding alternative for the last vessel and has identified as Flex Enterprise.
The two 10-year leases will release significant amount of cash which enable us to part fund and we pay higher level vessels as the Flex Endeavor and Flex Enterprise which are funded with two leases today.
In total, the net proceeds of this is about $87 million. And as noted in the presentation, if we decide not to refinance Flex Enterprise with accordion option, we may free up an even higher amount. On the back of these financings, we are upsizing the target of the 100 million to minimum 125 million and also guide that we will complete the program I had of the targeted or announced the completion within 12 months.
We are very pleased with the tariffs we have offered, been offered. And that reflects also our attractive position and track record in the credit market. The two transactions meet our targets of longer durations, increased financial leverage, reflecting the lower operational leverage, reduced cost of debts and longer repayment profiles. So with that we also thank our lease providers and banks for their commitment and continued support to Flex LNG.
Now we turn to the next slide. After the completion of the transactions, we announced today we will push our first maturity payments from 2024 to 2028, and 2032, respectively. Hence, the only debt maturity on the horizon is the 250 million commercial tranche under the original 629 million ECI facilities financing five vessels. Given the quality of these vessels, modest leverage and time to maturity, we consider this as a quite manageable maturity, and rather consider them as a possible candidates for future balance sheet optimization initiatives.
On the right side of the slide, we have had a number of incoming questions regarding our dry docks schedule. And some of our vessels are approaching their five year anniversary. As shown in the graph, the dry dock capital commitments are marginal over the next five years. And in addition to the CapEx shown here, we estimate about proximately 20 days of fire in connection with each dry-docking.
And with that, I conclude the financial review and hand it back to you Oystein.
Thank you, Knut. Knut joined Flex in May last year after working as a senior banker for the last 15 years. And some of his fellow bankers asked him what the hell he was going to do as CFO in Flex, given the fact that we had already financed the whole fleet. So while I think we have proved that we can still put him to good use with balance sheet optimization program. That means we are not only happy with the utilization of our fleet during 2021, but also with the utilization of our CFO. So keep it up in 2022, Knut 100% utilization is the minimum boss.
So, let's start on the market section. And our market section in November in connection with -- and numbers, we present the gold figures for LNG market with 17 million tonne growth in the period between January to October. LNG export growth slowed in the last two months of the year, due to outages and slower export growth in the U.S. as they recorded zero cargo cancellation during November and December 2020. However, U.S. still managed to increase the export by an impressive 23 million tonnes during 2021, which was actually 120% of the market gold.
In any case, we ended up at 19 million tonnes export growth or about 5% growth in 2021, which is pretty decent, but about 6 million tonnes than our expectation going into 2021 with the shortfall caused by lower exports, primarily from Nigeria and Trinidad and Tobago, due to feed gas issues. Norway's decline was however expected as LNG plants at Melkoya is set forth to resume operations during Q2 this year.
Egypt also staged a big comeback in 2021, with 5 million tonnes of export gold and there are more potential in Egypt for future growth. On the import side, demand was driven primarily by China, which added 10 million tons of imports, South Korea with $6 million tonnes and outlier Brazil which surprisingly added 5 million tonnes due to drought caused by La Niña, which affected hydro balances, obviously.
But this just goes to show the advantage of having LNG import terminals, as LNG can swiftly add flexible capacity if needed. So there are some lessons out for the biggest natural gas consumers in Europe, Germany, which still do not have a single LNG import terminal. Germany have had a couple of LNG import terminals on the drawing table for some time, that have not been able to go forward due to political bickering and input energy policies.
And our Q3 presentation where we present the inputs from January to October and negative outlier was Europe, which had imported 9 million tonnes less than in 2020 or about 12%. With more flows to you hope in November and December, new [Indiscernible] LNG imports was only down 2 million tonnes for the full year compared to [Indiscernible].
Slide 15. Before talking more about European LNG imports, let's have a look at U.S. exports and the tremendous growth rate. In 2021, U.S. exports bounced back nicely with continuous gold during the end with the exception of February when the big face curtailed exports.
