Good day and thank you for standing by. Welcome to the Flex LNG Q1 2022 earnings presentation conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question-and-answer session. To ask a question during the session, you will need to press star and one on your telephone keypad. Alternatively, you can submit questions via the webcast. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Øystein Kalleklev, CEO. Please go ahead.
Thank you, and welcome everybody to today's Flex LNG webcast. I am Øystein Kalleklev, CEO of Flex LNG Management, and I will once again be joined by our CFO, Knut Traaholt, who will talk you through the numbers a bit later in the presentation. As always, we will conclude with a Q&A session. Before we start the presentation, I will remind you of the disclaimer as we will provide some forward-looking statements, use some non-GAAP measures, and there are limitations to the completeness of detail we can provide in this webcast. We recommend that you also review our earnings report. Okay, let's kick off with the highlights and a short summary of them.
It's fair to say that while the Q1 has been a fantastic period for cargo owners, given the global energy shortage with elevated LNG prices worldwide, it has not been as good for shipowners with ships in the spot market. The spot freight market has been challenging due to the rather rapid shift in trade pattern. The shift in trade pattern started in late 2021, well ahead of the war in Ukraine, and occurred as European buyers started to mop up the spot cargoes to ensure adequate supply given the low gas inventory levels. The pull to Europe instead of Asia resulted in a sharp drop in sailing distances and thus freeing up more ships in the market.
With significantly lower activity in the spot market, this adversely affected the earnings on the three index ships, as well as approximately one and a half ships, which we had traded in the spot or short-term PC market during the Q1 . In any case, despite a challenging spot market, we were able to deliver revenues of $74.6 million, in line with our guidance presented in February. Revenues were just about $40 million lower than in Q4 last year, but it's fair to say that Q4 was exceptionally good given the all-time high spot rates. About half of the decrease in revenues were due to lower earnings on the three ships on variable hire contracts, while the remaining half was due to spot exposure in Q1 for the one and a half ships mentioned.
Despite softer market, net income came in at a cool $55.8 million, or $1.05 per share. A big chunk of the earnings was admittedly related to our portfolio of interest rate derivatives. Prior to the interest rates going on a bull run due to Fed tightening, we secured the majority of our debt against higher interest rates through interest rate swaps, and Knut will give some more details about our hedging strategy a bit later in the presentation. Adjusted for the big gains on interest rate swaps, earnings per share came in at $0.45 per share. As we guided in our February presentation and are repeating today, we do expect to deliver sequential quarterly improvements in our revenues, which will beef up our cash flow.
We have a strong backlog with 98% contract coverage for the next three quarters, so our earnings variability is related to the three ships with variable hire rates. Being exposed to the spot market is, however, attractive now given the recovery in spot rates. Dividend for the quarter is $0.75 per share, which gives our shareholder an attractive yield of about 12%. Lastly, as I will explain, we are also well-positioned with three ships coming fully open over the next 22 months. With strong term market interest, we are upbeat about the prospect of reconstructing these ships. Turning to page four and our fleet status. As you can see from the slide, we are more or less fully covered for the year.
The only possible open position is Flex Amber, which could possibly be redelivered end of October unless the charter utilizes their last one-year extension option. Firm charter coverage for Q2 to Q4 is just 98% as explained. During Q1, we had a couple of ships coming off shorter term time charters and commencing longer time charters. In January and February, Flex Courageous and Flex Resolute was delivered from shorter term contracts. Following redelivery, the two ships commenced time charters with a super major. The period for the new time charters are minimum three years with 2 + 2 optional years, bringing the period to seven years in total for each ship. Due to the structure of the time charter for these ships and contracts, we do expect that the charter will eventually declare the full 7-year period.
In February, Flex Freedom was redelivered from a short-term 10-month time charter. After redelivery, she was delivered in direct continuation to a super major for a period of five years, where the charter has the option to extend the period to also seven years in total. In February, we also got Flex Aurora redelivered from a 17 months' time charter, and we fixed her on a short-term flexible time charter of five to seven months, also with a super major. This duration matched exactly with the delivery window for the Cheniere contract commencing in Q3. Flex Volunteer, which made a killing in the spot market last year, especially in the Q4 , had a very weak Q1 as there were very few spot requirements at the start of the year, which resulted in significant waiting time for the ship during this quarter.
We were, however, able to eventually fix the ship for a short spot voyage and thereafter agree with Cheniere for early delivery of the ship to them about two months ahead of the original schedule in Q3. Hence, Flex Volunteer thus became the fourth ship to Cheniere with a duration of about 3.7 years rather than the original 3.5 years. As Cheniere has also utilized the option to add a fifth ship, Flex Aurora will thus be the fifth ship going to Cheniere during Q3 with a minimum period of 3.5 years. Flex Rainbow is the first ship that will be fully open in January 2023. In our view, this is a fantastic position as there are very few modern large ships available prior to 2025.
