Earnings Call
Golar Lng Ltd (GLNG)
Earnings Call Transcript - GLNG Q3 2021
Operator, Operator
Good afternoon, ladies and gentlemen, and welcome to the Golar LNG Limited Third Quarter 2021 Conference Call. At this time, all participants are in listen-only mode, until we conduct the question-and-answer session on the phone and on the web. Just to remind you all, this call is being recorded. I would like to hand over to your Mr. Karl Staubo. Please begin your meeting.
Karl Staubo, CEO
Hi, all, and welcome to Golar LNG's Q3 earnings results presentation. We would like to thank you for taking time to dial in. My name is Karl Fredrik Staubo, the CEO of Golar LNG. Before we get into the quarterly results, please note the forward-looking statements on slide two. I'm accompanied today by our CFO, Mr. Eduardo Maranhao, to present this quarter's results. Turning to slide three and Q3 highlights. We report revenue for the quarter of $107 million, a year-over-year increase of 12%, and an adjusted EBITDA of $74 million, up 30% year-over-year. We expect to continue to see strong growth in our earnings across both our FLNG segment and Shipping, and we'll get into the details of which throughout this presentation. Starting off on FLNG, we continue to deliver 100% uptime on Hilli, which now has delivered its 63rd LNG cargo, more than any other FLNG globally. Furthermore, we hedged 50% of our TTF linked commodity exposure for Q1 '22, at $28 per MMBtu, implying a Q1 earnings from our train 3 production of $21.2 million for the quarter. We also see increasing contributions from our Brent-linked earnings, and together, the commodity linked production from Hilli is expected to more than double Golar's earnings from Hilli in 2022, versus the last 12 months earnings. FLNG Gimi is now 75% technically complete, and scheduled to start its 20-year contract for BP in just about two years. This will unlock an EBITDA backlog to Golar of $3 billion. We also experienced increased momentum for potential new FLNG projects. We continue constructive discussions with an existing customer for use of a five million ton Mark III new build. And we're also making rapid progress on potential integrated projects. We have also seen an increase in the amount of prospective FLNG customers in the quarter across different geographies. Turning to Shipping, our Shipping portfolio achieved a TCE of $49,500 a day for the quarter, up 26% year-over-year. We expect to see increased earnings also from this segment going forward due to increased spot exposure of our fleet opening up through 2022. We have recently contracted one of our ships for a one-year time charter at about $100,000 a day, increasing our revenue backlog for the Shipping segment to $267 million. We see continued strengthening for LNG shipping with increasing interest for three to five-year charters, increasing asset values driven by new building prices, and increasing day rates. On corporate and investment, we secured $682 million in new financings during the quarter. The proceeds from these financings will be used to refinance our upcoming convertible bond maturity, as well as extend the maturity of other vessel financings. We now have no material debt maturities until after the FLNG Gimi delivers an increased financial flexibility to fund attractive FLNG growth projects. I will now turn the call over to Eduardo to take us through the third quarter results.
