Experience vital to ride turbulent LNG market, says GasLog COO
Richard Sadler, who took over as GasLog chief operating officer (COO) in late 2017, has an independence and thirst for life that shines through – not just in his demeanour, but also in the choices that have shaped his career – with a propensity to leap at opportunities that come his way. The earliest manifestation of this character trait was his decision to join the UK Royal Navy (RN) as a midshipman to benefit from the free education. “My father was an academic and I decided it would be good not to make him pay for my education,” Sadler tells Fairplay, adding that the lure of the commercial sector proved strong, particularly when the RN encouraged him to focus on marine engineering rather than his chosen vocation of naval architecture.
After graduating with a degree in naval architecture from Newcastle University, where he met his wife, Sadler entered the commercial market and joined classification society Lloyd’s Register (LR), where he spent the next 30 years. “I started doing steel inspections for LR around the time that [former UK prime minister] Margaret Thatcher was in power and quickly realised that ship repair wasn’t going to be around [in the northern part of the United Kingdom] for very long,” he says. Given that he had a growing family, he saw the value in a cross-sectoral degree and obtained a post graduate diploma in welding technology that propelled him into the offshore sector, catering for rigs in Morecambe Bay.
His next move, much further afield, was fuelled by a family connection. “My father’s specialism was Kuwait, so when LR said it was looking to go there for a two-year stint, I jumped at the job,” he says.
While it would be natural to assume that leaving the RN would make it unlikely that the UK national would spend time in a war zone, this assumption didn’t hold true for Sadler. The move, complete with his wife and young daughter, happened just as the Iran-Iraq war kicked off, exposing the LR representative to a number of unusual experiences. “I became an expert on huge damage … bomb and mine damage, and also about what happens when refineries were hit,” he recalls.
His next posting, in 1990, was to Bahrain for the launch of the Arab Shipbuilding and Repair Yard (ASRY). This coincided just as the seeds of the first Gulf War were being sown.
Despite the various challenges that operating in another war zone brought up, Sadler talks about his time in the Middle East with a tone of nostalgia to his voice. “I look back at some of the stuff I did for work and it was very exciting! I love the Middle East and Arabic culture,” he says, expressing his admiration for the people, the warmth of the culture, and the sense of community.
Two war zones proved to be enough, and LR stationed Sadler in Japan for a five-year stint working with local yards on liquefied natural gas (LNG) vessels, primarily for Shell – giving him a grounding that serves him well in his current role in GasLog. These skills are supplemented by others gained during some tumultuous years at LR.
“I was doing an internal MBA at LR and just as I was finishing up, the chairmanship changed to David Moorhouse,” the COO says, recalling that the incoming LR chair had been horrified at the state of accounts. “David realised that, with the way that funds were being used, LR only had about three years to continue operating – I mean, there were no financial records for Lloyd’s at all. Tim Kent and I were selected to fix the situation and we realised that the company was making losses of GBP18 million (USD24 million) per year on a GBP250 million turnover per year.”
Using Excel spreadsheets to model every aspect of the company’s finances, the team was able to turn the situation around such that it was making a GBP13 million profit within just 18 months – albeit with redundancies for 600 people. The success was such that Sadler was propelled from boiler suit to suit, a move that tested his patience since he was surrounded by management that did not share his values. “LR was a company that I had fallen in love with as an employee and some of the other people recruited didn’t have the passion for its success,” he says, explaining his decision to resign and work as director of asset management for RBS for shipping and offshore.
“RBS originally rejected me for the job, but in the end I was the only candidate who knew everything about constructing a ship from plate to completion and also about US tax laws in order to make those charterparties advantageous,” Sadler says, adding that the role, under the guidance of Lambros Varnavides, forced him to transition from a technical to commercial mindset and come to terms with the cyclical nature of shipping.
A mere two years later, Sadler was invited back by Moorhouse to be chief executive officer of LR. “It took me just two minutes to decide that this was a good move. I went back and grew LR from a charitable company with a GBP480 million turnover to GBP1.1 billion turnover in the eight years I was there,” he says, adding that his decision to leave was spurred by his dual desires to try something new and also to allow a new generation of management to progress.
A set-term role helping a friend, Ravi Mehrotra, to restructure his shipping company (Foresight Group) enabled Sadler to travel to India for a project with GAIL LNG and opened the door for him at GasLog upon Graham Westgarth’s retirement. “I’ve been here since September 2017 and it is my job to make sure that we do everything better than the competition, at a price that our clients recognise as being excellent value for the quality they receive on the ships,” he states.
The GasLog COO believes that the global LNG markets are undergoing a fundamental change as LNG is becoming more commoditised. One of the signs, he says, is the fact that the market, which was almost exclusively time charters, is now seeing an increasing number of spot-market charters on offer. “This is a sector where quality and safety are paramount and expected by the charterers,” he emphasises.
“Even if you’ve had years of experience running tankers, the LNG space is different. I’d warn owners against buying two to three LNG carriers to enter the market. I think scale really matters and it would be a better use of their funds to buy our shares,” he says, adding that GasLog’s 27 vessels are operated at virtually 100% uptime. Another aspect that new LNG operators will struggle with is finding skilled staff, which will be in short supply once the market boom truly takes hold. GasLog, Sadler says, boasts a 98% retention rate and he is confident that it will continue this trend.
The COO points out that a number of high-profile companies have lost money when they speculatively built LNG carriers and found no market demand. “Even LNG, with its great future as we see it, is sure to be cyclical,” he explains. “From 2019 onwards, the world is going to be 20–30 LNG ships short, but that doesn’t mean you enter that market now, as with the building cycle, the ships won’t be ready on time.”
That said, GasLog is expanding its fleet and has ordered four newbuildings, with the last vessel due for delivery in 2020. “We have ordered speculatively because we think our vessels will come into a strong market. How long this will last will depend on how many people order in the next couple of years.”
Sadler believes that Chinese demand will be the linchpin of the market. “We think the peak [for LNG demand] will come in the third quarter of 2019 and run through 2020. Indications are all positive but China is the joker. If Chinese LNG demand grows and continues, it will give LNG carriers the same kind of growth as when China started absorbing world iron ore and boosted the bulk market,” he says, adding that the one difference in the scenarios is that Chinese yards will not be able to begin building complex LNG vessels as quickly as they did bulkers.
The market uncertainty doesn’t faze Sadler, who often does his thinking when riding one of his three motorcycles. His acceptance of the likelihood of a crash – “I crashed six times when doing BMW off-road training in the Brecon Beacons” – and ability to dust himself off, is one that will hold him in good stead in the coming years as volatility in the LNG market accelerates.
Contact Namrata Nadkarni