Gas Transportation Activities - Norgas
Norgas generated an EBITDA of USD45.1 million for the full year 2007 (USD41.7 million in 2006).
Norgas benefited from particularly strong levels of shipments of ethylene out of the Middle East (ME) to both Europe and South East Asia. Saudi Arabian volumes were also increased as a result of the temporary closure of a domestic polyethylene plant, necessitating the use of downstream plants in other countries. This special situation is expected to continue into the first part of 2008, but we believe the volumes in general out of the Middle East will continue to grow in the years ahead. There were also sizeable new volumes out of Iran this year.
Idle time for the 2007 totalled 3.1 per cent compared to 14 per cent for the whole of 2006.
The firm order book for vessels in the ‘semi-ref’ sector presently stands at 36 per cent of the total fleet (total fleet is 2,237,000cbm or 303 vessels) with estimated deliveries of 314,000cbm in 2008, 346,600cbm in 2009 and 147,500cbm in 2010 onwards. Despite this historically high figure of new ships being built in relation to existing ship capacity, this is balanced by an expected growth in global petrochemical production capacity, which will also be high by historical standards.
The increased demand for vessels is particularly due to the additional growth in ton-miles created by a strong rise in Middle East exports. We expect Europe and USA to gradually become importers of product on a sustainable basis and this is a historical shift as these regions have in the past been exporters. Current estimates are that Middle East exports will more than double in volume in the coming five years. This will ensure that many of these new vessels will be engaged. There will be an additional need for vessels resulting from an expected shift in global trading patterns. We believe older tonnage will be scrapped at a normal pace, further reducing the supply of vessels.
With the significant new shipping capacity that is expected to come online during 2008 and 2009, vessel utilization and rates could be affected - particularly as increased capacity in this interim period could well outpace demand. There could also be some delays in bringing the new volumes out of Iran. However, our view is that with growth in world GDP at around four or five per cent a year and driven more by the emerging markets - alongside increased ocean transportation movement both out of the Middle East and within Asia - demand for our services longer-term should offset the expected rise in tonnage supply.
Norgas operates its fleet through a pool operation in conjunction with Camillo Eitzen, under the name ENGC. During 2007, this global alliance continued to bring cost synergies and improved levels of service to our customer base.On 29 January 2008, I.M. Skaugen SE received formal notice from Eitzen Gas A/S regarding their wish to terminate the ENGC pool cooperation. The termination will come into effect as per agreements with a twelve months notice period for withdrawing the vessels from the pool. The termination will have no balance sheet impact for IMS and Norgas will continue to operate business as usual.
The ENGC pool was a direct continuation of the cooperation Norgas formed with Maersk Gas Carriers in October 2003. In January 2006 Eitzen Gas took the role of our partner when they bought most of the ships operated by Maersk in this segment and the ENGC cooperation fulfilled an important role during a very limited period in time. However, pools of this type have a tendency not to last very long and this was no exception. Such pools and alliances depend also on both parties carrying out fleet renewals and having fleets that are compatible in age.
In September 2007 the Group entered a new 50/50 joint venture (Singco Gas Pte. Ltd.) with the GATX Corporation. The joint venture will assume the ownership of the first four 10,000 cmb sized “Multigas” carriers currently under construction at SMC. The vessels will join the Norgas pool of gas carriers upon their completion along with the six other vessels we own together with GATX throught the Somargas Limited joint venture.
China Activities
Overall, the business in China saw steady growth in 2007 and improved operational activities. These operations encompass three gas-related activities, undertaken by TNGC, Norgas Fleet Management (NFM) and Wuhan-Skaugen Training Center (WSTC).
Skaugen (Shanghai) Trading Co.Ltd (STC) is a business unit within the IMS Group established in 2007. Its main services include import and export of vessels, sources services for equipment and raw materials for the shipbuilding and related services.
IMS established in 2007 a holding company in China. Skaugen China Holding Co. Ltd. was formally approved by the auhtorites in January 2008. The holding company status enables IMS to manage the investments and activities in China more effective, and opens for a more efficient expansion of our activities in China.
Norgas Fleet Management (NFM) - which undertakes recruitment, crewing and training – continued to perform capably and about 40 per cent of our ship- and shore-based crew is now Chinese.
WSTC once again saw an increase in profitability. From courses in the handling and transportation of hazardous cargoes as well as vessel maintenance, WSTC expanded its programme to include courses relating to the management of shipyards and English language training for maritime personnel.
Towards the end of 2007, we announced the laying of the foundation stone at Wuhan Marine Equipment Industrial Park (WMEIP) in Wuhan. This maritime industrial park is a joint venture between Wuhan Hi-Tech State Holding Group Co. (50 per cent), China Changjiang National Shipping Group Corp. (25 per cent), and I.M. Skaugen (25 per cent). The aim is for the industrial park to become the leading park in China for companies providing a range of maritime equipment and services.
TNGC is our joint venture company which transports LPG and other petrochemicals on the Yangtze River. The company experienced continuing inefficiencies and uneven demand for services during the year, though we did begin to see an improvement in performance during the second half of the year. With industrial capacity in China – and in particularly in the Yangtze region – continuing apace we believe the long-term outlook for this business is healthy.