Eduardo Maranhao, CFO
Thanks, Karl, and good morning, everybody. I'm very pleased to provide an update on our financial results for the third quarter of 2021. So, turning to slide number five, we can see that the group had a very solid performance in the third quarter. Total operating revenues increased to $107 million in Q3, an increase of 13% from the same quarter of last year. Operational performance was really strong, and adjusted EBITDA came in at $74 million this quarter, up 30% year-on-year. This quarter, we recorded a net loss of $91 million; this was mainly driven by a non-cash mark-to-market adjustment of $157 million to the value of our New Fortress Energy shareholding at the end of September. This was partially offset by realized and unrealized gains on our oil and gas derivatives of $73 million. I will talk more about this in this presentation. The increase in total operating revenues can be attributed to a strong and improving shipping performance. TCE earnings across our shipping fleet increased to $49,500 per day in Q3, up 13% on Q2, and 27% more than last year's Q3 numbers. We expect it will continue to increase as the shipping fleet will be re-contracted at higher expected rates. Total operating revenues from our FLNG Hilli were $55 million in Q3, in line with $55 million in Q3 last year. This number was further enhanced when including the Brent-linked revenues. This oil-linked component of Hilli generates additional operational cash flows of approximately $3.1 million for every dollar increase in Brent crude prices above $60 per barrel. As a result of rising prices, an $8.9 million realized gain on the oil derivative instrument was recorded in Q3, up from $3 million we realized in Q2. Adjusted EBITDA from Shipping was $30 million this quarter, an increase of 58% when compared to Q3, 2020. FLNG contributed with $49 million this quarter, also reflecting an important increase of 20% when compared to the same period of last year. We expect adjusted EBITDA generation from our FLNG segment to grow four times from current levels over the next two to three years, on the back of contracted earnings from Gimi and increased earnings from our commodity exposure on Hilli. Our balance sheet continues to strengthen. At the end of Q3, our total contractual debt was $2.1 billion, down 11% from the same period of last year. At the same time, our total cash position has increased by 15% year-on-year, to $203 million. So, moving on to slide number six, as Karl mentioned before, we have secured up to $682 million in new financing facilities, which include a new four-year $300 million unsecured bond, which we priced in October, the refinancing of our FSRU Golar Tundra for up to $182 million, a new three-year corporate RCF of $200 million. And we have also obtained approval to extend the maturity of one of our vessels, in this case, the Golar Seal, for another three years, from January, 2022, to January 2025. The combination of those facilities has allowed us to extend our key debt maturities, at the same time as reducing the interest costs on existing facilities. More importantly, these initiatives have enabled us to address the refinancing of our convertible bond on favorable terms and substantially improve our balance sheet flexibility. Between now and the expected delivery of our FLNG Gimi in 2023, there are no material debt maturities. While there are some shipping-related maturities in the next few years, we remain extremely confident in our ability to address these refinancing based on the low into value levels of such passage. So, moving on now to slide number eight, I would like to talk a little bit more about the incredible performance of our FLNG Hilli. In Q3, she achieved another quarter of 100% commercial uptime and generated more than $50 million in adjusted EBITDA to Golar. This quarter, we had the 63rd cargo recently offloaded, producing more LNG than any other floating liquefaction unit in the world. Tailwinds from increased oil and gas prices will provide meaningful earnings upside with no additional CapEx. We expect to generate approximately $13 million from our Brent-linked fees in Q4. And based on forward market prices, we are increasingly optimistic about the future contributions in 2022. We have also agreed to increase 2022 production by 200,000 tons, an important feature of this agreement is that it allows us to benefit from exposure to TTF gas prices for that incremental production. And speaking of gas prices, we have recently hedged part of our Q1 '22 exporter at a price of $28 per million Btu, that implies a net income to Golar for the first quarter of next year of approximately $21 million, just from that incremental production alone. Lastly, this incremental production can be even further extended, based on a potential three-year option, which we have agreed with the customer, which could potentially increase production by up to 400,000 tons to 1.6 million tons per year from 2023 to 2026.
