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Korea’s Three Shipbuilders Expected to Receive Orders of LNG Carrier

As an increasing number of shipping companies are recently seeking to place orders to construct the liquefied natural gas (LNG) carrier, expectations are growing among South Korea’s three largest shipbuilders that they will receive the order. A LNG carrier is the sector in where the nation’s three shipbuilding companies have an overwhelming competitiveness.

According to industry sources on November 30, Hyundai Heavy Industries Co. is currently in negotiations with Russia’s Sovcomflot and Greece’s TMS Tankers over a new contract to build a LNG tanker.

French energy giant Total entered into a medium-term chartering contract with the two companies. The two firms are planning to order one 174,000-cubic-meter LNG carrier each with an option with for one more vessel. When Hyundai Heavy Industries wins the order, including the option, the company can construct a total of four LNG tankers.

In addition, officials from Russia’s largest gas producer Novatek recently visited Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries in consecutive order. An official from a shipyard said, “With robust guidance by Russian President Vladimir Putin, the country is seeking to build icebreaking LNG carriers in its dockyards. However, Russia still doesn’t have an icebreaking function mounting technology, it is trying to discuss a technology transfer deal with South Korean shipyards.”

There was no new order for LNG carriers last year. According to British shipping market intelligence provider Clarkson Research, the number of new orders to build a LNG tanker with a capacity of 140,000 cubic meters, including LNG floating storage regasification unit (FSRU), was 63 in 2014 but rapidly decreased to 31 in 2015 and 3 in 2016. There are only 13 new orders for a LNG carrier from January to October this year so it is still early to say the market has picked up.

However, charter costs, which are fees paid to ship owners by shipping companies for renting a whole or partial ship, are recently on the rise. The charter cost of 160,000-cubic-meter LNG tanker increased to US$70,000 (76.16 million won) as of the 24th from US$30,000 (32.64 million won) per day in April this year. It is showing obvious signs of recovery compared to US$36,038 (39.21 million won) on average in 2015 and US$33,528 (36.48 million won) last year.

An official from the shipping industry said, “When charter costs increase, ship owners consider placing an order for new vessels. The charter fees of large LNG carriers are steadily on an upward tendency after plunging to some US$25,000 (27.2 million won) per day in October last year.

The three shipbuilders are welcoming the trend. The average price of LNG tankers with a capacity of 174,000 cubic meters was US$182 million (198.01 billion won) as of last week. Considering the fact that the price of a very large crude carrier (VLCC), which is the main product of the three shipbuilding firms, is US$81 million (88.13 billion won), a LNG carrier is more lucrative vessel whose prices are two times higher than VLCC.

An official from another shipyard said, “A large LNG tanker with a capacity of more than 140,000 cubic meters can be built by only three South Korean shipbuilders, Japanese shipbuilders and some Chinese shipbuilders. There haven’t been new actual orders so far, though there have been forecasts last year and this year that the number of new orders will grow. However, we expect that the new orders will be placed in the market in the future.”
Source: Business Korea

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