As I will also touch upon later, the term market is very strong as charters are willing to pay up to secure fuel efficient tonnage given the elevated LNG prices and the introduction of EEXI and the European Emission Trading System for shipping next year. Lastly, we have three ships on variable hire contracts. As mentioned, this being Flex Artemis on a minimum five-year variable hire contract with Gunvor, as well as Flex Amber and Flex Enterprise. The charter of Flex Amber and Flex Enterprise has one additional extension option for each of these two ships. If the charter utilized these extension options, which we think is very likely, the ships will come open during Q4 2023 and Q1 2024. As mentioned with regards to Flex Rainbow, we think this provide us with very attractive marketing windows for these ships.
As I've already covered our contract portfolio extensively on the previous slide, I just want to highlight the development in the charter coverage over the next couple of years. Most of the backlog now is fixed higher, but we also maintain variable higher backlog on the three ships, which gives us exposure to the spot market, which is usually juicing the earnings when we are approaching the winter season. We also do have some ships coming open in this period, as mentioned, and we look at this more often as an opportunity than a challenge given the very strong term market. Slide six is our revenue guidance for the year, and the numbers are here the same as we presented in February, with only difference being that the Q1 numbers are now actual rather than a guidance.
As you can see, we delivered according to the guidance provided, and we are now also guiding about $80 million of revenues in Q2, right in the middle of previous guidance of between $75 million and $85 million. As mentioned, Q1 revenues are on the weak side due to a soft spot market. However, the spot market has bounced back, so we expect to generate higher revenues going forward. We have also covered the gap periods for both Flex Volunteer and Flex Aurora, and we are therefore expecting gradually improved revenues in the next couple of quarters. In aggregate, this means we still expect revenues for the year to be broadly in line with what we delivered in 2021, despite a bit slow start. Turning to slide seven, dividends.
Given our previous communication, it should not come as a big surprise that we are sticking to our dividend of $0.75 per share. As we have highlighted in the past, we prefer having a stable dividend level rather than adjusting up and down every quarter. This means that we sometimes pay out more and sometimes less than earnings. Over the longer term, this nets out, and we aim to pay out our full earnings over this cycle, as we have also been doing in the past, as you can see from this slide. Given our forward backlog, we also do expect less volatility in earnings than what we have seen in the past. As we covered in detail in previous webcasts, we apply a balanced scorecard to assess the appropriate dividend level.
For Q1, the earnings only receive a yellow light, but with a large backlog, strong outlook, and very sound financial position, we expect all the lights to turn green again shortly. With that, Knut will now go through the financials before I return with our market update.
Thank you, Øystein, and let's turn to slide eight and the financial highlights. We delivered revenues just shy of $75 million and within the revenue guidance of $72.5 -$80 million. This translates into a time charter equivalent of $63,000 per day. The quarter-over-quarter lower revenues is due to the weaker spot market in the Q1 , impacting our three vessels on variable hire contracts and the performance of Flex Volunteer and Flex Aurora, as explained by Øystein. The background for the softer market will be covered more in detail later in the presentation. The operating expenses was $14.4 million or $12,300 per day in OpEx.
For Q1, we have made a one-off accounting adjustment relating to previous period, and this is explained more in detail in the earnings report. The adjustment had a positive effect of $2.9 million on the operating expenses. Except for this adjustment, the operating expenses were higher quarter over-quarter due to higher number of crew rotations and handovers in Q1 versus Q3, Q4. Crew rotations for the vessels trading in the Pacific are more costly due to the continued severe COVID restrictions and quarantine requirements. In addition, ordering of spares, supplies, associated services for the full year were expensed in the Q1 , thus this should result in lower operating expenses for the rest of the year. A main change this quarter is the gain on derivatives of $31.9 million, which relates to our interest rate derivative portfolio.
As a result of increased long-term interest rates, this portfolio has continued to develop positively for us. I will come back and cover more on our interest hedging and derivative portfolio later in the presentation. In conclusion, net income for the quarter was $56 million, and adjusting for the gain on derivatives, the adjusted net income was $24 million. This results in earnings per share of $1.05, or adjusted earnings per share of $0.45. On the next slide for the balance sheet, for the quarter, there are no material changes on the balance sheet. The total assets is about $2.6 billion, consisting of our fleet of 13 state-of-the-art LNG vessels with an average age of 2.5 years, and with a book value of $2.3 billion.
In addition to a cash balance of a solid $175 million. As covered on the next slide, the cash balance will further grow with the completions of the balance sheet optimization program scheduled for Q2. On the liability side, the vessels are financed by a diversified mix of leases, ECA financing, and traditional bank debt, with the first maturity due in 2025. We updated our balance sheet optimization program in the Q4 earnings presentation in February, and today we announced that the six-year $375 million bank facility was signed in April and utilized to refinance the Flex Ranger and the Flex Rainbow in April. The aggregate $320 million financing for the two 10-year leases for Flex Constellation and Flex Courageous were also signed in April and is scheduled to be concluded tomorrow.
This leaves us with $905 million in book equity and a robust equity ratio of 36%. On the next slide, we see the cash flow for the quarter and our cash balance at the end of the quarter ended up at $175 million. This is twenty-seven million lower than last quarter, primarily driven by lower cash flow from operations, as explained earlier. Also note that we pay higher amortizations in Q1 compared to Q4 due to the semi-annual repayments under the $629 million ECA facilities. This quarter, we did not have any proceeds from financings. Thus, the net of $40 million paid in dividends, the cash balance came in at solid $175 million.