In December and January, U.S. was in fact the world's largest LNG exporter, surpassing both Australia and Qatar. And this is before the tax are turned on, on the two new liquefaction project called Calcasieu Pass and Sabine Pass Trend 6 which will add another 15 million tonnes of U.S. export capacity this year. So we are in for the LNG nailbiter this year, who will be the biggest LNG exporter in 2022? Our estimate is Australia and U.S. will be neck and neck at around 82 million tonnes slightly ahead of the 79 million tonnes of expected exports from Qatar. But with this LNG prices we are seeing today, we can expect exporters to try to squeeze every single methane molecule to the liquefaction plants in order to bring the good stuff to the market. So it will for sure be...
Slide 16 and returning to Europe. While we in our third quarter presentation had a slide about the pool of cargoes to Asia. This time, we have to talk about the pool to Europe, which I already touched upon. So while in general it is yes. Imports to Europe was off almost 400% from the lows recorded in July this last summer, and also January 2021 when imports to Europe was hovering at around 4 million tonnes. So this goes a long way to explain why the spot market is starting.
So this year, last January, we had a big bull to Asia, driving up tonne mileage. This January we've seen Europe, gobbling up flexible LNG cargoes and diverting those cargoes away from Asia.
So if we head back to slide 17, and U.S. So with Europe in a severe energy crisis by November and December, a -- of U.S. LNG exports saved the day. While we can admit that Europe was also fortunate with the weather gods, given the somewhat warmer winter weather than expected. So keep in mind that most LNG are sold and bought, not on a flexible manner. Most LNG are sold on a longer term contract typically with destination clauses, prohibiting deviation of cargoes. However, the vast majority of U.S. volumes had no such destination clause. So U.S. were able to shift volumes to what you hope with the European market share of U.S. LNG growing from only 15% during July, August to 75% by January this year.
So this goes back to my point about having LNG import terminal is a very good risk strategy and not only a very easy way and quick way of facing out cold.
So, slide 18, so slide 18 it just shows the pull to Europe or more on a global aggregated basis with Europe doubling its global market share from 15%, 16% during the summer to about 33% January this year. In the face of most of the increase in European imports came from the U.S. As you can see the pool to Latin America which I also mentioned and then in particularly Brazil came during their winter season, which last from May to September.
So Slide 19 why the spot freight market sourced in December? So if you're attentive here, I think you already figured it out. It's the West East Arbitrage. So while in November 30. So during the October November, the arbitrage from west to east widened. We have been trading at 1 to 3 dollar level during the early phases of the autumn. And this arbitrage shot up to a level of $5 to $7 during October and November, which meant that a lot of cargoes were pulled from the Atlantic Basin into Asia. So as November 30, the Asian spot price stood at around $37 per million btu, $6 higher than the European price.
So this meant that our cargo in Asia was worth $24 million more than the high cargo value in Europe and this incentivize this flow of cargoes to Asia rather than Europe. But at one point the energy crisis in Europe became so severe this due to the fact that Russian pipeline flows were keep disappointing, and energy now gas storage levels were hitting were all time lows. So when the security situation in Ukraine became tense, the European gas market more or less exploded, with gas prices in Europe going haywire.
So while we saw Asian gas prices, hitting a high in October of $56, we saw European gas prices in December on December 21, rattling all the way up to $60. And with that West is arbitrage shutting. So in three weeks’ time, we went from possible $24 million west east arbitrage to a minus $60 million arbitrage spread. So this, again, as I mentioned, resulted in U.S. cargoes heading for Europe. And that also meant that sailing distances plummeted. So if you are taking a cargo from U.S. heading into Asia, you're traveling around 10,000 nautical miles. During October, November, we also had severe congestion in Panama. So a lot of cargoes had to go through a Cape of Good Hope, which adds another 5000 nautical miles to the voyage, bringing it to 15,000 nautical miles.
So if these cargoes are then instead going to Europe, travel distance is shortened to 5000 nautical miles. So it means you need a lot less ships in order to transport the same number of cargoes. And this is why we had this quick and rapid softening of the spot market during December and into January.
So if we look at this, the public market as of today on slide 20, so I was sitting up late last night and waiting for the class [ph] report and they kind of tensions in Ukraine, at least on the surface east and this resulted in gas prices in Europe plummeting and settling in at around $22 per million BTU and they are even down a bit further today. So this actually serve today in the west east arbitrage opening again, because JKM Malaysia spot prices settled at $25.4 yesterday.
