Earnings Call Transcript - FLNG Q3 2020

Operator, Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Flex LNG Q3 2020 Earnings Presentation Conference Call. At this time, all participants will be in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. I must advise you that this conference is being recorded today. And I would now like to turn the conference over to your speaker, Mr. Øystein Kalleklev. Thank you. Please go ahead.

Øystein Kalleklev, CEO

Okay, thank you, and welcome to Flex LNG’s 2020 third quarter presentation. My name is Øystein Kalleklev, and I'm the CEO of Flex LNG Management. I will be joined today by our CFO, Harald Gurvin, who will go through the numbers as well as providing our financial updates. A replay of the webcast will also be available at flexlng.com. So, Slide #2 is a disclaimer with regards to, among others, forward-looking statements, non-GAAP measures, and completeness of details. And the full disclaimer is available in the presentation, and we recommend that the presentation is read together with the earnings report as well as our 20-F Annual Report. So, Slide #3, the highlights. Not surprisingly, the spot market stayed weak during the spring and summer due to the fallout from the COVID-19 pandemic. This adversely affected demand for natural gas, resulting in record low prices and thereby incentivizing a flurry of cancellations of flexible U.S. cargoes. Nevertheless, the market started to improve by August as restrictions were eased and economic activity picked up. The improvement in the freight market was, however, somewhat derailed and delayed by the most active hurricane season on record in the U.S., resulting in temporary shutdowns of LNG export plants in the Gulf of Mexico. The tropical storm, Iota, easily became the third named tropical storm, breaking the record of 27 names tropical storms from 2005 when Hurricane Katrina devastated New Orleans. However, the supply disruptions in the U.S. as well as other places like Australia and Norway, together with the seasonal increased gas demand, spurred a big rally in global gas prices during the autumn with TTF and JKM going from summer lows of $1 per million BTU to about $5 and $7, respectively, today. The gas rally has thus improved economics markedly for the industry. The strong prompt prices for LNG have resulted in floating storage being more or less liquidated at the time when floating storage typically tends to build up. Hence, our expectations that we would see all of the floating storage this year due to the strong contango in gas prices during the summer vanished due to this incredibly strong gas price rally. The strong gas prices have resulted in cargo cancellations tapering off and this, together with significantly more pool from Asia, which has pushed freight rates about $100,000 again by October. I'm pleased to say that despite the many challenges caused by the pandemic, we have continued to operate our ships with 100% uptime and an excellent safety record. Cargoes have been delivered without disruption or delays to our customers. We have also taken delivery of four new LNG carriers from yards in South Korea on budget as planned during July through October, and I will provide a bit more color on the operations shortly. In Q2, we delivered average time charter equivalent earnings of TCE, or TCE of $47,000 per day. After our Q2 presentation in August, we guided that revenues would be higher in Q3 compared to Q2 as our fleet ensured additional new business. Revenues increased from about $26 million to $33 million. We also guided that TCE for Q3 was expected to be similar to Q2, despite the costs associated with mobilizing the three new buildings we took delivery of in the third quarter. This estimate was indeed very accurate as our TCE in Q3 was exactly the same as in the previous quarter at $47,000 per day. This means we have been able to navigate through very tough market conditions caused by the pandemic in Q2 and Q3 without depleting any cash. In Q3, our adjusted profit was $1.2 million, and net income was higher than $3.8 million due to favorable changes in the valuation of our portfolio of interest rate derivatives, which is utilized to hedge our interest expenses. These financial instruments fluctuate with interest rate levels in the U.S., and interest rates have recently picked up a bit. The overall adjusted profit for Q2 and Q3 was just about $500,000. Given the fact that we have been through the worst downturn since the Great Depression, this illustrates how robust our business is as we have certainly not received any financial support or handouts from governments to cope with the economic consequences of the pandemic. In Q1, prior to the virus spreading globally, we delivered fairly good trading results with TCE of $68,000. With the guidance of $70,000 to $75,000 for Q4, we are generating pretty good results in the two winter quarters this year. Overall, for the year, we should end up at around $60,000 per day, which is well above our cash break-even level of about $47,000 per day, despite the headwinds we have faced this year. This also illustrates how well we can do in a market where we are enjoying tailwinds. As we have taken delivery of three ships in the quarter, our remaining CapEx has now been reduced to $512 million, or about $380 million following the Amber delivery in October, subsequent to quarter-end. We actually have $533 million in available debt for this CapEx as we paid approximately $18 million in prepayments for Flex Amber as part of an agreement to move the delivery from the end of August to mid-October. This was done to fit into the schedule under the variable time charter, which we have secured. Given the fact, we financed Flex Amber with $156.4 million Chinese lease or cash balance of $76 million at quarter-end improved by about $26 million in connection with this delivery. Hence, we have a very healthy cash position, which we will continue to build up during Q4 as we expect to generate substantial cash flow, given the guidance provided today. We are also pleased that we have been able to utilize a strong freight market to book a significant portion of the first quarter of next year. In the first quarter, we expect to add two ships to our fleet, Flex Freedom in January, which was on the front page of our presentation; and Flex Volunteer in February. Hence, we have thus more ships available, but nevertheless, we have already booked about two-thirds of our available days, which includes these two new ships. As we have several ships on variable hire, it's too early to guide on TCE numbers for Q1 next year, but we will be able to provide more color on this during our Q4 presentation in February next year. Hence, with a strong cash position, our fully financed fleet consisting entirely of the next-generation ships, coupled with good earnings visibility and the industry's lowest cash break-even levels, as well as a light at the end of the tunnel when it comes to COVID-19, given the recent progress regarding vaccines. The Board has, therefore, decided to reinstate the dividend. We suspended the dividend for the last two quarters, given the risk and uncertainty created by the COVID-19 pandemic. Now, we have demonstrated that we can manage this risk very well, and we are thus pleased to once again reinstate the dividend, which the Board, for Q3, has set at $0.10 per share. So moving on to slide four, which provides an overview of our fleet composition. As of today, we have three ships on fixed TCs. This is Flex Ranger, which commenced with the Spanish utility Endesa at the end of May. In