As shown in the graph, the cash balance will grow substantially in Q2 as we finalize the last phase of the balance sheet optimization program. $111 million will be freed up following the conclusion of the Flex Ranger, Flex Rainbow, Flex Constellation, and Flex Courageous financing. In Q3, we will refinance the existing lease for the Flex Endeavour, with her being the third vessel under the $375 million bank facility. As the bank debt amount for this vessel is slightly lower than the existing lease, the net effect is -$12 million, resulting in net cash of $100 million being released under the balance sheet optimization program, which should be concluded materially tomorrow. The growing cash balance then further adds to our already clean and robust balance sheet. Turning to the next slide and more on our interest hedging.
With the increase in interest rate, we thought it would be good to also provide some insight in our interest rate hedging portfolio. Over the last couple of years, we have built up a derivative portfolio with an aggregate notional amount of $876 million of plain vanilla interest rate swap. It hedges the floating interest rate risk under the, our debt financing. With the soaring long-term interest rates and the new financing added to our debt funding, we utilized a big drop in the long-term interest rates during the first week of March and secured interest rate swaps of $200 million with tenures up to 10 years at an average rate about 1.7%.
In Q1, the derivative portfolio gained about $32 million, and we also informed that during April, it gained an additional $16 million due to the rising interest rate. In addition to the interest rate swap portfolio, the interest rate risk is further hedged through our fixed rate leases, in particular for Flex Endeavour, Flex Enterprise, and Flex Volunteer. Despite that the lease for Endeavour is scheduled to be refinanced in Q3, the two remaining leases provide us with about $290 million of off-balance sheet hedge to the fixed rate lease. There's no mark to market of the interest on the P&L for these leases. However, the ten-year $160 million lease for Flex Volunteer, which was done in December last year, carrying all in interest of 4% and provide a very good hedge against rising interest rates.
Our hedge ratio, including the fixed rate leases, does give us a hedge ratio of 70% over the next years. With an average duration of 4.6 years and an average fixed interest of 1.25% compared to about 3% for a similar period today, our hedge portfolio gives us a good coverage for expected high interest environment in the period ahead. In conclusion, we're quite pleased to see that our conservative interest rate hedging policy now pays off and contributes to maintain the cash flow visibility from our time charter backlog. With that, I hand it back to you, Øystein.
Thank you, Knut. I mentioned the fight against inflation here with the higher interest rate. As Knut has explained, we are well protected against higher interest rate through our derivatives and fixed rate leases. When it comes to inflation, keep in mind our asset base consists of 13 ultra-modern LNG carriers. With higher raw material prices like steel, aluminum, nickel, and energy, scarce yard capacity, and increasing wage cost, it should not come as a big surprise that the cost of building a modern LNG carrier has increased a lot. We bought 11 LNG carriers at the bottom of the new building cycle in 2017 and 2018, which we have now taken delivery of. Similar vessels today are quoted at $225 million by Clarksons, and there have also been reported new building at closer to $230 million.
In addition, you would have to cover new building supervision costs and broker costs. Keep in mind, these prices are for ships delivery in 2026, as most of the 2025 slots have now been filled. If you are making this investment, you will have zero income for the next four years. To replicate our fleet, you will have to spend about $3 billion. If you then deduct our net debt of around $1.4 billion, you end up with an equity requirement of close to $1.6 billion, and this equity will be yielding zero for the next four years or so. Not only are we well hedged against higher interest rates, but our assets also provide our investor with good inflation protection. Okay, then finally turning to the market.
In our market section in our February presentation, we illustrated the high growth of U.S. LNG exports, with U.S. exports growing 23 million tons in 2021, representing 120% of the global market growth that year. The U.S. LNG export growth continue unabated in the Q1 , with 4.4 million tons increase or slightly above 20% growth. Despite the war in Ukraine, Russia has not had any problem finding buyer for their LNG cargos and managed to grow their exports by one million tons. LNG exports from Russia are not sanctioned by U.S. and E.U., nor is Russian pipeline gas, as Europe is heavily reliant on Russian gas. Several European countries are now rapidly expanding LNG import capacity to make them less dependent on Russian pipeline gas, and this will create additional long-term LNG demand.
This is positive for the LNG shipping market, even if more cargos are going to Europe, as LNG export capacity will also have to be expanded to meet this incremental unexpected growth of the LNG market. Speaking of LNG demand, on the demand side, as I have touched upon in the highlights, we saw a big pool of cargos to Europe in the Q1 , and this was the main reason for the soft spot market as ton mileage plummeted. While the market grew about 5 million tons or 5% in Q1, the LNG import in Europe grew by a staggering 13 million tons in the Q1 compared to last year. The strong demand from European buyers drove European prices above Asian prices and resulted in less LNG available for other markets. Consequently, Asia decreased their import by 6 million tons in the Q1 .
Given the high cost of LNG or spot LNG, Asian utilities swapped out spot LNG cargos by importing more coal, as the cost of carbon emissions are substantially less in Asia than in Europe, if any cost at all. This is certainly not good news for the environment, as the Asian were not alone in firing up more coal plants. We have also seen a rapid increase in coal consumption in Europe, with detrimental effects on the local air quality as well as global warming. Slide 14, and let's drill down into the U.S. LNG exports. The U.S. LNG exports continue to grow, and by end of April, exports were up 21% compared to last year.
