Good afternoon. Hope you're all staying safe and healthy. Welcome to the presentation of Avance Gas third quarter 2020. As you just heard, my name is Randi Navdal Bekkelund, and I'm the CFO. I'm here joined by our CCO, Ben Martin. We will start today's presentation by going through the financial highlights of the quarter, which will follow with a market and company update and a Q&A session at the end. I will now move to slide three, going through the financial highlights. Here we have a snapshot of the financial highlights for the third quarter. We have an achieved time charter equivalent rate of $23,300 on a discharge-to-discharge basis, and with the rates picking up at the end of the quarter, we had a negative effect of IFRS 15 of $1,700 a day, giving a TCE rate of $21,500 on a load-to-discharge basis.
The TCE rate is also impacted by approximately $4,000 a day, representing balance days, which will recover and have a positive effect in Q4 and partly Q1. Vessel operating expenses came in at just above $9,300 a day for the third quarter, up from $8,600 a day previous quarter. The increase reflects one-offs related to change of technical manager for four ships, and crew change remains challenging, which is dependent on local regulations. By end October, we have fully completed the technical manager change for six vessels. We do expect that the change of technical manager will have an effect in Q4. However, the investment in change of technical manager is expected to reduce operating expense and improve the technical efficiency of a fleet over time.
Administrative and general expenses was $700 a day, slightly up from $600 recorded in Q2, reflecting low A&G in previous quarter due to personnel expense. Further, we have secured financing for pre-delivery CapEx of the new building program through the two transactions. In September, the sale of the 2003-built VLGC Avance was successfully completed. Following repayment of debt, the transaction generated $17 million in net cash proceeds and a book profit of $6 million recorded in Q3. In November, the company signed a $45 million sale leaseback transaction with a Chinese leasing house for the VLGC Pampero previously announced in August. Expected closing is the next couple of weeks. Net profit for the quarter was $2.3 million, corresponding to an earnings per share of $0.04.
Looking at the cash position, we recorded a cash balance of just below $80 million, down by $7 million compared to previous quarter as a result of payment of second installment of our dual-fuel new builds, drydock scrubber installation, and sale of Avance and prepayments and schedule repayment of debt. Today, we have a cash position of $86 million. It has been a challenging year with drydocking 60% of our fleet, scrubber installation, change of technical manager through oil price disruption and a pandemic where crew changes have nearly been impossible due to closed ports. We have managed to navigate through the challenging period, recording profits each quarter with a year-to-date TCE rate of $31,100 and a net profit of $24 million. For that, we would like to thank the team in Avance, the commercial, operational, and technical team for finding the best solutions.
Of course, the crew members on board going overdue. Looking into the next quarter, we have an increased coverage from 20% - 35% in Q4 at an average rate of $31,000. Included in the coverage, we estimate the TCE rate on a discharge-to-discharge basis of $40,000 a day contracted on 90% of vessel days. Moving to slide four, we are coming to an end with the special survey and scrubber installation for the fleet. By end September, we have seven of eight drydockings, five of six scrubber installations. We have recorded 140 off-hire days, most of which relates to drydocking and scrubber installation and partly related to the change of technical manager. We still see some delays due to the pandemic, but not to the same extent as we did in the first quarter during the lockdown period at the yard.
We have paid 95% of the capital expenditure, corresponding to $2 million in remaining CapEx related to drydockings. In 2021, we have no unfunded CapEx, assuming a normalized financing on the new builds. We expect the special survey to be fully completed by end Q4 and the scrubber installation in Q1, which leaves us with a nearly fully tradable fleet in 2021. Moving to slide five, an update of our cash breakeven and coverage. Already mentioned, we have an estimated cash breakeven of around $22,500 for the full year, slightly higher than previous quarter, driven by higher operating expense due to one-offs, change of technical manager, and COVID crew change challenges. The cash breakeven for 2021 is expected to come down to $22,000 including the sale leaseback transaction. As already mentioned, we have increased our coverage to 35%, with an average rate of $31,000 for the fourth quarter.
Looking into next year, we also have a coverage of 27% at an average rate of $30,000 a day. With that, I leave the word over to you, Ben, for the market and company update.
Thank you, Randi. As we previously mentioned, I will talk through the market fundamentals first, which is basically a review of Q3 together with some forward-looking views for the coming periods. We'll also then touch on our dual-fuel new builds as well as some Avance Gas specifics. If we look at slide six. When COVID hit in Q2, the LPG market collapsed, as did every other market. We therefore started off Q3 from a weak position, with earnings being below $20,000 a day on a TCE basis. The LPG market has a modest-sized fleet of around 300 ships, and so a few minor fluctuations in the S&D on the shipping side had a disproportionately large impact on the TCE rates. When tightness occurs through things like Panama delays, turn time in various ports, utilization in the market increases and rates generally follow.
