Good afternoon, and hope you're all staying safe and healthy. Welcome to the presentation of Advanced Gas Third Quarter 2020. As you just heard, my name is Randi Naldalveklen, 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 and A session at the end.
I will now move to Slide 3 going through the financial highlights. Here we have a snapshot of the financial highlights for the Q3. 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 SEK 1700 a day, giving a TCE rate of SEK 21,500 on a load to discharge basis. The TCE rate is also impacted by approximately $4,000 a day, representing ballast 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 Q3, up from $8,600 a day previous quarter. The increase reflects one offs related to change of technical manager for 4 ships and crew change remained challenging, which is dependent on local regulations. By end October, we have fully completed the technical manager change for 6 vessels. We do expect that the change of technical manager will have an effect in Q4. However, the investment in change of Administrative and general expenses was SEK 700 a day, slightly up from SEK 600 recorded in Q2, reflecting low AMG in previous quarter due to personnel expense.
Further, we have secured financing for predelivery CapEx of the newbuilding program through the 2 transactions. In September, the sale of the 2,003 build VLGC advance was successfully completed. Following repayment of BEST, the transaction generated SEK 17,000,000 in net cash proceeds and a book profit of $6,000,000 recorded in Q3. In November, the company signed a $45,000,000 sale leaseback transaction with the 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 CHF 2,300,000 corresponding to an earnings per share of CHF 0.04 Looking at the cash position, we recorded a cash balance of just below SEK 80,000,000 down by SEK 7,000,000 compared to previous quarter as a result of payment of second installment of our Duo Fuel newbuilds, drydock scrubber installation and sale of advance and prepayment and scheduled repayment of debt. Today, we have a cash position of SEK 86,000,000. 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 crude changes has 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 TC rate of $31,100 and a net profit of $24,000,000 And for that, we would like to thank the team in advance, the commercial, operational and technical team, for finding the best solutions and, of course, the crew members on board going overdue. Looking into the next quarter.
We have an increased coverage from 20% to 35% in Q4 at an average rate of 31,000. Including the coverage, we estimate the TCE rate on a discharge to discharge basis of 40,000 a day contracted for 90% of vessel days. Moving to Slide 4. We have an we are coming to an end with a special Serbian scrubber installation for the fleet. By end September, we have 7 of 8 dry dockings, 506 scrubber installations.
We have recorded 140 of 5 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 Q1 during the lockdown period at the yard. We have paid 95% of the capital expenditure, corresponding to CHF 2,000,000 in remaining CapEx related to drydocking. In 2021, we have no unfunded CapEx, assuming a normalized financing on the newbuilds. We expect the special server to be fully completed by end Q4 and a scrubber installation in Q1, which leaves us with a nearly fully tradable fleet in 2021.
Moving to Slide 5, 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 1 up and change of technical manager and COVID crew change challenges. The cash breakeven for 2021 is expected to come down to NOK 22,000, euros including the sale leaseback transaction. As already mentioned, we have increased our coverage to 35 percent with an average rate of 31,000 for the 4th quarter. But looking into next year, we also have a coverage of 27% at an average rate of 30,000 a day.
And with that, I leave the word over to you, Ben, for the market and company update.
Thank you, Randy. So 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'd also then touch on our dual fuel newbuilds as well as some advanced gas specifics. So if we look at Slide 6. When COVID hit in Q2, the LPG market collapsed, as did every other market.
With Air Force started off Q3 from a weak position, with earnings being below $20,000 a day on TCE basis. The LPG market has a modest sized fleet of around 300 ships and so a few minor fluctuations in the S and 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 continue to flow and we saw the main demand centers draw cargoes increasing to miles and pushing freight in an upward direction. Moving to Slide 7. The main driver 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 weak oil prices, we have seen rig productivity increase in July August, meaning there was more LPG in production and therefore an increase in exports. Given the main demand centers at Asia, the U. S.
Flows increased per mile and helps tighten the shipping market allowing for increased freight. If they are open allowing for cargoes to move at solid freight levels, ship owners have seen earnings improve accordingly. Moving to Slide 8. The EIA has consistently increased their expectations 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 in developing. As positivity returns to the market, LPG will continue to flow to the usual demand centers. Centers. Moving to Slide 9.
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.
So 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, where 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. Moving 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 in order. This includes the 2 Avance Gas fully dual fuel vessels under construction of DSMME.
On the scrapping side, we have just under 10% of the fleet being over 25 years old, which could encourage some scrapping. There's a large swathe of ships due for drydock over the next 2 years with 70 percent with 70 ships scheduled for 2021 alone. We expect this to keep the market relatively firm when coupled with scrapping and the well spaced newbuilding deliveries. Moving on to Slide 12. Advanced Gas has got 291,000 cubic dual fuel vessels under construction at DSMA due for delivery in Q4 'twenty one and Q1 'twenty two.
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. Split 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 kilometers 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 a vessel will trade for, having the most efficient and least environmentally impactful ships must be a priority. And these types of dual fuel vessels are the green future LPG transportation needs. Moving on to Slide 13. During the market review to a close, things are positive for LPG and for Avan Staffs. The supply side of the shipping equation looks favorable to owners, and we see the near term cargo supply and demand is also looking better than previously assumed.