July and September, we took delivery of Flex Aurora and Flex Resolute, and both these two ships were fixed on shorter-term TCs of 8 and 11 months, respectively. The Flex Aurora time charter has recently been extended to 11 months in total, similar to Flex Resolute. Today, we also have in total three ships currently operating under variable hire TCs. These variable hire TCs provide us with what could be described as utilization insurance in soft markets while we maintain exposure to the overall freight market. As we've been bullish on the considerably higher rates in Q4, we are benefiting from increased earnings on these ships now. The ships serving such contracts are Flex Enterprise, Flex Artemis, which was delivered under our long-term variability fees to Gunvor in August, as well as Flex Amber, which we took delivery of in October, subsequent to quarter end. With the improved spot market, we are also pleased to have four ships operating in the spot market. The ships currently trading spots are Flex Endeavor, Flex Rainbow, Flex Constellation, and Flex Courageous. For these ships, we do try to find a balance between maximizing rates and pay rates as we do have three additional ships for delivery next year and thus would like to also add earnings visibility. We are thus pleased that we have already booked two-thirds of available days in the first quarter of next year, as mentioned. We have agreed with various stakeholders to slip Flex Freedom into next year, making her our 21 vintage. She was originally scheduled for delivery at the end of November this year. By postponing her to January 21, we are spreading out all dry docks with four ships being 18 vintage, two ships 19 vintage, four ships 20 vintage, and the remaining three ships being 21 vintage. We expect to take delivery of Flex Freedom in early January, and we are now actively marketing her to potential clients. Flex Volunteer has already conducted sea and gas trials and she can also be available early next year, but the scheduled delivery is at the end of February. Our last new building will be Flex Vigilant, which is scheduled for delivery at the end of May. With Flex Vigilant on the water, our new building program is complete with 13 large ultra-modern LNG carriers on the water by the second quarter of next year. Our earnings capacity will thus increase by 30% early next year, compared to the fourth quarter of this year. Finally, all of the invested equity will start generating income in contrast to 2018, 2019, and 2020 when a very large portion of our equity has been tied up in new buildings, which generate zero income and thus drag down all return on equity numbers for those who pay a lot of attention to those. Before handing over to Harald for our financial review, I want to touch upon a very important matter, which is always at the top of our agenda, but even more so this year due to the COVID-19 situation, with all its implications. With the outbreak of COVID-19, countries have locked down and imposed a lot of travel restrictions and impediments for crew changes and the repatriation of seafarers. This has resulted in what can only be described as a humanitarian crisis with significant concern for the safety of seafarers. According to an IMA report from September, there were 400,000 seafarers overdue on contract and another 400,000 seafarers at home unable to join those ships. 400,000 is one third of the 1.2 million seafarers, a staggering and depressing number. While domestic employees in the transportation sector, as well as in international aviation, have been shielded from the restrictions as they have been deemed essential workers in order to ensure that food, medicine, and other goods are flowing, this has not been the case for seafarers. Close to 90% of goods are being transported at sea on about 60% of cargo ships. While we are not transporting the last mile to consumers, last-mile transportation can't take place unless the goods on ships are offloaded at port. Port workers have also been deemed essential workers, so there is a large discrepancy here, and it's attempting to use some of the words in this context to categorize these double standards. That said, it's positive to see that more countries are realizing that seafarers are essential to shipping and that shipping makes the world go on. So how have we in Flex coped with the situation given these limitations? Let's just say we have been very busy. We have implemented strict standard operating procedures for joining or signing crew in order to safeguard crew operations and society. This standard operating procedure includes controlled quarantine and a PCR testing regime with a minimum of negative tests, as tests can sometimes be unreliable in that sense. We have also developed an outbreak management plan which we have shared with key clients, and the response has been very positive. The outbreak management plan has also been stress-tested through third parties involved in emergency drills. These procedures have been critical in avoiding any outbreaks on our ships. As COVID-19 has impeded our ability to regularly visit ships, we have carried out regular videoconference meetings with senior officers onboard to ensure they receive the attention needed to coordinate crew changes and ensure morale on board. We have been focused on seeking every possible opportunity to carry out crew changes to minimize overdue contracts. I think our results in this regard are impressive. In the six-month period from May to October, we carried out 32 successful crew change operations. I would very much like to take the opportunity to thank our crew and the onshore personnel for their dedication, patience, and hard work in organizing these crew changes, which I can assure you have not been straightforward. I'm happy to say that 93% of our crew is on time, meaning they are not overdue on their contracts. This leaves us with 7% of our crew overdue on the contract. This is unfortunate and something that could have been avoided if we had reticent. However, as mentioned, we are very focused on minimizing overdue days, and I am pleased to say that 20% of the 7% is overdue by less than 30 days, while the remaining is less than 60 days. So, we have no crew staying more than 60 days overdue. With some concessional easing restrictions on seafarers, we do hope to bring these numbers down to zero as fast as possible. Another issue faced by the travel restriction is conducting the regular ship inspection report program, or what we call SIRE. We are required to carry out these inspections regularly, at least every six months, usually in connection with discharge. With travel limitations, it's been extremely difficult to carry out these inspections. But this has not stopped us from finding new, smart ways to work, as society has made more progress on remote working in the last year than in the last decade, even in a conservative business-like shipping. So far, we have had about two remote SIRE inspections in order to keep the certificates up to date. We have also conducted two remote changes of management of our ships during this period, as well as two of the remote annual services. It's impressive to see that the technical personnel are able to get work done despite all the obstacles thrown at them. Our new building team has also faced logistical challenges in relation to delivery and manning of our new buildings. Despite obstacles, our ships have been mobilized and delivered according to budget and plans, so I would like to extend my gratitude to our new building team before handing over to Harald for our financial review.