This is what happened in Q3. We saw market inefficiencies create tightness and push sentiment up despite the weak economic outlook. U.S. exports continued to flow, and we saw the main demand centers draw cargoes increasing ton-miles and pushing freight in an upward direction. If we move to slide seven. The main drive in the LPG freight is the flow of U.S. LPG, and July saw a strong recovery from a weak Q2 position. During Q2 and Q3, while we have seen the rig count fall in line with weaker oil prices, we have seen rig productivity increase in July and August, meaning that there is more LPG in production and therefore an increase in exports. Given the main demand centers are Asia, the U.S. flows increase ton-mile and helps tighten the shipping market, allowing for increased rates.
With the arb open allowing for cargoes to move at solid freight levels, ship owners have seen earnings improve accordingly. If we move to slide eight. The EIA has consistently increased their expectation for LPG production over the last few months, and with it, market sentiment for a positive LPG view has developed. Physical terminal export capacity is there to allow cargoes to flow following terminal expansions completed. Oil price is showing positive signs, and with it, a more stable environment is developing. As positivity returns to the market, LPG will continue to flow to the usual demand centers. If we move to slide nine. The other production center is the Middle East, whose production is much more closely correlated to oil price. We've seen pretty steady exports in Q3, and we expect this to remain stable for the balance of the year at around 55 cargoes a month.
The X factor for production here is what happens with OPEC and the oil price. Unfortunately, we cannot see the future, but the current movement and momentum does seem positive. If we move on to slide 10 now. On the demand side, the focus is always on the Asian markets, with it being 80% of the demand profile for LPG. Clearly, we've seen demand destruction through COVID. However, imports in both India and China remain strong. India in particular, due to government policy, has meant Q3 imports were 20% higher than the same period in 2019. We have seen and continue to see growth potential in India, South Korea, and Indonesia, while Japan has remained relatively flat. Looking into 2021, we see PDH demand increasing in China due to new facilities coming online, coupled with the eventual global recovery driving demand for Chinese-made products.
If we move on to slide 11 now. We see the order book being positive for the LPG segment, as it currently stands at only 13% of the current fleet. There have been limited orders made, and of those placed, we are seeing a strong trend towards LPG dual-fuel, where we have 26 orders of dual-fuel capacity currently on order. This includes the two Avance Gas fully dual-fuel vessels under construction at DSME. On the scrapping side, we have just under 10% of the fleet being over 25 years old, which could encourage some scrapping. There is a large swath of ships due for drydock over the next two years, with 70 ships scheduled for 2021 alone. We expect this to keep the market relatively firm when coupled with scrapping and the well-spaced new building deliveries. Moving on to slide 12.
Avance Gas has got two 91,000 cu dual-fuel vessels under construction at DSME due for delivery in Q4 2021 and Q1 2022. These vessels have a low consumption and a much greener profile than any other vessels currently on the water. Our vessels are the best in class and come equipped with shaft generators, meaning you don't need to burn fuel oil in the auxiliary engines while sailing, as with both traditional fuel oil burning ships and retrofit dual-fuel vessels. The average auxiliary engine will produce around 5,000 metric tons of CO2 per year, something our dual-fuel vessels do not do. To put this into a visual perspective, 5,000 metric tons of CO2 production is equivalent to removing over 2,000 cars from our roads, assuming those cars drove for 15,000 km each on an annual basis.
The other benefits of our vessels, as we've previously stated, is a 99.6% reduction in SOx emissions, a 90% reduction in particle pollution, a 28% reduction in CO2 emissions, and an 81% reduction in NOx. We believe that given the length of time our vessel will trade for, having the most efficient and least environmentally impactful ships must be a priority. These types of dual-fuel vessels are the green future LPG transportation needs. Moving on to slide 13. Drawing the market review to a close, things look positive for LPG and for Avance Gas. The supply side of the shipping equation looks favorable to owners, and we see the near term cargo supply and demand as also looking better than previously assumed.
The U.S. production outlook for 2021 has improved. This, coupled with the drydock expectations and a small new build delivery book, makes 2021 look like it will be a good year ahead. Q1 has already started well, with some strong numbers being concluded on a TC basis for early January shipping fixtures. As previously mentioned, our current guidance for Q4 is close to $40,000 a day, basically 90% of our shipping days being booked, something which should give shareholders and investors confidence about Avance Gas. Current coverage for 2021 sits at 27%, showing a measured view toward risk management.
From the Avance Gas company perspective, we have implemented the technical manager changes on a number of ships, which has been costly and operationally challenging, but one that will set us up to trade our ships more efficiently and control costs more strictly, allowing for greater reliability from an operational and financial perspective. As Randi mentioned earlier, we have no unfunded CapEx for our new building program outside the debt part. Given the green profile of the vessels and the interest we have received so far, this should not be an issue. Given the outlook for Q4 and beyond, together with our upgraded fleet profile, which increases vessel earning days and therefore cash flow, the capital allocation between dividends, growth, fleet renewal, and further balance sheet strengthening will be carefully considered by the board in order to maximize shareholder value.
We firmly believe Avance Gas is in a great position to build a stronger future for our investors. Randi, myself, and all the team at Avance Gas will ensure we do all we can to deliver the best results possible. Thank you for listening today. That concludes our reporting. We'll hand back to the operator for a Q&A session.
