MISC BERHAD 58 INTEGRATED ANNUAL REPORT 2023 59 www.miscgroup.com STRATEGIC REVIEW SECTION 6 Our Operating Environment Shipping Sector What Happened in 2023? Our Operating Environment Decarbonisation of the Maritime Industry What Happened in 2023? How We Were Impacted In our transition towards 2050, we have introduced our aspirational targets, MISC 2030 Aspiration as a short to medium-term strategy to ensure the Group is aligned in its approach to achieve MISC 2050 Vision. The aspirational targets include 50% reduction in GHG emissions from shipping operations, compared to our base year of 2008. We prioritised responsible investments by investing in dual-fuel assets, with sustainability as top priority in all our operations. In 2023, we successfully delivered two dual-fuel VLCCs , Eagle Ventura and Eagle Vellore and two eco-efficient LNGCs, Seri Damai and Seri Daya as part of our progressive strategy in rejuvenating our fleet. A third LNG dual-fuel VLCC was delivered in early 2024. The Group has successfully installed ShaPoLi technology on 55 vessels to reduce emissions and ensure compliance with the EEXI standards. In adhering to the CII requirements, our operational improvement measures are ongoing and we implemented slow steaming, voyage optimisation, minimising idle days and just in time arrival, achieved through close collaboration with our charterers. During the year, the decarbonisation efforts within the shipping industry has led to the introduction of enhanced international maritime regulations. The shipping sector is now being included in the EU Emission Trading System (EU ETS) which is expected to have an impact on operations, costs and contractual agreements. At the same time, the IMO has enhanced its GHG reduction targets as agreed during the 80th Marine Environment Protection Committee’s meeting (MEPC 80). The first reporting of Carbon Intensity Indicator (CII) as imposed by the IMO has begun with the initial ratings to be issued in 2024, based on 2023’s performance. The shift towards decarbonisation has also spurred the development of dual-fuel propulsion systems, mainly utilising LNG and methanol as alternative fuels. SHORT TO MEDIUM-TERM MEDIUM TO LONG-TERM Outlook The global shipping industry continued to be affected by geopolitical risks and disruptions in key maritime routes around the Suez and Panama canals. For the oil tanker market, the rates have risen to above 2022 levels, supported by low tanker orderbook and minimal tanker demolitions throughout the year. Meanwhile, LNG demand stabilised in 2023 amidst mild weather conditions and sufficient gas inventories, particularly in Europe. Similarly, the LNG shipping demand and LNGC spot rates have stabilised, in line with the seasonal demand patterns. Source: Worldbank IMO’s enhanced GHG reduction targets for international shipping Index [2008=100] Compared to 2008 levels, to reduce total annual GHG emissions by: A. At least 20%, striving to 30%, by 2030 B. At least 70%, striving to 80%, by 2040 Historical GHG emissions Required reductions in GHG emissions intensity Absolute GHG emissions reductions (incl. checkpoints) 100 90 80 70 60 50 40 30 20 10 0 2008 2018 2030 2040 2050 -30% -80% -100% -61% -91% A. B. Source: Clarksons Petroleum tanker average earnings LNGC 160k cbm average rates Spot rate 3-year time character 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 VLCC Suezmax Aframax 120,000 100,000 80,000 60,000 40,000 20,000 0 Mar-22 Jun-22 Jun-22 Sep-22 Sep-22 Dec-22 Dec-22 Mar-23 Mar-23 Jun-23 Jun-23 Sep-23 Sep-23 Dec-23 Dec-23 -20,000 USD/day USD/day Mar-22 How We Were Impacted The geopolitical conflicts and rerouting of vessels have led to longer voyages and an increase in tonne-mile demand which has supported freight rates during the year. The Petroleum & Product Shipping segment has leveraged on the opportunities by securing more long-term charters optimising its term-to-spot fleet ratio. Meanwhile, the GAS Business segment remained focused on securing long-term charter contracts while executing progressive fleet rejuvenation. In 2023, the Group has successfully delivered two dual-fuel VLCCs namely Eagle Vellore and Eagle Ventura and two eco-efficient LNGCs known as Seri Daya and Seri Damai. A third LNG dual-fuel VLCC was delivered in early 2024. For more information, please refer to Petroleum & Product Shipping Business Review on page 83 and Gas Assets & Solutions Business Review on page 80. The new requirements and regulations are expected to have an impact on shipping operations and contractual agreements. The emphasis on voyage optimisation, digitalisation, adoption of clean solutions and technologies for decarbonisation would increase significantly. LNG, as a transitional fuel, will continue to be relevant as the industry shifts towards cleaner energy source. Outlook The near-term outlook for the oil tanker market remains positive, supported by strong Atlantic exports, increased crude imports to Asia and potentially higher tonne-mile demand due to shifts in trade patterns following the Red Sea crisis. Similarly, prospects remain positive in the LNG market driven by the Asian LNG demand and increasing investments in LNG infrastructure. Risks Material Matters Key Capitals Financial Performance F Financial Capital P Physical Capital H Human Capital Project Management Asset Availability, Utilisation and Marketability Health and Safety Climate Change Energy Management Ocean Health Shift in Stakeholders’ Preference Towards New Energy and Low-Carbon Solutions Health and Safety Security Technology Developments Material Matters Energy Management Climate Change Ocean Health Talent Development and Retention Key Capitals N Natural Capital F Financial Capital P Physical Capital H Human Capital Financial Performance Sustainable Supply Chain Risks Increasing Climate-Related Regulations and Requirements Governance and Integrity Technology Developments Shift in Stakeholders’ Preference Towards New Energy and Low-Carbon Solutions Geopolitical Instability Project Management
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