It's fair to say that almost half of this growth was due to the big freeze in the U.S. in February 2021, where exports were curtailed at several liquefaction trains for a short period. This was a freak of nature incident which happily did not occur this year because then LNG prices would have gone even more ballistic. Hence, February exports this year were about 2 million tons higher than last year. The high export growth in the U.S. is set to continue during 2022 as two new liquefaction plants with a combined capacity of 15 million tons started exports in the Q1 and will thus contribute with further growth. In our February presentation, we argued that high LNG prices would incentivize exporters to squeeze out every single methane molecule through their liquefaction plants. This was very much the message communicated by Cheniere in the recent earnings call.
In our February presentation, we estimated that U.S. would increase their LNG exports by 12 million tons this year, or 17%. Given the price picture, this estimate is probably a bit too conservative, as the U.S. Energy Information Administration forecast 25% growth in U.S. exports this year in the recent short-term energy outlook. This means U.S. is set to become the world's largest LNG exporter in 2022. Turning to slide 15, where we break down where the U.S. cargoes are heading. We also showed the development of cargo destinations in our February presentation, where we illustrated that the European market share for U.S. cargoes increased from 15% in July to 75% by January. This trend has continued, and Europe has so far this year maintained 73% market share of U.S. LNG export, which is very high compared to the past.
Such European pull is, however, not entirely unprecedented. In 2019, after a warm El Niño winter, coupled with the outbreak of trade war between U.S. and China, resulting in a cool down of the Chinese economy, we also saw European LNG imports spiking with the European market acting like a sink. During the first four months of 2019, European LNG import almost doubled. However, the European LNG pull was then due to an LNG glut, while we are now experiencing scarcity of LNG with high pricing. Back in 2019, European imports were also from a broader set of suppliers, with the share of U.S. cargoes going to Europe only at 40%, significantly less than today. In the summer of 2020, following the COVID-19 outbreak, European buyer also gobbled up a lot of cheap LNG.
Again, this was due to low demand and not high demand as we see today. Slide 16, a closer look at the impact the shift in trade pattern has had on the freight market. In general, the longer the ships sail, the better for the freight market, as the market will then require more ships to ship the cargoes. As Atlantic cargoes have been predominantly shipped to Europe rather than Asia, at least so far this year, the average sailing distance of the LNG fleet has dropped considerably. From Q4 to Q1, the average distance is down by 15%, which is a really big drop in such a short period.
Last year, we saw a big pull to Asia throughout the year with sailing distances improving during the year, starting off at about 4,550 nautical miles and closing in close to 5,000 nautical miles on average by the end of the year. This goes a long way to explain why the spot market was so tight last year, despite all the new buildings being delivered. With the pull to Europe, average sailing distance dropped to 4,200 nautical miles in the Q1 this year. This is exactly the same as in Q1 of 2019, when we also experienced a big pull to Europe, as I just explained. With cargo pricing still favoring Europe, we do expect sailing distances to stay lower than last year.
We would expect the trajectory of the average sailing distance to follow the path from 2019 with gradual increase of sailing distance during the year. There is one difference between 2022 and 2019. In 2019, LNG export grew by about 35 million tons, while we expect around 25 million tons this year. Energy Aspects are more bullish on growth and forecast LNG export growth of around 30 million tons in 2022. In 2022, there are, however, significantly fewer ships for delivery than in 2019. In 2019, 41 ships were delivered, while the number this year is only 27 ships. The ratio of LNG cargoes to newbuilding deliveries are more favorable this year.
Hence, we do expect LNG freight market to become gradually tighter, which is also evident from the third market, which I will cover a bit later in the presentation. Another factor is that in 2019, as I mentioned, LNG was cheap due to a glut of LNG. Today, LNG is very costly, so this significantly increased the premium which charters can pay for modern ships compared to older ships. I.e., the market has become much more bifurcated than back in 2019. Keep in mind, this is prior to decarbonization rules like EEXI and CII taking effect next year together with the European Emission Trading System for shipping. Slide 17, returning to Europe. European LNG imports grew a whopping 52% from January to end of April this year.
As Europe is trying to cope with this energy crisis, we do see broad increase in imports in all major markets, as you can see on the right-hand side here, with the key import nation increasing its LNG imports by 43%-85%. Italy is the outlier with a growth of only 20%, but this is due to Italy now importing very close to their import capacity of around 11 million tons a year. This is also why we do see the Italians planning to ramp up their import capacity quickly by adding 2 FSRUs in addition to expanding the capacity of our onshore regas terminal. Italy is very dependent on Russian pipeline gas imports and have in the past been hesitant to criticize Kremlin.
Italian Prime Minister Mario Draghi is now signaling a sharp shift in Italian energy policies, something he shares with the German Chancellor Olaf Scholz. The Italians are not alone in expanding import capacity. Most European countries are now planning to swiftly add LNG import capacity to wean themselves off reliance on Russian pipeline gas, as I will cover on next slide. Slide 18. With the war in Ukraine and the global energy crunch, energy security has staged a comeback. Most European countries are now planning for a future where they will significantly reduce the pipeline gas imports from Russia. Some are even talking about banning it altogether. Hence, European countries are therefore planning to substitute these energy imports with increased LNG as well as expansion of renewable capacity.
