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I.M. Skaugen SE (IMSK) : 1H RESULT 2015


The I.M. Skaugen Group (IMSK) had a negative result for 2Q15 of USD 0.5 mill,
compared to a negative of USD 4.6 mill for 1Q15. 1H15 was a negative USD 5.1
mill, compared to a negative result of USD 13.4 mill in 1H14.


The Group's economic performance in 1H15 improved compared to the same period
last year as did the performance in 2Q15 compared to 1Q15. The successful
divestment of the SPT related activities - the global ship to ship
transfer/lightering business, contributed positively and were able to offset
unsatisfactory performance of the Norgas Carrier business.

The sale of the SPT related activities will enhance the Group's balance sheet
and working capital position and enable the Group to better execute on its
LNG strategy. The acquisition of the options to purchase the two LNG carriers
Norgas Unikum and Bahrain Vision will enable us to further develop our small
scale LNG activities with enhanced value creation potential for IMSK and our

We continue to see the full year effect of the reduction in shore based
manpower and thus the associated expenses. Comparing 1H14 to 1H15 we see a
cost reduction of more than 30%.

During 2Q15 we continued to do spot LNG voyages in Asia. We loaded LNG from a
large conventional LNG import terminal and delivered to a smaller LNG hub for
onward distribution with trucks and via pipeline. Our vessel design with an
extra upper manifold enables loading from conventional large scale LNG
terminals without any extra modifications needed to the terminal. These
voyages do also confirm that our Multigas vessels can earn a premium when in
LNG trade compared to the current petrochemical market. We have signed
contracts to continue to do LNG spot voyages in Asia in 2H15.

The underlying performance of Norgas Carriers was however unsatisfactory in
1H15. The shortages in supply of the key petrochemical gases; ethylene,
propylene and butadiene were the main contributors to the weak 1H15 results.
This situation led to reduced demand for sea borne transportation and
especially in Asia. These shortages came from further declines in exports
volumes from the major producers in the Gulf region and from the now
permanent reductions in exports of petrochemicals from Japan and Korea.
Historically Japan and Korea have been the main suppliers to China, who now
will have import its deficit through long-haul trade. The major part of the
Norgas fleet was positioned in Asia in 1H15 since a focus on Asia has been
the strategy of the company. Due to this Norgas carriers suffered very high
idle time and had an unacceptable performance. We also maintained ships in
the Gulf region for contracts of affreightment (COA) clients. The low volumes
under these contracts in 2Q15 contributed to the low utilization in 1H15.

While the trade in Asia was subdued we do see more activity in the West of
Suez region. During the second quarter we re-positioned additional vessels in
our fleet to the trading areas West of Suez targeting new business. With a
shortage of repositioning cargo available; this had a negative impact on the
result in 2Q15. Following the repositioning of the fleet, our commercial
presence West of Suez has been re-enforced. As a result of these active
measures taken we are seeing positive effects on utilization of our fleet
going into 3Q15.

Although the oil price is lower compared with recent years, volatility is
still high and the uncertainty about future prices has had a negative impact
on the amount of trade in petrochemicals. However long term - a low oil price
in absolute terms should be good for the petrochemicals industry since it
will lower production costs and thus lower the price of the end-products
(plastic) - stimulating demand.

We now see that many more power plants are actively searching for solutions to
use LNG instead of diesel and heavy fuel oil or naphtha as feedstock. Many of
these power plants will require sea-borne small scale LNG solutions. This
creates a good momentum for projects in the small scale LNG market,
especially in Asia where electricity is the prerequisite for economic growth
and this will drive the growth in demand for power generating capacity.

By completion of the SPT transaction IMSK reconfirms its focus on its core
business activity - managed by Norgas Carriers;to provide logistics solutions
for seaborne regional distribution of liquefied
gases such as LNG, ethane, petrochemical gases as well as LPG
. The company's unique fleet of flexible and state-of-the-art gas carriers
makes it well positioned to capitalize on:

1 Growing demand for small scale LNG logistics solutions.
2 Growing demand for seaborne export of LPG, Petchems and Ethane from the
3 A recovery in seaborne export of petrochemicals from Iran following the
country's agreement with the P5+1 in July.
4 Long-haul trade replacing short haul trade of Petchems to China from the
Gulf region and Iran as well from the US, due to structural supply
shortages in Asia.