Harald Gurvin, CFO

Thank you, Øystein. Looking at the income statement on Slide 6, revenues for the quarter came in at $33.1 million, up from $25.8 million in the previous quarter. The time charter equivalent rate for both quarters was $47,000 per day, and the increase is due to the delivery of three vessels during the quarter, increasing the number of vessel days. Adjusted EBITDA for the quarter was $21.9 million, up from $17.4 million in the previous quarter. The results for the quarter include a gain on derivatives of $2.1 million relating to our interest rate swaps, which includes an unrealized non-cash gain of $3.5 million. This compares to a loss of $6.6 million in the previous quarter, of which $6.2 million was unrealized. At quarter-end, we had entered into interest rate swaps totaling $710 million at an average interest rate of approximately 1.2%. The gain on interest rate swaps was a result of the increase in longer-term interest rates during the quarter following a significant drop during the first half of 2020 due to the COVID-19 pandemic. Net income for the quarter was $3.8 million, up from a net loss of $6.7 million in the previous quarter. Adjusted net income for the quarter was $1.2 million or $0.02 per share compared to an adjusted net loss of $700,000 or $0.01 per share in the previous quarter. Then moving on to our balance sheet as per September 30th on Slide 7. Following the delivery of the three new buildings, our assets at quarter-end consisted of nine vessels on the water with an aggregate value of $1.7 billion. In addition, we have booked vessel purchase prepayments totaling $218 million relating to the four new buildings still to be delivered at quarter-end. This represents the advance payment on these, including the $17.8 million we prepaid on Flex Amber in July to postpone delivery to October. In connection with the vessel deliveries, the first three tranches totaling $387 million were drawn under the $629 million ECA facility we entered into in February. This increased total debt by quarter-end to $1.1 billion, of which approximately $34 million is due over the next 12 months and that's classified as current liabilities. Total equity as per quarter-end was $816 million, giving a strong equity ratio of 41%. Looking at our cash flow on Slide 8, cash flow from operations was close to $20 million in the third quarter. This includes positive working capital adjustments of $9.6 million mainly due to an increase in prepaid hire following the stronger market in the fourth quarter compared to the third quarter. Scheduled loan installments were $9.3 million, and in addition, we had financing costs of $6 million mainly relating to upfront and commitment fees on the $629 million ECA facility and also the new $125 million facility for Flex Volunteer. Total new building CapEx for the three new buildings delivered during the quarter was $415 million. This was part financed by a drawdown of $387 million under the $629 million ECA facility, with the remaining $27 million funded from our liquidity. In addition, as mentioned, we paid $17.8 million under the purchase agreement for Flex Amber in July. This brings total net payments towards new buildings and financing fees during the quarter to $51 million, which is the main reason for the $40 million decrease in cash to $76 million at quarter-end. As mentioned, Flex Amber was delivered in early October, whereby the $156.4 million sale on leaseback was executed. The $17.8 million prepaid in July was deducted from the final amount payable on delivery, giving a positive net cash effect from the financing of $25.7 million, thus boosting liquidity to just over $100 million post quarter-end. Moving on to Slide 9, we are now secured financing for all our vessels, including the four new buildings still to be delivered at quarter-end. Following the delivery of three vessels in the third quarter and the prepayment on Flex Amber, the remaining CapEx at quarter-end was $512 million compared to secured financing of $533 million, giving a positive net cash contribution of approximately $20 million for the remaining four new buildings at quarter-end. We have a very comfortable debt maturity profile with the first maturity due in July 2024. Our diversified sources of funding split between bank loans, ECA financing, and lease financing also gives us staggered debt maturity profiles, mitigating refinancing risk. We have not only diversified our financing sources but also our pool of lenders, which now includes 15 different financial institutions demonstrating our ability to raise attractive funding in a challenging captive market.