Karl Staubo, CEO
Thank you, Eduardo. Turning to slide nine and diving into some more detail of what this incremental increase in production could equate to in dollars. So, Hilli was originally contracted for half of its installed capacity, or 1.2 million tons of the 2.4 million tons of installed capacity. Golar's share of the EBITDA generation of this initial 50% of utilization is $74 million of fixed annual tolling fee plus an oil derivative where Golar makes $2.7 million of EBITDA for every dollar Brent is above 60. In July, we announced increased capacity utilization from 1st of January 2022 by 0.2 million tons or from 50% to 58% in capacity utilization. The tolling fee for this 8% increment in production is linked to the TTF gas price. Based on current TTF prices, the incremental 2022 revenue generation from the increased production is $85 million to Golar. A $1 change in the TTF price corresponds to a $2.8 million change in EBITDA, if you have a different view about the TTF price, you can run your own sensitivity. Sure, the more we grounded Perenco, the charter of Hilli, a one-time three-year option to increase production from Hilli from 2023 until the end of its current contract in July 2026. The increase for those three years would be from 4.4 million tons or from 50% to 66% capacity utilization. The 16% optional volume has a tariff equivalent to the increased capacity utilization for '22 linked to the TTF price. Again at current TTF prices that would equate to $164 million in annual EBITDA to Golar, again, sensitivity here would say that the dollar change in the TTF price would correspond to a $6.5 million change in EBITDA. Perenco needs to declare the option for the '23 to '26 production during the first half of 2022. They are currently having a drilling program to tie in more reserves to the unit, and we expect the option to be declared should the results of the ongoing drilling campaign be successful. Thank you, Eduardo. We believe Golar is uniquely positioned for attractive FLNG growth. And we will now increase our focus on integrated projects. We're increasingly encouraged by the FLNG market opportunity and we'll explain why. Starting on the top left, this is an illustrative value chain for FLNG projects. Lifting the gas from the reservoir to surface costs around $1 per MMBtu. FLNG tolling arrangements typically range from $2 to $3, depending on the duration and credit quality of the counterpart. You don't need to ship the LNG to its end user, and current shipping rates that's around another $1.50 per MMBtu. That means that you can deliver gas in Asia with a breakeven of around $5 per MMBtu. Comparing that to current gas prices at $32 per MMBtu leaves a margin of around $28 per MMBtu. This equates to an EBITDA generation of $3.3 billion for a $2.5 million FLNG or an almost $7 billion margin for a $5 million FLNG. These margins are what's driving the increased interest from prospective charters for new FLNG projects and also explains our desire to seek increased commodity-linked FLNG contracts. Obviously, the current gas price environment is very high. So, taking a look at this in a historical context on the top right, you can see the green line would be the cash breakeven for a $5 landed gas in Asia. And you can see that compared to historical gas prices, is an extremely attractive risk-reward; it's extremely few scenarios where you do not make money. And for the most part, you make extremely healthy margins. Lastly, we believe the strong demand for LNG suggests that LNG prices should be stronger for the next 10 years versus the previous 10 years, which further supports this strategy. On the bottom half of the page, we have compared the carbon footprint of our FLNG technology to other land-based and offshore gas liquefaction plants. Our technology ranked best-in-class and we experience that this is an increasingly important attribute for our FLNG technology when new charters consider to take investment decisions for new gas developments. Hence, we continue to view the underlying macro as highly supportive of our initiatives to build out on integrated FLNG projects. Turning to slide 12, we try to shed some more light on where we see the most interesting FLNG opportunities arising. As mentioned, we have seen an increasing amount of new projects in new geographies considering FLNGs for proven gas reserves. The most active developments remain in Africa and the Middle East, where there are abundant gas resources of high-quality, low-cost natural gas reserves. We are currently in discussions for both tolling-based and integrated projects in these regions. Turning our attention to shipping on slide 14, we also expect to see continued strengthening earnings from our shipping segments. As Eduardo mentioned, our shipping TCE for the quarter came in at $49,500 a day and we expect Q4 2021 TCE at around $53,500 a day. We are confident that we will see an increased earnings from this segment. We've tried to illustrate that by the dark blue bars on the left-hand side, which represent the number of vessel days on charter. The dark blue coloring represents spot exposed vessel days. Hence, you can see that the fleet will develop from the current 100% fixed days to about 50% spot exposure in Q4 of 2022. The stapled red line represents our last 12 months EBITDA of $50,900 a day. That is significantly lower than where we concluded a five-year charter this summer and looks lower than where we recently fixed one of our ships on a one-year charter of around $100,000 a day. Last 12 months EBITDA was $130 million; a $10,000 change across our shipping fleet corresponds to a $32 million change in EBITDA. We're encouraged by the longer-term outlook for LNG shipping on the back of increasing charter interest for three to five-year charter coverage, increasing asset values as a result of higher new building prices and increased earnings. These factors together with the deleveraging of Golar's shipping fleet have created a healthy equity value in our shipping segments, and we will remain opportunistic in evaluating alternatives for further group simplification by potentially separating this part of our business into a separate vehicle. Thank you. We believe LNG will continue to play a vital role in the transition towards cleaner sources of energy. We have included here a slide by BP presented in the world energy outlook for 2020. The world today consumes around 260 million barrels of oil equivalent of energy demand per day. Today, this is serviced 60% by oil and coal and only 40% by other sources of energy. BP expects that by 2030 world energy demand will increase by 8% to 280 million barrels of oil equivalent per day. In the same time period, oil and coal are expected to reduce their market share from 60% to 49% of the global energy mix. And in order to meet this increased energy demand offsets the reduced energy supply from oil and coal, BP expects LNG and natural gas to be the second fastest growing source of energy after renewable. LNG attributes as the cleanest alternative of hydrocarbon fuels and its flexible nature in creating backup base load energy supply enables rollouts of renewables. At LNG power plants, this acts as a buffer at times where there is not sufficient sun, wind or rain to produce energy from renewable sources. This gives us comfort that we operate in a global growth market and supports our view that gas demand and gas prices will likely be higher in the next 10 years versus the previous 10 years supporting FLNG growth projects.