In our February presentation, we also touched upon this point, highlighting that the biggest gas consumer in Europe, Germany, does not have a single LNG import terminal. Well, not for long. Germany has now woken up to a new energy landscape and are rapidly moving forward with plans to add two or possibly three large LNG import terminal. They have already chartered in four FSRUs, with the first import capacity planned to be in operation by early next year. If Germany wants to replace the gas import from Nord Stream 2, which now seem to be dead in the water with LNG, they will need to import about 40 million tons of LNG. 40 million tons are about half of the total European LNG import last year, so we are talking big numbers.
If EU is to replace all Russian pipeline gas with LNG, this would equate to around 110 million tons. This number does not include Turkey, which is also a big natural gas importer. Replacing such a large volume is, however, not realistic in the short term, but could be achievable by the end of this decade if sufficient new LNG is brought to the market. According to a recent Rystad study, replacing 72 million tons of LNG equivalent volume should be feasible by 2030. Needless to say, there are several LNG projects today competing to fill this gap. In any case, the expected growth in European LNG imports require a lot of new regasification capacity, i.e.
Import terminals to be constructed, and this is now happening on an unprecedented scale where European utilities and energy companies are soaking up more or less all available FSRUs in order to fast-track import projects. The FSRU market has been extremely challenging the last five years or so, which has resulted in a lot of FSRU instead trading as LNG carriers in order to find employment. By putting the FSRUs to good use as import terminals, these units are taken out of the shipping market and thus adding to shipping demand rather than competing for cargos. Slide 19 gives an overview of the contractual obligation that Europe has towards Russia in terms of pipeline gas contracts. These contracts are usually structured as long-term offtake agreements with minimum volumes.
In the past, Russia has also sold natural gas to European buyers in the spot market through their electronic sales platform, although spot volume last year were very muted. In any case, Europe, including Turkey, have contractual obligation to take around 180 BCM of Russian gas. Of this, Turkey's import from Russia was last year close to 30 BCM. If we leave out Turkey, this means 150 BCM or around 110 million tons of LNG equivalent, as I mentioned. Some of the existing contracts will expire naturally through roll-offs, and chances today are slim for renewal of this contract unless the political landscape changes dramatically. There is also a risk that Russians' insistence on ruble payment can cause disruption to the Russian imports.
This we have already seen happening in Poland and Bulgaria, where flows have been halted by Russia as they have not been able to agree on ruble payments for the gas. We have also today seen the disruption of Russian pipeline gas to Ukraine, and the risk of sanctions could potentially lead to swifter replacement of Russian gas than what is being illustrated in this graph. In any case, this is good for the LNG market. Where will all this LNG come from? In our February webcast, we illustrated all the export plants now being built, and there is a lot of them. More will be needed now, and since February, two projects have suddenly popped up and been sanctioned with startup already next year.
We have already seen projects being brought to the market at record time, like Calcasieu Pass, which started to export cargos 29 months after receiving FID, which is less time than it typically takes to build a LNG carrier. The first LNG project in US and the Congo LNG project run by Eni is however bringing the lead time of export projects down to our unprecedented new level with time to market of around a year or so. There are currently several projects in North America where we expect final investment decision to be imminent. These are brownfield expansion of Freeport and Corpus Christi, as well as the greenfield project, Driftwood and Woodfibre. Driftwood is a mega project of 27 million tons, but we have included phase one of ten point four million tons as highly likely.
There are also projects in Middle East and Africa, where the front-end engineering and design of FEED has already been completed, so these projects are ready to be sanctioned quickly. There are also several more projects doing marketing of offtake agreements or where the equity partners are discussing whether to go ahead with the investment. This selection of projects could add close to 200 million tons of new capacity. Please note that it's not a complete list of all the projects, but just a list of the most likely contenders in our view. Let's head into a snapshot of the LNG product market. As already covered, European spot prices have been trading at a premium to Asian spot prices, and this is still the case today.
Despite the Henry Hub being on a bull run this year, the arbitrage spread to Europe and Asia are still massive. Most of the Asian buyers are, however, well covered with contracted LNG. For the most part, these volumes are linked to oil, but also some linked to Henry Hub. Hence, Asian buyers in the big import nations like China, Japan, and South Korea are not feeling the pinch to a similar extent as European buyers, which are more exposed to spot LNG prices. The big pool of LNG cargoes to Europe has, however, started to create logistical issues. In the past, the DES NWE price, which means the delivered ex-ship price in Northwest Europe for LNG, has been trading very close to the natural gas hub price in the Netherlands, the TTF.
Typically, they have been trading within 20- to 50-cent spread, representing the cost of regasification of the LNG cargo at import terminal. However, with the armada of LNG ships heading to Europe this year, import terminals have been clogging up, and these prices have started to deviate substantially and are now at an all-time high level of around $8 per million BTU spread, with these quotations ranging from $6 - $11 per million BTU. Hence, if the pull to Europe continues, this spread might very well endure for some time and thus incentivizing either floating storage of cargos outside of Europe and/or that more cargos will be heading to other regions like Asia, where Regas capacity is ample. We see a somewhat similar picture in U.K., where prices are much lower than in continental Europe.