Øystein Kalleklev, CEO

And with that, I will hand it over back to Øystein who will give an update on the market. Thank you, Harald. So let's start by a quick recap of the spot market for LNG shipping on Slide 10. Despite COVID-19, 2020 has, for the most part, followed the usual seasonal pattern, but much softer during the spring and summer compared to previous years due to lost demand caused by the lockdowns. Given the scale of cargo cancellations, there have been plenty of ships in the market, which has contributed to idle days as well as ballast bonus conditions. However, as we stated in our second quarter presentation in August, we were starting to enjoy better sentiment in the spot market, particularly regarding ballast bonus conditions. In our Q2 presentation, we put a glass to the right, indicating that we were expecting a rebound in ballast bonus conditions and if that comes to fruition with spot variations being down on long-term economics or even better. This means that achieved earnings in the spot market are now typically on par or even better than headline rates. A lot of voyages are being done with higher only border laden leg shaving the achieved TCE rates to about half of the headline rates. In addition, while we saw a lot of vessel availability during the summer, which resulted in idle days, we now have a very strong market with very limited risk of idling, as Clarkson was quoting only three available ships worldwide in the market on Friday. Given the limited vessel availability, spot rates are now in excess of $100,000 per day for more than tonnage, similar to the levels seen last year. Some of you might wonder why our TCE guidance in Q4 is not higher than $70,000 to $75,000 in Q4 when rates are now in excess of $100,000. The reason is that the unusually active hurricane season in the U.S. caused supply disruption, which delayed the typical seasonal uptick in rates. Spot rates didn't really start to rally until the end of October, which is a bit later than usual. Keep in mind that ships are often booked more than a month in advance as it takes a ship about this time to sail from Asia to the U.S. So, the rates being quoted now in November are typically for Pacific loads in December or U.S. loadings in late December or early January next year. This is thus a positive signal for the start of 2021. However, with about 50 new buildings set for delivery next year, the key drivers influencing the trajectory of spot rates will be the winter weather, together with the shape of the economic recovery, as we also mentioned in our presentation in August. In 2017 and 2018, we experienced a relative cold winter, and consequently, the spot market held up well in Q1. The last two winters, we have, however, experienced extremely mild winters, and this together with the COVID lockdowns in China implemented in February this year, have resulted in spot rates plummeting after New Year. This year, most of the prognosis rule out a very warm winter due to La Nina, as we also highlighted in our presentation in August. The signal from the futures market is that the LNG product market will hold up in Q1, something I will explore in more detail on the next slide. So Slide 11, gas prices. This year has been a story of gloom and doom. Due to the COVID-19 pandemic, we already experienced very low seasonal gas prices due to two consecutive warm winters impacting storage levels, as well as generally weak Asian demand due to the general economic slowdown in China following the trade war with the U.S. The lockdowns and reduced economic activity following the outbreak further amplified these pre-existing conditions and resulted in a crash in global gas prices. We are seeing record low gas prices during the summer with European gas for some time actually trading below $1 per million BTU, which is unprecedented. $1 per million BTU equates to oil at around $6 per barrel. Asian spot prices have for short periods been trading below $2, and Henry Hub hit a 21-year low in June at $1.40. As represented in our Q2 presentation in August, gas prices started to recover, and this rally has continued with Asian gas prices now well above peak COVID-19 levels and at higher levels than during last winter season. JKM and TCs are currently at about $7 and $5 respectively. This is still cheap on an absolute and seasonal historical level with a price point much more conducive for the fed market than the rock-bottom prices during the summer. Following the coronavirus outbreak, we also saw an oil price crash affecting the price of contractual LNG linked to oil. Oil-linked LNG still represents about 70% of the market. While there have been production cuts in LNG with cargo cancellations, these are minuscule compared to the oil industry with the big 9.7 million barrel cut by OPEC and Russia, as well as lower output from the shale base in the U.S. The LNG linked to oil price are typically priced with about a six-month delay, so LNG spot prices are at similar levels to oil price linked LNGs today. As mentioned earlier, the futures markets predict that gas prices will hold up in 2021 with similar spreads between TCs and Henry Hub of about $2. If gas prices stay at these levels, there shouldn't really be any economic incentives for a repeat of the massive cargo cancellations in the U.S. next year. Since the TCs derivative market is