Marine Construction Activities - SMC
In its first full year of operation SMC generated an EBITDA of USD5.4 million (negative USD1.2 million in 2006).
Skaugen Marine Construction (SMC) was established in the fall of 2006 to manage the IMS newbuilding process in China. On behalf of IMS, SMC has developed streamlined marine construction activities for the building of new gas carriers, and is responsible for all aspects of this programme, including the management of Chinese alliances and joint venture partnerships. The work of SMC is key to the future financial and operational success of the IMS Group.
In total, the pioneering newbuilding programme comprises the construction of up to 16 ships for delivery between now and 2010. 12 of these ships have so far been confirmed with our suppliers and joint venture partners, two ships have already been delivered from the yard and a third one is scheduled for delivery in 2Q2008. The confirmed ships comprise three Wintergas series vessels, six Multigas series vessels and three pressurized Summergas series vessels of which two are delivered.
Our ‘build and sell’ programme of Summergas ships comprises the Mei Wen Ti, the Qin Shi Huang and the Xi Shi – all 3,200cbm pressurized gas carriers. All three of these vessels have been sold, with the first of these, Mei Wen Ti, delivered in 2007, while the Qin Shi Huang and the Xi Shi will be delivered in 1Q and 2Q2008, respectively. These first SMC ships are a strong validation of our innovative newbuilding strategy. The ships are built to industry-standard quality and are completed by the combined efforts of SMC and our alliance and JV partners. Moreover, we delivered these ships at a cost significantly below comparable industry market prices. Through this unique process of ship building, we have proven our significant competitive advantage within the shipping industry.
One note of caution is that we have recently experienced a significant increase in the construction costs of our ships, especially relating to the specialized cargo containment systems for our unique combination carriers. Since the start of our newbuilding programme we have seen considerable price increases in raw materials and for specialised components, while we have also encountered unfavourable movements in exchange rates. The major part of these cost increases has been applied in 2H2007.
It should, however, be noted that the specifications for these vessels are more advanced than those of regular ethylene gas carriers and, therefore, the value of comparable ships would be much greater. In this respect, we believe we still have a significant competitive advantage when we compare our new vessels to similar offerings in the newbuilding market.
Both the Wintergas and Multigas series of ships are a unique design, with sophisticated, state-of-the-art technology. They are both combination carriers for multiple products - the Wintergas series carrying gas and chemicals and the Multigas series built for handling LNG, as well as petrochemical gases. These ships are all ordered by IMS to enter new markets on the back of our existing franchise in Norgas.
An example of the use of these vessels is through a new initiative in LNG whereby the Norwegian utility provider Lyse Gass (www.lyse.no) this year partnered with Celsius Invest AS and IMS to create a unique LNG “small scale” supply chain for the Nordic markets.
Nordic LNG AS (www.nordiclng.com) is expected to deliver its first product in 2010, creating a North European market leader in the distribution of LNG. Under the proposal Lyse and its partners are building a 300,000 tonnes per year liquefaction plant in Stavanger, while we will offer our 10,000 cbm sized Multigas carriers for the distribution of natural gas in the form of LNG. The gas will be sourced from the North Sea via the Kaarstoe trans-shipment point and piped to the new plant at Risavika, near Stavanger. From the plant, Nordic LNG will ship the liquefied gas to customers in Scandinavia by use of new import terminals, initially to be constructed in Sweden and Norway.
The partners have jointly established Nordic LNG – through which IMS holds a 40 per cent share – that will be responsible for the sales and logistics of the LNG. Potential customers will be able to substitute heavy fuel oil and LPG for LNG as their energy source, making both a positive environmental impact, as well as being economically attractive.