Operator, Operator
Thank you. Our first question comes from Randy Giveans from Jefferies. Please go ahead with your question.
Randy Giveans, Analyst
Howdy, Karl and Eduardo. How's it going?
Karl Staubo, CEO
Hey, Randy.
Eduardo Maranhao, CFO
Hey, Randy.
Randy Giveans, Analyst
So, yes, first, obviously congrats on the increased throughput for Hilli train 3, I know it's been a long time coming, so a few questions around this, can more of that 200,000 tons, in 2022, be pulled into the first quarter to kind of take advantage of the elevated LNG prices or is it capped, basically, at 50,000 tons per quarter throughout next year? And then secondly on that, any reason this can't start before January 1, or is there some specific deadline or a start date there? And then lastly, any hurdles or timeline around the further expansion of this, obviously it's option here in the first-half of next year?
Karl Staubo, CEO
Yes, sure. So, for now, the 200,000 tons is equally distributed throughout next year, so think of it as 50,000 a quarter. As we have with the current production, there is room for some overproduction that can be fine-tuned into each quarter. But that's equally dependent on gas flows and gas prices. So, it's not very easy to move all of that into the high gas prices of Q1. When it comes to further expansion, they are currently undergoing a drilling program. They need to declare the option during the first half of next year. They originally committed to drilling one well. We have been made aware that they're now drilling four wells to secure the incremental production. So, if it was likely that they declared the option with one well, we think it's four times as likely that they will do it with four wells. And with this gas price and the stable operation of Hilli, we think it's in everybody's interest to declare the incremental volume from '23 to '26. And we remain very optimistic that they will.
Randy Giveans, Analyst
Got it. And then the other quick part of that question, any way to turn that on a little earlier than January 1, to get some 4Q upside?
Karl Staubo, CEO
We believe this will happen from January 1, that's the contractual obligation.
Randy Giveans, Analyst
Got it. All right, and then kind of turning to your balance sheet, clearly in great shape there, no debt maturities till 2024, minimal CapEx really, even including Gimi. So, I guess two questions around that. First, on the converts and just the timing of redemption, do you expect that here in the fourth quarter or waiting until February? And then secondly, what's the next use of this additional liquidity? Is there any maybe share repurchase authorization, your share are kind of stubbornly trading at $13-$14, over the focus beyond further reducing the debt from the LNG carriers?
Karl Staubo, CEO
Do you want to take one, Eduardo?
Eduardo Maranhao, CFO
Yes, sure. So, hi, Randy. So, when it comes to the redemption of the convertible bonds, in connection with the issuance of the unsecureds, we have repaid $85 million out of the $402 million of converts. So, we remain with 317, which will mature in February. And we plan to redeem those bonds upon maturity, so we have no plans to further repay any other bonds before that date.
Randy Giveans, Analyst
Okay.
Eduardo Maranhao, CFO
$85 million has already been prepaid in connection with the bond issuance. Regarding the share repurchase, we have, as approved by the Board, up to $25 million available to complete our share buyback program. However, we have no further plans or intentions to proceed with it in the near term.