highly liquid, players can already hedge their positions to avoid having to pay a tolling fee of about $2.5 per cargo not being lifted next year. Gas futures prices have a mixed record of predicting actual future prices. The key determinants of cargo cancellations are, as mentioned, winter conditions which will affect the storage levels and thus available injection capacity during the summer, as well as the shape of the economic recovery impacting gas demand. Slide 12 presents a review of the two main import markets for LNG, Asia and Europe, which together make up about 95% of the market. Asia is definitely the LNG continent. In the early phase of the corona crisis, Europe, through its ample import and storage capacity, came to the rescue, acting as a buyer of last resort, absorbing the last of the available LNG. In this regard, similar to what happened in 2019 after the very warm 2018-2019 winter caused by El Nino. After European lockdowns took effect and inventories were piling up, European buyers became exhausted by summer, which caused gas prices to drop to new lows resulting in a wave of U.S. global cancellations, which I will provide some more details on later. However, as we are approaching autumn, Asian demand took off, driven particularly by the V-shaped recovery in China, which quickly managed to contain the virus. China is also pushing forward with reforms in the gas industry, liberalizing third-party access and stimulating competition with a new international pipeline company. Furthermore, China continues to roll out city gas heating where penetration is yet far to go, notwithstanding another 7 million households being connected to gas using this season. Asian demand grew, together with Europe avoiding stockpiles, thus balancing the market. It now looks much sounder than what was the case during the summer when many LNG carriers were tied up in non-economic floating storage in order to smooth out logistics. While European buyers grabbed about 28% of volumes in the first half of 2020, this fell to only 19% in Q3 as Asia increased its share from about 76% in the first half of the year to 74% in Q3. Global exports have thus been trending upwards, with September and October export volumes being marginally below last year, mostly due to supply disruptions in this period and not really due to lack of demand. Increased Asian demand is also positive for the freight market, as this puts cargoes from the Atlantic Basin into Asia, which results in a big increase in sailing distances and thus generating more shipping demand. Slide number 13 provides a review of the supply model. This model, which we introduced in our July webinar, has been updated with recent export numbers. The model illustrates the community of export growth with associated cargo cancellations in the U.S. Please note that it's important to differentiate between import and export numbers. Export numbers are a better proxy for shipping demand. About 3% to 4% of exports are consumed by ships as gas during passage and cargo operations, depending on voyage length and whether it involves floating storage, which also drives freight demand. At the beginning of the year, we were expecting about 25 million tonnes increased exports in 2020, and the trajectory in the first quarter was ahead of the curve. During the second quarter, Asian demand caught up, and Europe initially soaked up these volumes by injecting cheap gas into storage as mentioned earlier. However, during June, July, and August, low gas prices incentivized cargo cancellations, and export volumes thus declined. July and August ended up as the peak cancellation months. As gas prices have recovered, cargo cancellations have tailed off. In total, flat seconds, 179 U.S. cargoes were cancelled in 2020, and we expect around 280 cargoes to be lost in total compared to the estimates due in 2020. Despite the doom and gloom in the energy market this year, we now expect export growth of 5 million tons for 2020. This is only half of the growth we expected in July when we anticipated 10 million tons, and the main reason for the 5 million shortfall compared to July projections has not been the cargo cancellations in the U.S., as we did expect them to continue in the autumn. The shortfall has rather been related to supply disruptions in Australia and Malaysia related to Gorgon and Bintulu, the final shutdown of Melkoeya in Norway, and the fact that the assumption of expose on Prelude FLNG has been further postponed, which are the main reasons for this shortfall. On top of this, the hurricane season in the U.S. has caused cargo cancellations which were unforeseen, and I will provide some more details on that shortly. However, in sharp contrast to all the hydrocarbons and even gas transported through pipelines, LNG has managed to grow despite the pandemic. Given the curtailment of cargoes this year, the export potential for next year is considerably higher, which I will also expand upon a bit further. Slide 14 takes a closer look at U.S. exports. As we highlighted in our July webinar, U.S. producers are inherently more at risk for cargo cancellations due to the cost base and the flexibility of their contracts where customers can typically notify of cargo cancellation 60 days prior to loading by paying the fixed tolling fee, which tends to be around $2.5 per million BTU. This