So let's say it's the gas market is very volatile. Prices are going up and down quite a lot. But at least the gas market, a snapshot of the gas market today looks a bit more conductive for the spot markets. So if we are then jumping to the stock market and our shorter view of 2021. We started 2021 at all-time high levels. As I previously illustrated the pool to Asia was based on in January last year Europe not being able to source much of the U.S. cargoes. We had our brief dip in the market during March, April when actually JKM hit the lower of $5.7. But then the market bounced back really quickly during April, May driven by a huge pool to a shower, as I mentioned with the rapid growth of especially South Korean and Chinese demand.
So we have a very conductive summer market with LNG spot market rates for modern tonnage, moving like a snake farm around $70,000 to $100,000, which is pretty good for the summer months. And then rates took off when we approached the heating season, which they usually do, and we hit another high of around $300,000 in November, early December. Before as I mentioned, this west is arbitrage closed, selling businesses blocked and cargoes were heading to Europe and thus the spot market fell from $300,000 and continue to fall into 2022 at a level today of around $40,000 today.
So if we head to the next slide, we had some questions from investors who have noticed, Baltic and the Spark being slightly negative. And also Bloomberg picked up the story with freight rates for energy carriers below zero. So how can it be that the headline rates are $40,000 while the Baltic Index and the Spark is quoting negative number. So I spent some time in the past trying to explain this freight markets in terms of LNG where we are operating on time charter basis, where the freight rate consists of basically three elements. It's the headline rate quoted by Argus, it's the ballast bonus and ballast bonus condition can shift quickly from strong to whether week as they are today. And then there's a positioning fee element.
So, these three elements make up the earnings for our owner, and then you need to add these all together and divide by a number of days utilize for the boys to calculate your time charter equivalent earnings. And depending on the markets, these can go from one way economics to long term basis to three way economics and I will illustrate this a bit on the next slide.
So, let's start with the easy one, which is like the normal market which I would kind of categorize last summer. So, last summer we had a pretty conducted market and the market what was at, what I would consider our own pick market. So, in such a market it typically if the rates of $75,000 you get paid for both ways. So, you get paid for the late leg of course, but you also get paid for the ballast leg back to load boards. So, in such a market the headline rate is similar to the time charter equivalent right we quoted by Baltic and Spark. Then we went from our way of conducting marketing in the summer to a hot market during October, November then partly December. And in such a market you are have a scramble for available ship, because the market is more or less sold off. So in such a market you can actually go from two way economics three way economics. Well you also in addition to getting paid for the ballast and laid leg is also getting paid for the positioning leg, which is actually then MK TCE levels well above headline rates.
So for example, if you have ship in Atlantic Basin, you are competing for the transportation of our U.S. cargo, and the only competitor is a guy with a ship in Singapore. So, the guy in Singapore, he needs to have a long ballast legs from Singapore to U.S. and then maybe this cargoes is going to Japan and then he gets a ballast bonus back to load port in U.S. So, if you then have a ship in Atlantic, you can therefore add on our positioning fee, because you are closer to the load port, which are then boosting your earnings.
In a soft market, which we have seen at the start of the year, you are then you can then end up in a one way economics where you only get paid for the laden leg. So if the laden leg is paid $40,000 and you're not getting paid for the Ballast leg you are kind of economics is $20,000 per day. But in this environment, where you have high fuel prices, both fuel oil or compliant fuel and LNG can bring the time charter equivalent earnings down to zero or even slightly below. So why would you do that?
Well, you know, it could be that you have taken heel on board, and that heel is sunk cost because you will have some boil off from the ship. And then you basically have to flare the boil of gas in the funnel [Ph]. So other than just wasting it you might as well position the ship, do our cargo and get some earnings other than none. So of course usually these markets don't last long, but it can happen in a soft market, which we have seen in January.
If we then head back to a bit more steep [Ph] market, which is the market so while the spot market has softened during January and February, the third market has been holding up pretty well. The one year time charter rate quoted by Fearnleys, which is the best proxy for next 12 months earnings, has fallen from $125,000 to $100,000 per day. With the $100,000 per day are still pretty decent earnings. The Affinity three year time charter rate hasn't moved at all. So that's why it is still $90,000 per day. And it basically reflects the fact that the freight market looks pretty solid on paper for 2022.
