NORGAS

Norgas specializes in global sea-borne transportation of ethylene, as well as LPG and other petrochemical gases. At the end of 2006 our fleet comprised 18 vessels of between 6,000 and 10,000cbm.



Norgas generated an EBITDA of USD41.8 million in 2006 vs. USD47.0 million in 2005.

Overall, global petrochemical gas transportation remained positive across the year as the growth in the global economy continued to push the demand for petrochemical products up. This was especially true for ethylene, which Norgas, through our pool cooperation, is the world's largest marine transporter. Ethylene capacity and production world wide is set to rise considerably over the next few years - particularly in the Middle East and Asia - and with Norgas' pre-eminence in these two areas we are well placed to continue our commercial growth.

Despite petrochemical downtime in the first half of the year due to cracker maintenance, the Middle East continues to be a strong market for Norgas and the company has in place a number of long-term contracts. The growth in Middle East exports of ethylene is expected to increase considerably in the next five years, and CMAI predicts that by 2009 the region will be the world's largest net exporter of ethylene. The resulting changes in trade pattern from new low cost Middle East exports will benefit sea transport.

With the general rise in global marine transportation Norgas, like other companies, has faced challenges during 2006 as a result of the general increase in number of vessels in the world. Generally speaking cost pressures are high and specially in employing capable candidates to fill vacancies as a result of huge demands and high competition in the seafarer market. For us this situation amplifies the sound reasoning behind the creation of our training centres in Wuhan , China , and St Petersburg , Russia .

At the beginning of 2006 Norgas created a new revenue sharing pool with Camillo Eitzen. This will allow both companies to operate their fleets in a pool under the name Eitzen Norgas Gas Carriers (ENGC), that has been phased in through 2006 and will fully replace the MNGC pool from 1 st January 2007.

The firm order book for vessels in the semi-ref sector (4,000-22,000cbm) presently stands at 34.8 per cent of the total fleet with estimated deliveries of 241,700 cbm in 2007 and 184,800 cbm in 2008. Despite this historically high growth figure, the expected growth in the sector should see these new vessels absorbed as older tonnage is scrapped and freight demand continues to increase year-on-year.

Our analysis shows that the fleet growth is correlated with the projected increase in capacity for production of ethylene in the years to come, and new ships are needed to cover the projected ethylene cracker capacity increase.

As part of our fleet renewal process the Norgas Victory (8,936 cbm/1982/ acquired in 1991) was sold for USD10 million (on a 100 per cent basis) in late December 2006 and was delivered to new owner in January 2007 after minor classification related repair. Norgas Navigator (6,066 cbm/1977/ acquired in 1991) was sold for USD1.9 million in early January 2007.

Norgas Chinese activities

Our Norgas Chinese operations encompass three gas-related activities. Through a joint venture company , TNGC , we transported 117,500 ton LPG and other petrochemicals gases on the Yangtze River in 2006. We are the only non-Chinese company transporting LPG domestically in China .

Long-term growth of near 10 per cent annually will result in increasing demand for petrochemical products, borne out by the number of new facilities under construction in the country today. Our knowledge of the Chinese market, coupled with our extensive global presence puts us well positioned to take advantage of the growing demand of both domestic and import/export of ethylene and other petrochemical gases in China .

Norgas Fleet Management (NFM) - which undertakes recruitment, crewing and training - is an important tool in our armoury as we seek to create a stable and qualified pool of seafarers.

The third area of operations in China is our joint venture company, Wuhan-Skaugen Training Centre (WSTC), set up to train crew for both our own operations and the wider marine transportation sector. For the year, we had about 4,000 students pass through the training centre. The centre is now starting to attract international students and its reputation as a centre of excellence is growing both within and outside China .