Okay, ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star and one on your telephone and wait for your name to be announced.
Thank you. Your first question comes from the line of Gregory Lewis from BTIG. Please ask your question.
Yes, sir. Thank you and good afternoon, everybody. I guess my first question is, in the slide deck, you mentioned the potential for retrofits. Just as I think about that, maybe it doesn't make sense to retrofit all of your vessels, maybe just the eight newer ones. Just curious how you're thinking about that. I know some other companies that have looked at retrofitting and said it was too expensive or it didn't justify the cost. That wasn't specifically in LPG, that was more on LNG. Just trying to understand, is that something that you think gains momentum over the next couple of years? Is it something that Avance is thinking about?
Sure. Thank you for the question. I think for us it's about what is the right thing to do in the long term. If we look at, as you mentioned, the cost, the capital outlay for dual-fuel conversion for an LPG ship is around about $10 million. It's not insignificant when you look at the value of a vessel. You need to do the physical conversion in the yard, which is somewhere between 60-90 days, given some of the experiences we've seen so far. Plus, you have a two-year lead order time to get the kit ready. Those things are quite problematic, I would say, just as a starting point.
If we think where we're trying to get to, which is an actual greener vessel, the dual-fuel retrofits, as we said in the presentation, they're not fully green because their auxiliary engines are still burning fuel oil. While it might be a step in the right direction, for us, it doesn't feel the right investment, given that you're only getting a portion of the benefits of a fully dual-fuel vessel.
Okay, great. Just another one from me. Clearly the market has stabilized and strengthened in the winter. Just curious as we try to understand, realizing there's a lot of moving parts. I guess what I would wonder is, as naphtha has recovered in price, how much of an impact would you say that has been on helping the LPG market rates move higher? You mentioned the arbitrage window is open. Just curious how we should be thinking about that with naphtha, realizing that oil prices seem like they continue to melt higher here.
Yeah, sure. We see, as you said, 80% of the demand profile for LPG is in Asia. 70% of that is non-industrial. The big driver is really in those areas. The naphtha component is, I would say, relatively small. Obviously as the oil price increases, you could see that being a potential challenge. I think for us, we see the pull on propane being strong enough to keep the LPG flowing.
Okay, great. Thank you.
Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from the line of Petter Haugen from Kepler Cheuvreux. Please ask your question.
Good afternoon. I have a quick question on the fixings for 2021. To what extent should we read that to be in expectation of a softer market? If so, could we expect to see more fixings for next year? My second question, I'll just pose it straightaway as my phone is weak, I think. On the inefficiencies, the Panama Canal seems to be quite clogged at the moment. What would we expect from a normalization in the canal? Should that be a negative catalyst for freight rates in the VLGC segment? Thank you.
Hi, Petter . Thanks. Can I just check, the first question was, do you think that we will be taking more TC coverage for next year?
Yeah. Yes, the first bit.
Okay. I think we're comfortable with our TC coverage. As we said, we have 27%, which gives us a decent sort of exposure to the spot market, and we believe that the spot market will stay strong for certainly through Q1. If we look traditionally and seasonally, we have a summer low, but then it picks up again towards the end of the year. From our point of view, we have a base risk management with the TC coverage we have, and then, we're happy with the spot exposure that is left. If we look at inefficiencies, and specifically Panama, there are two main things really causing, or three main things really causing problems there. You've got water issues, so draft issues, which is limiting the transits, which is something which we just have to wait and see what happens with weather.
Obviously you've got the seasonal clogging, let's say, because it's coming up to Christmas, and there's demand for container goods to be using transits. Obviously we have the COVID effect of lack of crew to be able to manage the tugboats, which limits the number of transits. Really, how do we resolve any of those problems? It's almost impossible to say. Unless the vaccines prove to be 100% efficient and they manage to get enough staff to be able to man the tugboats, these sort of delays could be around for a little bit of time. We're seeing anything from five days up to 10 days to 12 days worth of delays. The booking system makes it quite difficult for people to plan.
I think if you can't plan efficiently, then you have to make other plans, which means going around the Cape, which adds 10 mi, which stretches the fleet further. We don't see immediate, let's say, changes because of the Panama Canal.
Okay. Thank you for that. If I just could then try to, well, a quick follow-up on that. If one were to see at least the COVID effects will probably be temporary, and draft issues as well. If one was to see this issue being resolved, is it the talk of 1% of the VLGC fleet, or is it an efficiency improvement in the line of, say, 5% of the VLGC fleets? Just to get the feeling of how large an effect this is.
To be completely open, I wouldn't be able to put a specific number on that. If we're adding between five and 10 days to a voyage, then yeah, I would imagine it's going to be a few %. Unfortunately, I can't give you a specific answer for that.
Okay. Understandable. Thank you.
As a reminder, if you do wish to ask a question, please press star one on your telephone. There seems to be no further questions at this time. Please continue.
Okay. With that, we would like to thank you for dialing in, and hope you're staying safe and healthy. Have a nice day.