Randy Giveans, Analyst
All right, well, I guess that's it for me. I'll let someone else ask about the LNG spin potential. Thanks so much.
Eduardo Maranhao, CFO
Thank you.
Karl Staubo, CEO
Thank you, Randy.
Operator, Operator
Our next question comes from Ken Hoexter from Bank of America. Please go ahead with your question.
Ken Hoexter, Analyst
Great. Hey, Karl and Eduardo. Can you talk about the progress of the FLNG discussions? Are they more Mark III? Is anything popping up on the Gandria? Maybe just provide us, it sounds like you're accelerating some of those discussions, we've heard that a lot from Golar over the past. So, I just want to see what stage do you think they're at, and how far they're progressing?
Karl Staubo, CEO
Yes, Ken. We received a similar question during our Q2 call in July. Back then, we mentioned that we expect significant FLNG news within six to 12 months, with a higher likelihood of it being six months. We still stand by that timeframe. Regarding the type of projects, we are making progress on both tolling-based and integrated contracts. If you listened to Cosmos' quarterly call yesterday, they mentioned the Phase 2 FID decision for the Tortue field in 2022. For this field, all the necessary infrastructure, except for the FLNG, is already in place to support LNG production of five million tons, while we currently have three and a half tons. As for integrated projects, we anticipate that Gandria will be ready, along with other FLNG solutions. I believe that for the tolling fee, it's more likely we will move towards the Mark III, while for the integrated project, we may use smaller volumes, possibly with a Mark I or Mark II device.
Ken Hoexter, Analyst
Great. It sounds like we can expect some developments in the next couple of months, so I look forward to that. Thank you. Regarding the increase in production, I wanted to clarify a bit more following Randy's questions. Is the increase related solely to the third train? Do you still have opportunities to expand the potential for a fourth train? Also, when can we expect to receive an answer about this in 2022? You mentioned it might be in the next couple of months—can you confirm the timeline and the scale? Thanks.
Karl Staubo, CEO
Yes, sure. So, just to be clear, Hilli has got four trains, and we produce from all four trains today; we interchange which trains we produce from. Just think of it as buying a new car. Even if it's a new car, you don't let it sit still in your garage for four years, and then go and try to start it. So, you want to make sure that it's kept up to speed and sort of works as it's supposed to do. So, we keep on interchanging which trains we produce from. But you're right that we only produce 50% of our utilization. And if you want to equate that into trains, that's train 1 and 2. The incremental production is, for '22, an increase of 8%, and potentially from '23 to '26 of 16%. All of that can be satisfied from train 3, even if we interchange between all the four trains and they need to declare up during the first six months of 2022 or before the end of the summer, we should know at the latest.
Ken Hoexter, Analyst
All right, and then the incremental, you mentioned just comes from that any incremental comes within those three trains. You're still not looking at upscaling it to the fourth yet, even with the interchange.
Karl Staubo, CEO
That has to do with the gas resource that we're producing from and the amount of gas flow that Perenco can allow themselves to extract while still have this firing the off-take agreements that they have entered into until July 2026.
Ken Hoexter, Analyst
Perfect. Those are my two, appreciate the time. Thanks, Karl. Thanks, Eduardo.
Karl Staubo, CEO
Thanks.
Eduardo Maranhao, CFO
Thank you.
Operator, Operator
Our next question comes from the line of Ben Nolan from Stifel. Please go ahead with your question.
Frank Galanti, Analyst
Yes, this is Frank Galanti speaking on behalf of Ben. Thank you for taking our question. I wanted to follow up regarding Hilli and consider the long-term perspective. Could you explain the potential options for Hilli and Perenco beyond 2026? Specifically, at the conclusion of the contract, will the only option be to sign a new long-term contract for increased volume, or are there other possibilities to supply the additional gas required?
Karl Staubo, CEO
Yes, sure. And so I think we have all along said that we are not going to talk about extension before we get paid for the full capacity utilization of the unit. And we think the increased production from January 1 is one step in that direction. The further increase or potential increase from '23 to '26 is another step in that direction. Should that be declared, then we could be open to discuss that with Perenco; until it is declared or not, but with the proven track record of Hilli and the current gas price, Hilli is an increasingly attractive unit to several potential charters. And our target is to deploy her on an integrated contract where we get more of the upside.