UK's problem is not really regas capacity, but a lack of storage capacity after the politicians had the great idea of closing down the Rough underground gas storage site in 2017, which was the biggest storage site in the country. UK does have a lot less storage capacity than other European peers and also lack gas and power connectivity to continental Europe. While Asian spot prices are lower than in Europe, there is still a substantial arbitrage to be made on shipping cargo to these markets. With prices coming down from the toppy level at the end of 2021 and early 2022, we expect to see increased demand from this region. A quick glance on the forward prices for LNG.
Given the tight market, prices have stayed elevated and prices have also been volatile, responding quickly to news flow relating to Russian pipeline flows as evident with the news about shutdowns of pipelines in Ukraine the last day or so. With European prices at par or premium to Asian prices, cargo owners have been incentivized to ship Atlantic cargos the shortest route to Europe. The market expect the European premium to endure for some time. As mentioned on previous slide, the congestion in Europe is creating some bottlenecks.
For illustrative purpose, we have therefore added a red-dotted line to the chart where we have put in a $8 spread between TTF and the delivered price for LNG into Europe and assume that this spread lasts for the next 12 months as ramping up import capacity in Europe will take time even for the Germans. Whether this spread will be $8, $4, or $10 is hard to predict, but at least it illustrates that cargos might be moving to other places like Asia. If the $8 bottleneck spread stays in place, JKM might very well be priced at premium to delivered price of LNG in Europe, and this is also one of the reasons we think sailing distances will gradually increase throughout the year. We could also see increased floating storage of ships in Europe.
This will not affect the ton mileage, but will positively affect ton time and thus have a similar effect for the shipping market, higher freight demand. The market expects LNG prices to stay elevated for the foreseeable future. Even in December 2024 and December 2025, TTF is at $19 and $16 respectively, while JKM is trading at a $1 premium at $20 and $17 for same periods. These are levels way above the contracted LNG price, which is converging towards $10. About 65% of the market will still receive LNG at a discount to oil, and you find these buyers mostly in Asia. With that background on the market, we have, in a roundabout way, arrived to the crux of the shipping business, freight rates. Let's start reviewing the spot rates.
We came from a red-hot market in Q4, but with the pull to Europe, the freight market started to soften in early December and then plummeted at the start of the year. These charter rates are headline rates, and as mentioned in the past, it masked the development in ballast bonus conditions, which vary with the market sentiment. Right now, this is not an issue as ballast bonus conditions started to improve in late February and we're back to full round-trip economics by April. Where headline rates are then thus at similar level as the time charter equivalent earnings. Since the end of February, we have seen gradual improvement in the spot market. Vessel availability also peaked during the end of February, and spot rates are now well above the seasonal average as we bottom out about a month earlier than in the past.
One thing worth noting is that most of the ships which have been available in the spot market have been relets, available only for shorter periods rather than fully open for longer duration. This means it's harder to find a ship for longer periods, and this is also one of the reason for the firmness of the term market. As of today, spot rates are hovering at around $80,000 per day, which is pretty decent for this time of the year. The spread between modern two-stroke ships and older four-stroke diesel electric ships or tri-fuels, which they're often called, is today at around $30,000 per day, reflecting that the new ship can carry more cargo while at the same time consuming considerably less fuel. Not surprisingly, the spread is a lot wider to inefficient steamships.
If we apply this $30,000 spread between TFDES and modern tonnage and plot in the forward freight rates for TFDES, we do see that the freight market is expected to continue to firm up and follow its seasonal pattern. For us, this means higher earnings for our three ships on variable hire contract. You could argue this MEGI XDF spread should be higher than $30,000 as LNG prices are in contango with higher future prices at the end of the year than today, which should increase the spread. Let's jump to slide 24, covering the spot market liquidity. The spot market liquidity in 2019 and 2020 and until summer of 2021 was pretty good, with an increasing number of spot fixtures being done.
However, with the rush by charters to secure ships on term deals last year, the big charters, i.e., the traders and portfolio players, have been controlling a greater share of the fleet, and this have impacted the spot market with fewer fixtures recently. Very few fixtures concluded by independent owners like us, as the vast majority of fixtures has involved relets, i.e., ships that charters control and are reletting out to other charters. This was also one of the reasons for a soft spot market in the Q1 of the year, a general lack of liquidity in the market. With the spot market now firming up, liquidity has also improved. The final market slide for the day.
With the improvement in the market and expectation for the rest of the year, the term market has continued to firm up after a small dip at the start of the year. One-year time charter rate for modern tonnage is now assessed by Fearnleys to be $138,000 per day, while Clarksons is quoting as high as $150,000. The three-year time charter rate is quoted at $118,250 by Affinity, while Clarksons is quoting $110,000. This is pretty solid levels, which is also why we are upbeat about fixing our two ships coming open next year and the one ship coming fully open in 2024.