As I will present shortly, we do expect volumes or export volumes to be even higher in 2022 than 2021 We expect volumes to go 25 million tonnes compared to 19 million tonnes last year, while the order book of new ships, which is almost half. So we do think the spot market will rebalance and improve during the year. And availability of modern tonnage for the next couple of years is tight because most of the ships and order book are committed. And right now it's hard to get yard slots for even for delivery in –it’s getting really hard to get for 25 and even 26 looking pretty tied. So that just means that termites are holding up and that's also another reason for term rates holding up which I will cover on slide 25.
Okay, if you can jump. Okay, so that's new billing prices. So new billing prices has been picking up for quite some time now. We have seen a flurry of, of orders. This firstly driven by a lot of projects, which I will also cover, there's a lot of new projects coming to the market and these projects need new ships. Additionally, which I will also cover there are a lot of old ships that need to be replaced and higher steel prices, high material prices cost inflation and the fact that the U.S. are preoccupied with a lot of container orders had pushed new billing prices upwards with a recent order quarter that somewhere around $220 million to $225 million. So if you're buying a ship at $225 million, of course you need to have a higher term rate to reflect the capital outlay for ship.
So we were buying ships when nobody else were buying ships in 2017, at least on a speculative basis in 2017, and early part of 2018, new billing prices down were hitting rock bottom for the new mega XDF for $480 million. So, so we're not rushing to the console in new ships today, we are focused on employing or ships in the best way. And we have done that successfully in 2021, and will continue to build on that in 2022.
So, as mentioned on jump the -- jump to 26. So as I mentioned, new billing orders are driven by two things, is the goal of the market. And there’s a lot of new projects coming to the market. And it's also related to the fact that we have a lot of old inefficient ships in our fleet as elevated by this cost. So Mass, it's not the type in the headline. We have some regulation coming into force next year, which is called the EEXI. And we do think and we have argued for a couple of years now that this will create a lot of more demolition of older inefficient ships.
And I think even if you didn't have this regulation coming into force, you will still have a big increase in scrapping of older ships, due to the simple fact of economics. With this kind of high LNG prices we are seeing today, all ships are about 60% more efficient than the old steamship. So when you are burning, either compliant fuel with oil prices above $90, or LNG with high LNG prices, having a modern efficient ship has a great value for the charters who actually pay for the fuel. So, so we have seen more orders. As I mentioned earlier, there's not that many ships coming to the market in 2022. So new building orders will drop substantially from 2021 to 2022. And, and this combined with pretty high growth level is why we think the market will be balanced this year. And also in 2023 the order book is fairly small, a lot of the ships coming in 2023 of specialized tonnage for the Russian Arctic trade, which not usually don't compete in the more regular conventional LNG carrier market.
In addition to EXXI, we also have the European Union implementing carbon taxation for shipping. So this will also come into force now and that will also pin life, the older less efficient ships. So let's head to LNG prices. So, as I mentioned LNG prices are high last work layer the presentation in November, we said that LNG market will be tight and prices will gradually normalize by some of 2023. But the future curves have just gone up and, and we are in for high LNG prices for quite some time, according to the futures market, and actually the people with oil priced indexed LNG contracts which has suffered in the past, because the contract price has been much less than the spot LNG prices, they can all finally smile for quite some time. Even though oil prices are high, the contract price of $10, $12 looks very attractive today. And as I mentioned, these high gas prices will favor modern tonnage.
Heading to Asia, I already mentioned this a bit. We do think export goals will be strong this year. It's driven by U.S. as I highlighted earlier. U.S. have two new project coming on stream this year, and the and they have some organic growth. We and energy and information agency in U.S. think growth will add – U.S. will add on 20 million tonnes this year. Norway will start up the LNG plants sometime in Q2 at probably around 2.5 million tonnes. Both Nigeria and Trinidad Tobago have projects to solve the feed gas issues, which they think will be collected somewhere in the middle of this year. So we do think that both Trinidad and Tobago and Nigeria will add about 2 million tonnes of additional export this year, versus our new project this year. So we do expect growth of around 2 million for Russia. We think there's some possibility of both Australia and Qatar producing somewhat higher in transit to especially given high LNG prices.
So all-in-all we add this up to around 25 million tonne, so 6% growth for 2022, slightly higher than what we saw last year. So, I mentioned 29 here, just jump to 29. And, as I mentioned, there are several new projects. And this is one of the big drivers for the new building orders. We have several projects in the U.S. and of course, this big Qatar, a project with Qatar today also announcing another round of new buildings. Of course, and in the end, as I mentioned in the past, we do think that this will lead us with Qatar is probably all doing around 100 ships in total.