Frank Galanti, Analyst
Okay. Yes, that's helpful. And then I guess for my second question, thinking about stranded gas or more specifically gas that is currently flared providing an opportunity to monetize that is clearly an obvious solution. But those deals sort of been hard to materialize. Could you talk through some of the challenges on that type of gas sourcing and then what the expectations are from your perspectives on being able to solve those problems?
Karl Staubo, CEO
I think the key factor as to why the FLNG, FIDs have been slower than at least Golar originally anticipated that's purely been the gas price. So, if you look at where the gas price was over the course of the last four or five years, it's mainly been driving downstream, which is why we kind of shifted focus for a bit and built Golar power, which later change the name to Hygo and then sold to GMLP. Now that the gas price is currently on spot but also on forward curves back in the territory that supports upstream investment. We think that's the key driver of unlocking new FLNG projects. So, first and foremost, it's driven by both current, but equally important forward picture of LNG prices. That's the key driver. Other call it stumbling blocks that you need to close is to have all of the regulatory permits in the specific field to be allowed to use LNG exports, which includes some time, time-consuming government approval.
Frank Galanti, Analyst
Okay, very helpful. Thanks very much.
Operator, Operator
Our next question comes from the line of Mike Webber from Webber Research. Please go ahead with your question.
Mike Webber, Analyst
Hey, good morning, guys. How are you?
Karl Staubo, CEO
Hey, Mike.
Eduardo Maranhao, CFO
Well, thanks.
Mike Webber, Analyst
Good. Some of this has already been discussed, but looking at the presentation, it seems like you all have put some effort into reshaping it and presenting it differently, which I appreciate and it looks good. However, one thing that seems to be missing is the lack of detail on the strategic review and your plans for the LNG carriers, which Randy mentioned at the end of his segment. I understand there’s only so much that can be shared, but especially in relation to your capacity to pursue additional FLNG opportunities and finance them in a favorable manner, the volatility of the LNG carriers on the balance sheet has historically posed a challenge for Golar. So, I’m wondering if you think it is likely that you will execute a spin-off or find the right strategic solutions for the LNG carrier fleet before you consider formally pursuing or making a final investment decision on an FLNG project that could cost between $1 billion and $2 billion and require you to seek financing again.
Karl Staubo, CEO
We do not see the shipping spin as a requirement to do new FLNG projects at all; that's absolutely not an issue the way we did. As we have highlighted in the past, right now we very much like the outlook both for FLNG and shipping, but we have to admit that we think our uniqueness mainly sits in the FLNG segment because that's where we have a unique competitive edge. So, as much as we like both segments, we think that it could be that we could better extract the value from the two segments if they were separately listed vehicles and will continue to be opportunistic in pursuing such venues. And once we have something to update the market with, I'm pretty convinced we will.
Mike Webber, Analyst
Got you. To elaborate on that, if you're considering a Mark III and 5 MPTA, you’re likely looking at a project that will require export financing, which makes it a larger initiative. If you’re thinking about placing a second FLNG asset in Tortue, as you mentioned earlier, it would probably be a Mark I or Mark II. I would assume that you would plan to do this in China or Korea, rather than Singapore, due to financing options. Regarding the projects you’re considering, I know you've made a significant shift towards the Mark III and the 5 ton market. Do you think it’s more likely you will pursue something that large for your next project? Or will you return to the 2.5 million ton market for Tortue? It seems like Tortue has been the leading option for quite some time, but I want to clarify this, as it obviously affects how you manage your balance sheet.
Karl Staubo, CEO
We have cash and marketable securities exceeding $700 million today. One significant change for FLNG since the initial Hilli is that at that time it was not a proven concept, and there were uncertainties about its practical feasibility. The unit has now been operating at 100% utilization since 2018. It is established as a viable concept, and BP has ordered a similar unit. Therefore, it is evolving into a more standardized asset, unlike an FPSO that is tailored for a specific field. We are observing increased financing availability for these units, which is a notable shift from when we first contracted Hilli and also Gimi. For new FLNG projects, we will likely pursue financial structures that allow us to significantly reduce equity contributions during the construction phase.
