The gas carrier activities

For Norgas, 2004 was a highly significant year - being the first full year of operation of the Mærsk Norgas Gas Carriers (MNGC) revenue sharing pool. Through this alliance, MNGC customers have access to a pool of 35 semi-refrigerated gas carriers, more than twice the number of vessels of our nearest competitor.

In the specialised field of ethylene transportation - the most significant part of the business by volume - 2004 saw MNGC retain its appoximately 60 per cent market share of the ethylene transportation volume. Its strength as a global player operating a large gas carrier fleet will continue to have a positive impact on MNGC's business, both in the short- and long-term.

The focus for MNGC is in the 5,000 to 12,000 cbm-sized vessel sector, capable of carrying the petrochemical gases we focus on. The company saw an encouraging upturn in the market during 2004, which is expected to continue for the next few years as there are fundamental shortages of all products in Asia, along with ethylene and propylene in Europe. There was particularly strong growth in long-haul routes from both the US and Europe to Asia, US to Europe, as well as increased export volumes out of both the US and the Arabian Gulf.

With the first full year of integration of our new gas carriers into the MNGC fleet in 2004, coupled with only modest fleet growth globally, Norgas was able to take advantage of much improved freight rates in the market. The outlook is for a shrinking global fleet of semi-refrigerated vessels, combined with a limited order book over the next three years - again, giving Norgas and the MNGC pool grounds for an optimistic market scenario.

Since the start-up of the MNGC pool in October 2003, the trend for Norgas has been one of steadily improving earnings levels - with a significant increase in the second half of 2004. Whilst idle time for 2004 - at nine per cent - was slightly up from that of 2003, this was offset by markedly higher freight rates.

The expectation for the world economy is at this point in time one of steady growth - the International Monetary Fund (IMF) has set a forecast of four per cent for 2005. Though the outlook is good, this figure must be tempered by continuing fluctuations in the oil market and a drop in US dollar rates.

Key value drivers for the petrochemical market are in the level of industrial production and changes in trade patterns on the demand side, coupled with order book levels on the supply side. Due to the cyclical nature of the industry, there are market fundamentals that broadly reflect the positive prevailing trend and dynamics of 10 years ago. However, there are significant differences between now and then, including a very low order book for ships, low absolute interest rates and extremely strong growth in the Asian market.

The petro-chemical market is expected to continue the growth shown in 2004 into 2005, with product demand particularly strong in Europe and Asia. Forecasts for ethylene growth in Asia are expected to top seven per cent in the next three years, whilst on the supply side the Middle East will show a substantial increase in capacity of all petro-chemicals, to reach levels of between 11 and 13 million tonnes a year in the next five years.

The firm order book for new vessels in the 'semi-ref' segment (4,000-22,000 cbm) now stands at about 5.8 per cent, or 110,100 cbm capacity. 38,600 cbm will be delivered in 2005 and 71,500 should be delivered in 2006 and 2007. Four new building contracts were placed in the fourth quarter of 2004. In 2004, fleet capacity by volume decreased in Norgas' segment - although 8,500 cbm was delivered, 33,600 cbm was scrapped. Total fleet numbers stand at 203 vessels and volume at 1.9 million cbm.


Gas Recovery Systems

Of particular note during 2004 was the increased activity and improved performance of Gas Recovery Systems (GRS), offering a patented, multi-purpose recovery system for residual chemical gases from ships and other containment systems. This method is much more environmentally-friendly than is traditional where residual gases are usually released directly-to-air or are burnt-off. The GRS recovery unit was utilised fully during the year by petro-chemical customers in countries including the UK and Australia. With sound environmental practices becoming more important, the role of GRS within the Group will continue to grow.