With that upbeat message, I think we can conclude the market section, and I just have one more slide before concluding today's presentation. I'm pleased that we today have also published our fourth annual ESG report. ESG is an integrated part of our business. Our business is to replace dirty coal by clean, natural burning natural gas, which is not only good for global warming, but even more so for the local air quality. We have made a substantial investment in 30 state-of-the-art LNG carriers, which is consuming about half the fuel of our older steamship, but which also have a larger cargo capacity, thus reducing the carbon footprint for each cargo by close to 60%. We will continue to develop our business with the aim to further bring down emissions.
Like in the past, our ESG report is presented according to the Sustainability Accounting Standards Board's guideline, where we are applying the Marine Transportation Standard as industry framework. In the report, you will find useful data about the most relevant ESG factors affecting our business. Last year, we also included data for Global Reporting Initiative, and we are this year also providing a separate GRI index. In addition, we will also add the CDP framework to report on climate-related risk to benchmark our effort and performance against relevant peers. When talking about ESG, the focus is very often mostly on the E, the environment. But we also have an S and a G. The social aspect, I think we cover well in our report, and it's related to how we act towards our employees and our business practices. What is often ignored is the G, the governance aspect.
Shipping is a fiercely competitive industry. We compete globally for freight, financing, and striking the best new building contracts. Shipping is one of the most international business where free enterprise and entrepreneurship take center stage. However, there are still listed shipping companies that are eager to participate in the shipping competition, but who wants to opt out of the competition for corporate control. Typically, you see insider which have captured corporate control through lawyers and bylaws rather than skin in the game. It is not uncommon to see friendly boards paid generously and where appointment is for long period with staggered election in order to limit shareholder democracy. Additionally, this company might use unfair business practices like poison pills and other procedural tactics in order to insulate management from shareholder influence. In Flex LNG, we have none of this. Every shareholder is treated fair and equal. Everyone matters.
There are no staggered boards, no voting limitation, no poison pills, and every shareholder can raise an issue at AGM or EGM as we care deeply about shareholder rights. Yes, we do have a large shareholder in our company with about 46% ownership. Mr. Fredriksen has the best track record in the industry, not only in relation to shareholder returns, but also when it comes to fair and equal treatment of all shareholders. Additionally, Geveran, our major shareholder, also keep us on our edge and has an excellent track record in changing out management teams which are not delivering satisfactory results for its shareholders. With that, let's summarize the key takeaways from today's presentation. Revenues, as mentioned, $74.6 million, in line with guidance. Spot market has bounced back and term market remains very firm.
We have three effective ships which we are marketing for 2023 and 2024, where we are pleased about the earnings potential. We are 98% covered for the year, so we expect incremental better revenue numbers the next couple of quarters. Dividends $0.75, which gives our shareholders an effective yield. We have a big cash position, $775 million, which we will grow by another $99 million from our balance sheet optimization program. With that, I think we conclude the presentation and open up for some question. Nadia, maybe you can check if we have some questions on the teleconference before we check whether there are some chat questions.
Thank you. Dear participants, we will now begin the question and answer session. As a reminder, if you wish to ask a question over the phone, please press star and one on your telephone keypad and wait for a name to be announced. Alternatively, you can submit questions via the webcast. We have the first question comes from the phone from Clement Mullins from Value Investor's Edge. Please ask your question.
Good morning, gentlemen, and thank you for this comprehensive presentation. Strength in gas pricing has exacerbated the difference in realized rates between modern XDF or MEGI engines relative to TFDEs and especially to steamers. Could you provide some commentary on whether you see the current spread in performance given prevailing market conditions?
Yeah, thank you for the question. I guess you are working with J Mintzmyer , also in Value Investor's Edge. I think we touched upon it. We have a graph here on the spot market where we are showing the rates for modern tonnage quoted slightly above $80,000 in the spot market. Around $30,000 spread to tankers. The spread is due to you are consuming less fuel. Under a time charter, fuel is a cost for the charter's account, as you are consuming part of the cargo as fuel. With the high prices today, of course, the fuel spread is higher. You can carry more cargo, and the cargo is pretty valuable today.
We do see this $30,000 spread. Down to steam, it's even more. It's more than $50,000. If you were to calculate on this theoretically on, like, a desktop exercise, that spread would probably be even higher. This spread is a bit dependent on the price of fuel. More efficient ships, you have a lower unit freight cost for those ships when you're taking into account the cargo size and the fuel cost. I hope maybe that explains.
Indeed, that's helpful. Turning to your balance sheet, you have now completed the balance sheet optimization program, which further solidifies your already strong balance sheet position. In past conference calls, you provided some commentary regarding where you could potentially allocate these funds. Could you provide an update? If you were to acquire vessels, which vintage would you offer? What kind of vessel would you expect to generate the highest returns?
Yeah, it's a good question. Yeah, we get a lot of questions about why we are piling up such a big chunk of cash. To be frank, it's about also we're getting, you know, as we have derisked our portfolio through a lot of these longer time charters, the terms we are getting from financiers have improved. It makes financial sense to lock in new financing at better terms for longer durations. What we are incorporating in one of the, you know, the bank financing here is to have some more added financial flexibility by adding a $250 million bullet revolver. This enable us to not having to lend all the money at all time.