Mike Webber, Analyst
Right. I guess what sticks out in my mind is Equatorial Guinea, all right, which would have been post Hilli, which had contracts, which wasn't able to see your financing. I know that was in part because of where it was being built, but you also had the complicating factor that the LNG market had turned and you're burning $100 million a year in that space. So, obviously that's not a concern right now, given where the market is and the outlook, but who knows where we are two to three years from now. So, I think that's trying to avoid a repeat cycle of what we've seen a couple times ago over the past decade is kind of the angle with which I'm asking.
Karl Staubo, CEO
Yes, that resource remains significant and of high quality. We are evaluating it along with other integrated projects. However, we recognize the challenges faced last time, so if we proceed, we will ensure those issues are addressed. This is just one of several integrated projects currently under consideration.
Mike Webber, Analyst
Right, okay. I can take that offline. Thanks for the time guys. Appreciate it.
Karl Staubo, CEO
Thank you.
Operator, Operator
And our next question comes from the line of Sean Morgan from Evercore. Please go ahead with your question.
Sean Morgan, Analyst
Hi, everyone. Thank you for allowing me to ask my questions. I'd like to follow up on our earlier discussion regarding LNG. Looking at Slide 11, it appears we have a wide range up to 32, which suggests some spot activity in Asia related to the integrated model. For that integrated model, do you think there’s a need to secure the production costs with SPAs, considering you mentioned it would be a smaller build for the FLNG? If you were to enter into SPAs, are you noticing any market interest in TTF and JKM based pricing due to the recent volatility in Asian and European spot prices, or do you believe there’s more interest in Brent? This is particularly relevant if signing SPAs is necessary to finance the project.
Karl Staubo, CEO
Yes, of course. A natural model for an integrated approach is to create an asymmetric risk profile. To achieve this, it may be beneficial to sell half of the volume or a similar amount on a long-term contract basis, depending on what can be negotiated with the end user, whether that is linked to TTF, JKM net back, or Brent. The other half would remain exposed to the market. Additionally, it might be worthwhile to fund certain aspects of these projects through long-term contracts. Ultimately, the specific structure of these contracts will depend on the negotiations.
Sean Morgan, Analyst
Okay. And so, in terms of lining up the financing with whether it's an export finance facility or more traditional bank facility, you think that there's a route that you could go where you'd essentially would do an integrated project without having to rely on the SPA market at all.
Karl Staubo, CEO
It depends on whether you use an existing unit or a new unit. Like, I think it's a bit of a premature question and it's very directly into the business development of the company, but we would obviously not enter into an FLNG project without funding. So, funding is one of the key attributes when we build the project.
Craig Shere, Analyst
Good morning, our time. Congratulations on the good quarter. One question about the focus on the integrated approach, we've seen in recent months a break in the logjam that's been there for two to three years on long-term, large-scale land-based LNG contracting. And some new FIDs are certainly being teed up in the next couple quarters on top of the Qatari mid-decade supply. As we think about the Perenco contract coming off in 2026 with Hilli, are you still as committed as ever to going this route on more commodity exposure even into mid and late decade?
Karl Staubo, CEO
Yes, I think if you go back to the Slide 19 that we showed in the deck here, LNG is expected to grow by 50% from 360 million tons to 550 million tons, and we need to see a significant ramp up in new liquefaction projects if we are to meet anywhere close to that development. So, the short answer is yes, we would be interested in taking commodity exposure. But again, as the previous question, we would probably link that to fixed SPAs for at least half the volume to reduce any downside risk and have significant upside exposure.
Craig Shere, Analyst
Got you, okay…
Karl Staubo, CEO
Similar to what we have on Hilli really.