flexibility enables operators to cancel a lot of cargoes during the spring and summer months for economic reasons. During this period, European and Asian gas prices were at similar levels as U.S. gas prices, and it did not make financial sense to take delivery of these cargoes but rather just pay the tolling fee and avoid lifting them. That said, not all volumes were canceled, as some buyers may have different incentives as they could either be hedged or they are selling cargoes into a regulated market where global gas prices are not the key determinant. So during August, we did, as earlier mentioned, see that global gas prices were bouncing back, which could move the economic incentive for canceling U.S. cargoes. But at that time, when exports were recovering, we were hit by the most active hurricane season on record. This record goes way back to 1851. Particularly, three of these 30 tropical or subtropical storms disrupted U.S. exports, and we have pointed them out in the graph on the left-hand side—these being Laura, Beta, and Delta—which had a pretty big impact on feed gas delivered to U.S. export plants. U.S. feed gas levels are now at a record high of around 10.5 billion cubic feet per day. Adjusting for about 15% of feed gas utilized for liquefaction, this equates to annualized U.S. export volumes of about 70 million tonnes today, which is about the nameplate capacity. On Slide 15, we provide an overview of the 10 largest exporters and our expected output in 2020. For those not being too fond of vexillology or the study of flags, it might be worth mentioning that the largest exporter sorted by size is as follows: Qatar, then Australia, U.S., Russia, Malaysia, Nigeria, Indonesia, Trinidad and Tobago, Algeria, and then Oman. The multicolored flag represents the rest of the world with an output of about 42 million tonnes expected for 2020. The U.S. is the main growth market in terms of exports, despite the 179 cargo cancellations mentioned earlier. At full capacity, we would expect the U.S. to be able to produce in excess of 60 million tonnes in 2020. Despite the exports, Australia continues to punch below its weight, as its export capacity is around 86 million tonnes. The main reason for the shortfall in Australia is due to the operation of Prelude FLNG being suspended since February due to COVID-19 concerns. Prelude has an annual export capacity of 3.7 million tonnes of LNG. Furthermore, Gorgon has been suspended since May due to issues with the heat exchangers. This train has an export capacity of about 5.2 million tonnes, and we expect it to commence operation again shortly; nonetheless, significant volumes have been lost compared to what was planned upon regular maintenance. Notable disruptions are the recent reported outages at Train 1 and 7 at the Bintulu LNG plant in Malaysia due to disruptions in the feed gas supply. These plants account for 9.6 million tonnes of roughly a third of the facility's nameplate capacity. Hence, the volumes from Malaysia are also on the soft side this year. We also see somewhat lower volume this year from Trinidad and Tobago, and Oman, while the rest of the world is fairly affected—42 million tonnes—while the main deviation is the shutdown of Melkoeya in Norway following the fire, which has resulted in about 1.5 million tonnes lost in 2020. These volumes are close to the European market, so they do not matter nearly as much as U.S. cargo cancellations in terms of freight demand. Despite this shutdown, Norway can maintain its fourth base as the world's largest gas exporter, following Russia, Qatar, and the U.S., as most of its exports are linked by pipelines to the European continent. Slide 16 returns us to the U.S. As mentioned, about 13 million tonnes have been curtailed through cargo cancellations this year. During 2020, we have seen several projects commencing operations, with Corpus Christi expected to start up in the first quarter. With this planned, U.S. nameplate capacity is around 75 million tonnes, of which about 71 million will be available next year. The Energy Information Administration in the U.S. provides monthly updates on the oil and gas forecast in a report called Short Term Energy Outlook. In the November report, they expected exports to grow 31% in 2021 from 6.4 BCF in 2020 to 8.4 BCF next year. This equates to 65 million tonnes of LNG or a growth of about 16 million to 17 million tonnes. While this is a big improvement, it still leaves about 6 million tonnes to be canceled next year, representing around 85 cargoes, which is about half the level we've seen in 2020. For shipping, fewer cargo cancellations is crucial, particularly if they are pulled away from the Atlantic Basin and into Asia. These voyages are shipping intensive, so we wouldn't expect these U.S. volumes to add about two ships for each tonne of about 32 ships, which is about two-thirds of the order book for next year. As U.S. volumes next year will be critical, this will depend on the tightness of the LNG product market. A tighter LNG product market will usually also create a scenario which could provide more incentives for floating storage next autumn than what has been the case this year following the gas price value. By 2022, we do expect the U.S. to take over as the country with the highest nameplate capacity, surpassing both Australia and Qatar. That is at least until Qatar expands the capacity to 110 million tonnes by 2025 and to 126 million tonnes by 2027. However, at that time, the U.S. will also have the 15 million tonne Golden Pass project running and able to produce more than 100 million tonnes each year. So, we are now on Slide 17, which summarizes the projections prior to summarizing today's presentation. 