MISC Integrated Annual Report 2020

OUTLOOK AND OPPORTUNITIES IMPLICATIONS TO MISC The global crude oil tanker market is oversupplied in the near term as economic activity remains subdued. In the short to medium term, easing of OPEC+ production cuts and potential growth in oil (as well as gas) exports from the Americas – such as from non-OPEC members like Brazil and the US – could boost tanker and LNG carrier tonne-mile demand as the main importers are situated in Asia. At the same time, slower newbuilding orders and historically low orderbook are expected to moderate tonnage growth, while scrapping is expected to gain momentum, helping the tanker market to rebalance. Global natural gas supply and demand is forecasted to recover in 2021, and demand is set to increase steadily for the next few decades helped by economic growth in Asia, with the COVID-19 pandemic seen as only a temporary setback. Long-term fundamentals for gas remain strong, supported by growing population and energy demand. Gas is positioned as a cleaner replacement for coal and as the transition fuel to renewables. This opens up new applications and markets for LNG, including as a more environmentally-friendly, reliable and cost-effective fuel for the maritime industry. This will drive demand for LNG carriers and other maritime solutions including LNG bunkering and LNG to Power (L2P), as well as increased demand for related services like LNG carrier dry docking and repair. Sources: Clarksons, Reuters, S&P Gobal, EIA In a year that saw both ultra-high and ultra-low spot charter rates, the Petroleum & Product Shipping segment recorded a higher operating profit over the previous year. This was through maintaining a mix of long-term contracts with some spot exposure which provide the agility to profit from charter rate rises while maintaining a base of secured income even if spot rates collapse. As part of its strategy to grow its secured income portfolio, it will focus on the niche DPST market and grow its DPST fleet in the Atlantic Basin. 2020 was a muted year for LNG shipping opportunities due to cancellation or deferment of new LNG projects due to weak demand coupled with oversupply of natural gas globally. Notwithstanding, LNG Asset Solutions successfully ventured into the China and ethane transport market through its acquisition of six newbuild VLECs, as well as becoming the region’s first commercial operator and ship manager of an LBV. An improvement in LNG fundamentals has renewed optimism for developers of new LNG projects. In the medium term, LNG Asset Solutions will be capitalising on this trend by pursuing its bread-and-butter conventional LNG shipping opportunities alongside unconventional solutions such as L2P, LBV and others. Meanwhile, MHB’s Marine segment commenced operations on its newly completed Dry Dock 3, a significant milestone in its journey to increase its capacity to capture more recurring business, to conduct repair and refurbishment services of LNG carriers and other vessels, FSOs, FPSOs and oil rigs. Material Matters Risks SHORT AND MEDIUM TERM SHIPPING SECTOR Petroleum tanker rates were volatile in 2020. The oil surplus, intensified by the oil price war, created a price contango in the oil market. This led to a rush for onshore and floating storage, and tanker spot rates surged rapidly in mid-March. However, this was short lived. In May, in response to plummeting oil prices, the OPEC+ alliance agreed to new production cuts. Floating oil storage peaked around mid- 2020 and eased for the rest of the year. Tankers previously employed in floating storage added to the available tanker tonnage. Spot rates tumbled and remained low for the rest of the year as the seasonal peak winter demand for oil and tankers did not materialise in 2020. LNG carrier spot rates also initially declined due to weak gas demand caused by lockdowns in key markets. However, unlike petroleum shipping, LNG carrier demand and spot rates rose towards the year end with the return of seasonal winter peak demand in North Asia. Sources: Clarksons, S&P Global, Reuters, EIA Source: Clarksons OUR OPERATING ENVIRONMENT 50,000 0 100,000 150,000 200,000 250,000 300,000 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Petroleum tankers average earnings VLCC Suezmax Aframax USD/day Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 LNG Carrier 160k cbm average spot rate 50,000 0 100,000 150,000 200,000 250,000 USD/day Climate change Risk management Project and financial performance Evolving LNG market Climate change and environment Crude oil dynamics - supply, demand and price // Key Messages / Highlights / Strategic Review / Sustainability / Financial Review ////// MISC Berhad / Integrated Annual Report 2020 4 74 MISC Berhad / Integrated Annual Report 2020 4 75 ////// Financial Review / Sustainability / Strategic Review / Highlights / Key Messages // Section Section