We can repay the loan and draw it back, and this saves us a lot of financial costs. When we are utilizing the revolver, we are only paying a 0.75% commitment fee per annum to having that liquidity available. We can kind of improve our cash management profile. We certainly do have more cash than we need to have. I think this is also to evidence that people can sleep good at night, that our dividend is stable given our backlog and our financial resources available.
We also like to, you know, not necessarily have a lot of cash available, because I do think if we find transactions that could be accretive, we don't mind using the market to kind of vet those transactions by, you know, raising capital if needed. Yes, we are a bit long cash right now. Given how the financial markets are today, quite wobbly and volatile, I feel that's a good position to have. Our aim is to return all the cash to shareholders as we have done in the past. As shown on the dividend graph, we have been returning all the earnings as dividend. Actually, a bit more than that because we have also had some CapEx last year.
In terms of acquisitions, yeah, we are looking all the time to find accretive deals. I think it's hard to run to the yard these days, ordering at $225-$230 million, waiting for four years, having dead capital on the balance sheet. I think, you know, you need to find some good deals in order for it to make sense. It's also a bit dependent on where our stock is being priced. Recently we're trading above $30. I think we are below $25 today. The share price also matter in relation to the attractiveness of acquisitions.
When it comes to asset type, we prefer the new ships because we do think a lot of the older ships will not be efficient, and they will not be able to meet the future regulation in terms of carbon emissions. We certainly are not looking for older ships when we are looking at potential acquisitions.
That's very helpful. Certainly having additional flexibility is definitely a positive. As you mentioned in the present-
Yeah, well.
Sorry, go on.
Yeah, our corporate name is Flex LNG.
As you mentioned in the presentation, you have a very little number of vessels coming open through the end of 2023, assuming extension options are exercised. Given current market strength, is it a fair assumption to assume these options will effectively be exercised? And if so, would that be at a higher rate?
I think, you know, we have the two ships coming open or near term is two ships where there are variable hire time charter. That variable hire time charter is linked to the spot rates. That's why we are also saying that we think it's likely they will be exercised because the charterer is basically gonna pay what they would pay in the spot market. So the rates for such extension would be that you are taking another year with market exposure, which we are happy with given the state of the spot market and the outlook.
All right. Thank you for taking my questions. That's all from me.
Thank you. The speakers there are now for the questions over the phone.
Okay. I think maybe you can say you have your glasses on.
We have two questions from the web. Can you comment on the decreasing OpEx? Before COVID-19, they used to be around $15,000 per day, and now they are much lower.
Yeah, it's actually, you know, we have guided in the past OpEx level, $13,000 per day. We have delivered on that. Actually, we've been delivering OpEx slightly below that prior to COVID. Last year when we have this COVID challenges and also into 2020, they have been slightly higher. Correct me if I'm wrong, Knut. I believe the OpEx last year was $13,300. So, you know, we are delivering OpEx at the level which we have guided, $13,000. They are slightly higher in Q1 because we have quite a lot of Russian and Ukrainian crew, has been difficult to do crew rotations.
Zero tolerance policies for COVID in China is causing a lot more testing and requirements and longer quarantine of crew for crew rotations. Kind of the COVID challenges two years now, more than two years since we had this problem are still something we have to deal with every day. In general, we are guiding our OpEx to be at the $13,000 level. Yeah.
We have a question on China and reopening and how that might increase current income expectations of Flex assuming there will be rate levels and revenues.
Yeah, China, of course, you know, China don't need to buy any spot cargoes this year. China has signed up a lot of new LNG offtake agreements, and they did so last year. Most of these are linked to oil price. They're also signing up quite a few agreements now in U.S. linked to more Henry Hub basis. China will be able to source LNG rather cheaply, and also to cover all their needs. That's why we're also seeing some Chinese buyers trying to the Europeans or people in Latin America. We're not really dependent.
Of course, if China comes back, roaring back, you know, I wouldn't rule out that after some COVID quarantines that China will follow the path of U.S. and Europe, stimulating their economy with a lot of fiscal stimuli, and then also maybe monetary stimuli. That usually results in demand picking up. When demand picking up, you need more energy to fuel that demand. Once China comes back, I would expect that to be on steroids. Then probably they will be sourcing spot cargoes again and might drive up ton mileage and spot rates. But again, three or four ships are now linked to the spot market. The rest are on fixed rate higher. It doesn't have a huge impact.
Of course, China is the biggest LNG importer, so we hope that China will be able to solve their issues with COVID, go back a bit more to normality like we have done in Europe and U.S. Return to normality also means growing their LNG demand, which they have grown quite a lot the last 10 years or so.
That concludes the questions on the web.
Yeah. I think there's one question here, but it's the same question. It's what are we gonna do with all the cash? I think that was the headline of the Pareto Securities research note this morning. I can tell you one thing, we're not gonna do stupid things with the cash. No, right now we're just gonna finish the balance sheet optimization program, get this other $99 million on the account. We're gonna use the revolvers to optimize our cash management, not paying too much interest to the banks. Then we will just continue returning very juicy dividends to our shareholders. Then, you know, we are still looking for opportunities to grow the company, but we won't do a stupid acquisition just because we have too much money.
We'd rather pay dividends than buying assets at too high prices. I think that's it. Okay, thank you everybody for joining today, and we will be back in August then with the Q2 presentation. Have a good day.
That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.