2021 will be an exciting year for LNG shipping. We have, as mentioned, quite a few ships for delivery next year. But we also have a very big potential for LNG exports if we avoid too many cargo cancellations. Using the IEA numbers, the U.S. will add 16 million tonnes next year. It's fair to assume that Prelude will resume operation soon, given the vast amount of capital employed in this project and the fact that the project is also producing condensate in addition to LNG. Resumption of Prelude production will add about 3.5 million tonnes next year. Then we have Egypt, which exported close to 3.5 million tonnes in 2019, which is about half of the nameplate capacity of Idku. Given the low gas prices in 2020, the exports have been curtailed, but they have now started up again. 50% production at Idku was at about 3 million tonnes. Gorgon in Australia, which I haven't mentioned. The function of normal Gorgon operation would at least add 2 million tonnes. Bear in mind that these volumes are sold on long-term offtake agreements. Then we also have Bintulu in Malaysia, where we would expect the feed gas issues to be rectified and production to increase by about 2 million tonnes next year. Yamal Train 4 is also scheduled to start operation and is expected to add close to 1 million tonnes. We also have the Portovaya project, which will add another 1.5 million tonnes. Then we have Melkoeya in Norway, which we assume will be closed down until October, dragging down volumes by about 3 million tonnes. Adding these together, bottom-up leaves us at around 26 million tonnes growth in 2021. This compares to the Energy Aspects estimate of around 24 million tonnes in the recent LNG outlook. However, it's fair to say that some estimates are considerably lower than this. That said, there is, however, upside to these numbers. If the U.S. is running at full steam, we could add another 6 million tonnes. We could also add 3.5 million more tonnes if Idku in Egypt produces at actual capacity. In Egypt, there is also another terminal called Damietta, which has a capacity of 5 million tonnes of export, which has been suspended for a long period due to disagreements in the consortium. Earlier this year, it seemed that the parties Union Gas Fenosa, a JV between Eni and Naturgy and Egyptian National Energy Company, EGAS and EGPC had reached an agreement, and this was repeated in October. So far, our solution has not materialized, and the outcome remains uncertain. But our solution seems to be on the horizon. That said, Egyptian cargoes are closer to the end users than U.S. and Russian cargoes. So, Egyptian cargoes are much less important for the freight demand unless these are pulled to Asia. On Slide 18, and in summary, I'm happy to say we have managed to navigate well through the difficult conditions created by the COVID-19 pandemic. This has been a real stress test for everyone involved, and we have passed with flying colors, both operationally and financially. Despite all the obstacles, we have been able to operate with 100% uptime and taken delivery of four new buildings. The gas price rally we started to see in August has continued, increasing prices and the increased demand coupled with pool from Asia has fired up the freight market with spot rates for more than tonnage in excess of $100,000 per day, resulting in us booking Q4 with expected TCE of $70,000 to $75,000 per day, which would put us in a position to generate substantial cash flow. While we have been through some tough days during the summer when we fixed ships on voyages with pretty bad economics, our patience has been rewarded, and we are now benefiting from this improved market sentiment as we have 70% of our fleet exposed to the spot market. It's therefore also time to reward our shareholders, and we are now reinstating the dividend and declaring a $0.10 per share dividend for the third quarter. With three more ships joining the fleet next year, we are finally fully invested, and we have a fleet of 13 state-of-the-art LNG carriers on the water with a premium in earnings capacity compared to the older steam and diesel- electric ships. It's not like that we think 2021 will be a walk in the park, given the high inventory levels and the rather large order book of ships for delivery next year. However, we are confident that we are well positioned with the ultra-modern fleet, managed in-house and operated at industry-low cash break-even levels. We have demonstrated that we can operate in challenging market conditions, and we are now seeing the light at the end of the tunnel with demand picking up and more clients favoring the newer, more fuel-efficient, and environmentally friendly ships. I have lectured you on the fuel saving and environmental credentials of our ships and LNG as a fuel for the last couple of years. So I think I will conclude today's presentation with that and thank you for listening in. I'm happy to take your questions. So let's open up for some questions from the operator. Thank you.