Craig Shere, Analyst
Fair enough. And to what extent can you morph or segue into more environmentally friendly clean tech? I mean, can your FLNG design support say 10% or 20% of the gas flow being spiked with hydrogen? Let's say your Middle East project was very economic to have renewable electrolysis for green hydrogen. Can you support that with your technology?
Karl Staubo, CEO
I think what I'd say on that front is that we have a green team within Golar, which are currently exploring a number of ways of further optimizing our FLNG production, which includes looking into those types of potential production enhancements, and also carbon capture solutions on some of the emissions. Again, there're so many different technologies flowing around these states. Most of them are at the concept stage but very rapidly being developed. And we are trying to closely monitor that and will also engage with several of these companies as the technology gets more and more proven. So, we exactly which way that will take and what form I think engineers are better placed to answer than I am. But it's certainly something we're driving and have a very strong focus on across the company, because we also see that that's a key attribute in getting new FLNG projects.
Craig Shere, Analyst
Right, okay, great. Thank you.
Operator, Operator
Our next question comes from the line of Omar Nokta from Clarksons Securities. Please go ahead with your question. Omar, is your line on mute? Can you unmute yourself please? Due to no response from the line of Omar, we are going to proceed to the following one. Our next question comes from the line of Liam Burke from B. Riley. Please go ahead with your question.
Liam Burke, Analyst
Thank you. Karl, Eduardo, how are you?
Karl Staubo, CEO
Well, thanks. Hi, Liam.
Eduardo Maranhao, CFO
Hi, Liam.
Liam Burke, Analyst
Karl, the returns on the commodity-linked FLNGs are exceedingly high and attractive. Do you see any competitors coming into the market to try and compete away some of those opportunities for you?
Karl Staubo, CEO
I agree that they're very attractive. There are several people interested in FLNG since we began, but currently, no one has demonstrated the technology with the same operational track record. At this point, we believe we have a significant competitive advantage. However, if these returns continue, we expect others will attempt to enter the market, though we don't currently see any direct competitors.
James Yoon, Analyst
Hey, guys, James on for Chris. Just wanted to ask a quick question about the capital structure, obviously, you're interesting the converts in February, but just wanted to understand how you're thinking about it moving forward. Is there a target mix of unsecured? Is there more work to be done before we take on another project like essentially, where are you in sort of the process and sort of what does the end state look like as of now?
Eduardo Maranhao, CFO
Hi Chris, this is Eduardo here. Yes. So, as we explained on the presentation, once we get all these refinances done and completed, we will be left with pretty much only the maturities of our vessels refinancing. So, there will be no material refinancing between now and the time of the Gimi being delivered. So, we believe that unless any new major project comes into the pipeline and we take a final investment decision within that timeframe. We pretty much have all the refinancing under control and there will be no further need to explore any other such refinancing in the near-term. But having said and having listened to Karl present all the business development opportunities that we explore right now, upon a decision to move ahead with any of those projects, there will be the need to fund and to provide the necessary capital to explore a major FLNG opportunity. So, I think we continue to look, but until the Gimi is delivered, there will be no major maturities between now and then.
James Yoon, Analyst
Got it. And just so I understand around the head, presumably lines approval to convert and under lines that just given where you're trading in sort of the outlook, just wanting to understand your strategy around hedging essentially, should we think of this as essentially a one-time thing or is it something that you might opportunistically do, if it makes sense? Just wanted to understand sort of your strategy around the hedge?
Karl Staubo, CEO
Sorry, was the question on the TTF hedge?
James Yoon, Analyst
Correct.
Karl Staubo, CEO
I think for us, we'll continue to do it opportunistically if we see the conditions to be attractive.
James Yoon, Analyst
Perfect. That's a great clarification. Thanks, Karl.
Karl Staubo, CEO
Thanks.
Operator, Operator
We appear to have no further question. At this point, I'll hand the conference back to you sir.
Karl Staubo, CEO
That concludes Golar's Q3 2021 earnings presentation. Thank you all again for dialing in to the call, and we'll now turn the call over to the operator for any questions.
Operator, Operator
Thank you. Ladies and gentlemen, thank you for your participation today. This concludes this conference. You may now disconnect your lines. Thank you.