The IMS vision is to provide cost effective and environmentally friendly
natural gas based energy to power plants not able to connect to gas pipeline
networks. This solution will in the long run replace diesel, naphtha and HFO
- all fuels with a more negative environmental foot-print than gas. LNG is
the better solution for now, solving the emissions problem at source.

We believe that oil and its derivatives are far too valuable commodities to be
used for power generation and heating/cooling purposes as well as
transportation. Oil and its derivatives should in the future be used more for
petrochemical end-user purposes and for life sciences. For power generation,
transportation and cooling/heating there is ample supply of natural gas that
can provide a more economical solution than refined products such as diesel,
naphtha and heavy fuel oil.

The initial goal is to employ our existing fleet of 6 smaller LNG capable gas
carriers, which allows for instant start-up of the LNG projects. Our
experience in LNG terminal design and management will also be used to support
the development of new projects for LNG distribution to ensure a rapid
start-up. After a long period with too little available LNG supply and high
prices compared to oil and oil related products, LNG prices have now fallen
to a greater extent than the competing oil products. The supply of LNG has
also increased to the point where there will now been an extended period
where installed LNG supply capacity will outpace LNG demand. After a few
years of flat demand, there is still be more than 130 million tons LNG
capacity under construction and a further 140 million tons capacity that are
likely to take FID in the coming years. This bodes well for LNG supply to the
small scale LNG markets of cost effective LNG.

The lower oil price has also made many governments more willing to remove or
reduce fuel subsidies and price controls. This again will make the cost of
diesel and other oil related feedstock for power plants more expensive and
LNG a more attractive alternative.

We now enjoy a viable economic margin between LNG for power generation and
diesel, naphtha and HFO. Therefore, the savings on the fuel bill for a power
plant will be able to finance the conversion cost of power plants as well as
financing receiving terminals and re-gas facilities.

One example of the momentum we see in the small scale LNG market is Indonesia;
where electricity is the prerequisite for economic growth and thus driving
the demand for power generating capacity. There is currently a number of
processes running with the objective to install more than 3,000 MW of gas
based power generation capacity in over 40 island based locations. This would
imply an LNG demand of more than 2.5 million tons of LNG per year and could
require more than 15 small scale LNG vessels over time.

IMS and Norgas long term commitment in shipping and gas transportation has
built a leading brand with reputation of trust and service - notably thanks
to our integrated corporate model. We have the largest existing small scale
LNG fleet with "ships on the water" and can deliver gas in 3-12 months by
using our small scale LNG technology we have helped develop, a technology
that will be used for the key projects we are pursuing. We have both the
hardware (vessels) and the software (know-how) - to execute and execute
faster than our competition and reap the benefit for the clients of their

All of these potential longer term LNG contracts, will enable the Company to
realize the potential value of our know-how and in the vessels owned and/or
controlled by the Company. Such longer term contracts will, if and when
completed, enable us to either refinance some of these vessels and/or develop
new co-ownership structures. Such employment and structures will not only
match local regulations for cabotage, but will also enable us to repay our
mortgage debt obligations on these ships as well as repaying IMSK bond debt
when due.


The market for long haul transport of petrochemical gases contracted further
in the second quarter. This provided challenging conditions for trade. In
spite of demand for products in Asia, the shortage of supply from the Gulf
region and Asia led to a reduction in demand for transport, in particularly
in the East of Suez region.

Ethylene exports from, the so far dominant GCC region, were curtailed by
planned and unplanned shutdowns, shortage of feed-gas and also an increased
down-stream usage. In Asia ethylene exports from Japan were reduced due to
permanent shut downs. Korea has now started to consume much of their surplus
products that used to be exported. Going forward, this structural shortage of
ethylene in Asia will necessitate import from either the Gulf region and Iran
or the US.

We are starting to see the effect of US shale oil and gas boom on the
petrochemical trades. Exports of ethylene from the US Gulf (USG) area were
markedly up in the second quarter. The lower feed-stock costs (ethane) and
expanding production capacity, provide a solid base for US Gulf based exports
of ethylene going forward.

For the same reason (US shale oil and gas), the availability of low cost LPG
and propane has led to increased US based propylene production from PDH
plants (propylene de-hydrogenation plants, which converts propane to
propylene). As a result long haul exports of propylene from the US increased
significantly and the 2Q15 export volumes were ahead of what had been
exported the previous four quarters.

The current decline in ton-miles for the long haul trade of petrochemicals and
especially ethylene has been somewhat compensated by the increased US export
of LPG. LPG exports from the US continues to grow and in 2Q15 it had
increased more than three-fold...

Författare Hugin

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