Operator, Operator

Thank you, ladies and gentlemen. We will now begin the question-and-answer session. There are no questions at this time. Please continue.

Øystein Kalleklev, CEO

I think I got some chat questions here. So I can maybe take those. I've been talking for such a long time now, so I'm going to try to keep it a bit short. The questions we received here are as follows. Should we consider the dividend of $0.10 as fixed? That's certainly not the case. All income is variable; it goes up and down. If you look at it yesterday, our adjusted income—adjusted earnings per share is $0.18. We started paying dividends last year, Q3, so we paid $0.10. In Q4, we delivered fantastic results last year, $94,000 on a TCE basis, but we did not increase the dividend. The reason was, we were in February 2020, the lockdowns had started in China and there was a lot of uncertainty. We decided just to stay with the dividend of $0.10 for Q4. Then, as the virus spread and we had our Q1 report in May, we decided to suspend the dividend, given the uncertain nature of the market development. So, we have suspended it for Q1 and Q2, and now we are delivering Q3, and adjusted EPS for these three quarters are $0.18. We think it's appropriate to start with $0.10 again for this quarter. When we deliver in Q4 next year, February, we will most likely have our earnings supported with significantly more earnings, given the guidance provided today. We will assess the outlook and bookings for Q2 and Q1 to define the appropriate level of the dividend. But in general, we are positive towards dividends and like the other companies in the case of the John Fredriksen Group, like Frontline, Golden Ocean, and SFL, we do favor dividends, and it's not like the management is going to keep all the cash; we would rather distribute that to shareholders. So, the dividend is certainly not fixed in any way. And then we have one more question, I think we can take and it's been a question about the TCE expectation for Q1? As I mentioned, we haven't provided our TCE number for Q1 next year. It's too early. We have booked, as I mentioned, around two-thirds of the available days. But, keep in mind that we have several of our ships on variable time charter. So, we don't know what the rate will be on those ships. We know they will be employed, but not the rate. So it's a bit premature for us to provide a TCE guidance. But in general, when you have booked two-thirds of your fleet for Q1 next year, we are fairly positive on the outlook for that quarter. So that's it. So unless there are any more questions on the phone, I think we are done for the day.

Operator, Operator

There are no questions that came through. Please continue.

Øystein Kalleklev, CEO

Okay. Thank you, everybody, for joining the webcast today. Maybe based on that, I think it's payable on the 17th of December. So it won't be in your bank account ahead of Black Friday, but it will be in your bank account ahead of the Christmas season. I hope you can spend it well, either on buying fresh stocks or something nice for your loved ones. So thanks a lot again for joining, and we'll be back in February.

Operator, Operator

Thank you. This does conclude our conference for today. Thank you all for participating. You may now disconnect.