So that will certainly lock up the odd slots, and will keep LNG new building prices up fairly at elevated levels. So, let's conclude. So, again, we delivered stellar revenues 150 million for a quarter TCE of $96,000 per day or EPS are fantastic at 131 and 118 adjusted for all the derivative gains. We have covered 93% of the year. We are continuing to pay this $0.75 dividend which gives us our investors a very attractive yield in this low interest rate environment. We are pleased about the market even though the market is softer than expected in Q1 due to this West East Arbitrage being closed for most of the year so forth.
And then we have a solid cash balance $201 million here. And with this new financing that Knut talked about, we are adding another $87 million on top of that. So with that, I think it's time to do some questions. So Nadia, maybe you could see if there are some questions on the teleconference first.
[Operator Instructions] Dear Speaker there are no questions on audio at this moment.
Okay. I do think we have some chat questions, so maybe you can just shoot them over to me.
Unidentified Company Representative
Yes, we have some question from the web. Hello, I think congratulations on the Q4 results. Can you please comment a bit on the EU Emission plant for shipping?
Yes, yes, I think I already touched upon it. So, we have decided to broaden the scope of that emission trading system, which will also include shipping which will be faced in Nor [Ph] from 2023 onwards. So this means that ships sailing into Europe will have to buy carbon permits for the CO2 emissions and maybe the CH4 emissions, methane slip emissions. This seems not to be concluded yet. But in case of CH4 emissions, this really makes all mega ships incredibly attractive in the market.
So, the cargo owners will have to then buy carbon permits and if you have been paying attention to carbon market in Europe, it has been on up here. So the carbon prices in Europe are incredibly expensive at around €90 per tonne. So then you have to and this will then of course significantly improve the competitiveness of all ships, which are consuming as I mentioned, about 60% less fuel on a steam ship, not because we have a more efficient engine, but also because we can have a parcel size, which is about 30% bigger.
So we are looking positively to towards our implementation of this. But there are still some rules that are not clear, and especially in relation to CH4 emissions. Because if you are adding CH4 emissions, it’s a big thing. And that first the question you have to ask yourself, if you're adding CH4 emission, what kind of multiplier will you add? If methane emissions don't last long in the atmosphere, but they are very important. So on [Indiscernible] CH4 emission is about 85 times worse than CO2.
On -- since methane, this is broken down in the atmosphere much quicker than CO2 on 100-year cycle, they are about 28 times worse than CO2. So then -- so what will the factor -- apply to? Will it be 85 or 25 or 28? So, all some of those random factors so, but still, it means that if you have to pay for the CH4 emissions, that will be very expensive, and it will certainly favor trading efficient ships into the European carbon trading emission. So, let's see when we get all the details. But in general, we think it's a competitive advantage for us.
Unidentified Company Representative
And we have three questions on the ballast -- the use of proceeds and our cash balance, prepare for opportunities. What are our priorities, phase, new building orders, fleet expansion or consolidation?
I think all of it is super new billing orders. We are all main shareholder. John [Ph] public, and he has been in this shipping game now for 60 years. So, of course, we have seen more cycles than most if any. So of course, shipping moves in cycle. Some mostly bankers might tell you differently this time is different. But they do. And this also reflects new billing prices, and they are pretty elevated now. And given the backlog they all have and the price pressure on inflation and such, we think they will pay elevate.
So we bought, we're not going to rush to the arts or the new ships, we're going to focus on the ships we have. We all, we had some ships coming open the next couple of years. I mentioned Rainbow and Amber, and the -- and we think we are well positioned to lock them in on attractive rates. And as I mentioned, term rates are holding up very well. So our focus is on existing fees. So why are we then adding so much liquidity onto our balance sheet?
It’s pretty simple. Credit terms for good top tier customers like us are very good these days. I haven't seen as good financing markets since 2014, just before the oil price slump. And before that I saw it back in 2007, when, before the financial crisis hit, old banks were handing out money everywhere. So, we as a very good client can access cheap capital. At good terms, we are now pushing out material with this. We add in flexibility with revolvers, which means that we can have access to a lot of liquidity without having to draw the debt and pay the full input expenses of the credit commitments.