The U. S. Production outlook for 2021 has improved, and this coupled with the drydock expectations and a small newbuild 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 QCE basis for early January shipping fixtures. As previously mentioned, our current guidance for Q4 is close to $40,000 a day, basic 90% of our shipping days being booked, something that we should give shareholders and investors confidence about Advanced Gas.
Current Current courage for 2021 sits at 27%, showing a measured view towards risk management. From an Advanced Gas Company's 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 control costs more strictly allowing for greater reliability from an operational and financial perspective. As Randy mentioned earlier, we have no unfunded CapEx for our newbuilding program outside the debt part, but given the green profile of the vessels and 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 Advanced Gas is in a great position to build a stronger future for our investors.
And Randy, myself and all the team at Advanced Gas will ensure we do all we can to deliver the best results possible. Thank you for listening today. That concludes our reporting. So we'll hand back to the operator for a Q and A session.
Okay. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Gregory Lewis from BTIG. Please ask your question. Yes.
Thank you and good afternoon everybody. I guess my first question is, in the slide deck you kind of mentioned the potential for retrofits. And just as I think about that, maybe it doesn't make sense to retrofit all of your vessels, maybe just the 8 newer ones. But just kind of 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. So 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 sort of in the long term. If we look at as you mentioned the cost, so the capital outlay for dual fuel conversion for an LPG ship is around about $10,000,000 So it's not insignificant when you look at the value of a vessel. Then you need to come with the physical conversion in the yard, which is somewhere between 60 to 90 days, given some of the experiences we've seen so far.
Plus you have a 2 year lead order time to get the kit ready. So it's those things are quite sort of problematic, I would say, just as a starting point. And then if we think where we're trying to get to, which is an actual greener vessel, the dual fuel retrofits, as we sort of said in the presentation, they're not fully green because the auxiliary engines are still burning fuel oil. So while it might be a step in the right direction for us, it doesn't feel the right investments given that you're only getting a portion of the benefits of a fully dual shore vessel?
Okay, great. And then just another one for me. Clearly, the market has stabilized and strengthened in the winter. I mean, whether that's just kind of curious as we kind of try to understand realizing there's a lot of moving parts. I mean, 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?
Like you mentioned the arbitrage windows open. So just kind of curious how we should be thinking about that with NAFTA realizing that oil prices seem like they continue to kind of melt higher here?
Yes, sure. I mean, we see, as you said, 80% of the demand profile for LPG is in Asia and 70% of that is non industrial. So the big drivers really in those areas, the naphtha component is, I would say, relatively small. But obviously, as the oil price increases, that being a potential challenge. But I think for us, we see the pull on propane being strong enough to keep the LPG flowing.
Okay, great. Thank
Your next question comes from the line of Peter Holcomb from Kepler Cheuvreux. Please ask your question.
Good afternoon. I have a quick question on the fixings for 2021. To what extent should we sort of read that to be in expectation of, what to say, a softer market? And if so, could we expect to see more fixings for next year? My second question, I'll just post it on the inefficiencies, the Panamax 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 segments? Thank you.
Hi, Peter. Thanks. Can I just check the first question with do you think that we will be taking more TC coverage for next year?
Yes, precisely.
Okay. So I think we're comfortable with our teaching 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. And if we look traditionally and seasonally, we have a similar low, but then it picks up again in sort of towards the end of the year.
So 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 2 main things really causing or 3 main things really causing problems there. You've got water issues, so draft issues, which is limiting the transit, which is something which we just have to wait and see what happens with weather. Then obviously, you've got the seasonal sort of clogging, let's say, because it's coming up to Christmas and there's demand for container goods to be using transits. And then obviously, we have the COVID effect of lack of crew to be able to manage the tugboats, which limits the number of transits.
So really, how do we resolve any of those problems? It's almost impossible to say. Unless this vaccines prove to be 100% efficient and they manage to get enough staff to be able to man the boat. These sort of delays could be around for a little bit of time. We sort of we've seen anything from 5 days up to 10 days to 12 days worth of delays.
And the booking system makes it quite difficult for people to plan. And I think if you can't plan efficiently, then you have to make other plans, which means going around the Cape, which adds to ton miles, which stretches the fleet further. So we don't see immediate, let's say, changes because of the Panama Canal.
Okay. Thank you. But if I just could then try to sort of 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. So if one was to see this issue being resolved, is that is it the talk of sort of 1% of the VLGC fleet?
Or is it sort of an an efficiency improvement in the line of, say, 5% of the VLGC fleet? Just to sort of 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. I mean, if we're adding sort of between 5 10 days to a voyage, then yes, I would imagine it's going to be a few percent. But unfortunately, I can't give you a specific answer for that.
Understandable. Thank you.
There seems to be no further questions at this time. Please continue.
Okay. And with that, we would like to thank you for dialing in and hope you're staying safe and healthy, and have a nice day.