So this enables some financial flexibility and financial freedom and it also enables us to continue to pay very good dividends even though our earnings this a bit disappointing in in Q1 So it's more about having a -- ability also to tap the market when the credit markets are good. We do see that the Fed is tightening the policy both in terms of input faith and quantitive easing. So if you look at the most history in terms of recessions and contractions in stock markets is driven by Fed policies. So, we think it's smarter to take someone there when it's available. And, and I as I mentioned, we don't need to pay for it unless we use it. The commitment fee on the revolver is very attractive. So we keep it in spare. And, we think it's a good insurance premium and it gives us some strategic ability to also pursue some opportunities if there were -- but that said we were not planning to use this as a credit card to go to the odds.
Unidentified Company Representative
There is a question in what kind of mix of fuel [Ph] as the fleet used currently using?
Mix of fuel, of course it's compliant fuel. It’s -- I would say of course, okay, let's just do the basics. So when we are taking LNG cargo, that cargo is like minus 162 degrees, so 265 minus -- six departments. So, of course the ship is thermos [Ph] with a propeller. Thermos are not perfect they are close to perfect now at least economically perfect because of boil off rate is much less than it used to be in the past. So we have a use this boil off from the cargo tanks to fuel our ships with LNG. And then you use some pilot fuel, typically marine diesel oil or marine gas oil. In the recently with elevated LNG prices, which have been trading at big premiums to oil, even though oil prices have been high, we have seen some more heel out being done by charter as well.
Actually, you're not retaining part of the car goes to use to cool down the tanks and use for fuel, you're healing them out entirely, and then all the burning, typically marine diesel oil or marine gas oil. So I would say mostly it’s LNG. When you have areas where the prices are elevated, you could also be some, some, some compliance.
Unidentified Company Representative
Okay, we round up with the two last questions and one is guiding for the cash breakeven level for 2022. And the second part of this, this is possible to switch into more fixed spread contract arrangements.
Okay, let's do the fixed rate contract. So, we did that eight or nine fixed rate time jobs. Last year, we think we think it will be nine because we do expect Cheniere to take the fifth vessels when you look at what the term rates are being quoted today. So I think we already shifted a lot of our revenue base to faceplate contracts. And this has mostly been driven by the fact we have been optimistic on the spot market. What back 2019 and 2021 the spot market was not that good. We elected to do variable time charters and short term time charter and spot in order to have exposure to the market because we thought it was going to improve. And then when we saw the improvement materializing during last year, we elected to fix a big chunk of our revenues to fix that confidence.
Whether we will do it again, for the remaining ships really depends on what we think we can achieve. So we like to keep some exposure to the spot market. But we will see, we do expect most of our assets, we also shown them in the [Indiscernible], where most of revenues are on all fixed styles might improve, might improve more but really depends on the terms on the table.
And then the other question was about our cash breakeven now. Okay, we guided I believe when we were a percent a year ago, we guided 45,300 for 2021. And we delivered below that, at 44,000. Even though COVID-19 related OpEx expenses were $600 per day, which was a bit higher than expected.
So, but of course, LIBOR stayed at more or less zero during 2001. So interest expenses were very favorable. I think if you look at 2022, I think if you are assuming at around $45,000, it should be on target. As Knut mentioned, even though we know raise $125 million through our balance sheet optimization program, we are not increasing or better service cost. And this is driven by a couple of factors.
One is that of course, we have got very good attractive terms. Number two, we have been able to stretch some of our payment profiles. And number three, we have structure, a lot of financing with revolving credit facilities, where we don't really have to draw all the debt all the time. So we there's no reason for us to sit with $200 million of cash all the time, we can repay that on the other revolver and save some interest expenses. So it seems like alchemy, you can get $125 million without increasing your financing costs. But it's really a reflection of the fact that banks are also seeing that we have really the risk the company and then they are also willing to provide us with more favorable terms. Yes, or do you want to add something to that?
Unidentified Company Representative
No I think you covered it well. If your questions are not answered, we will look into it and respond to all of those who are not. If you have any further questions, do please send an email to IR at flexlng.com
Okay, and thank you everybody for listening in. We will be back with Q1 numbers in May. So I hope you can join the conference then as well. Have a good day. Thanks.
That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.