Membrane Technology Was the Secret Behind Korean Shipyards’ Landing of Qatar LNG Vessel Project
Securing the liquefied natural gas (LNG) vessel construction order from Qatar Petroleum (QP) has been the deal of this year in the shipbuilding industry around the world. Although the first agreement for the LNG vessel construction deal (16 vessels) was signed last month with a Chinese shipbuilding company, Hudong-Zhonghua Shipbuilding Group Co., the largest portion of QP’s LNG ship construction project went to South Korea’s “Big 3” shipyards – Daewoo Shipbuilding & Marine Engineering Co., Hyundai Heavy Industries Co. and Samsung Heavy Industries Co.
This deal could not have been more perfectly timed as the shipbuilding industry is struggling to survive through the COVID-19 pandemic and the plummeting oil prices. Amid such bleak circumstances, the three shipyards have provided a lifeline for the ailing shipbuilding industry by securing the blockbuster deal. QP’s chief executive officer and Qatar’s energy minister, Saad Al-Kaabi, and officials of the three shipyards signed the agreement in a virtual ceremony on June 1.
Under the US$20 billion worth agreement, QP has secured LNG vessel construction slots from the three South Korean shipyards until 2027. Considering that one LNG vessel is worth approximately US$180 million, this agreement amounts to construction of about 103 vessels.
The exact number of vessels ordered per shipyard has not been revealed by QP nor the three shipyards. Qatar, the world’s number one producer of LNG, has not made any investments related to LNG since 2004. This mega-deal signed between QP and the South Korean shipyards come with the increased demand for LNG due to reinforced environmental policies in many countries around the world including China and Europe. High LNG demand precipitated the need for production facilities as well as vessels to carry LNG.
The security bar was especially high for the signing ceremony. QP, concerned about the largest LNG ship contract in history falling through, requested the details of the deal to remain strictly confidential until the deal was signed and sealed. The Korean Ministry of Trade, Industry and Energy (MOTIE) did not even disclose the movements of Minister of Trade, Industry and Energy Sung Yun-mo during the signing ceremony.
South Korean shipyards’ superb LNG vessel construction capacity is what helped the shipyards to score a major portion of the LNG vessel construction order. Up until the 1980s, Japan led the LNG vessel construction industry. However, the details of the South Korean ships’ design and capacity that no other shipyards could emulate became the game changer. It was the cargo containment system, to be more specific, that helped South Korea to surpass Japan. While Japan dominated the LNG shipbuilding industry in the 1980s with Moss-type vessels equipped with multiple spherical cargo tanks, Korea developed membrane-type vessels where a cargo tank is integrated with the hull of the vessel. Membrane-type vessels were preferred over Moss-type vessels as cargo capacity of membrane-type vessels is 40 percent higher than that of Moss-type vessels. Starting from the late 1990s, South Korean shipyards started boxing out Japanese rivals, eventually to dominate the world’s LNG shipbuilding industry. Full re-liquefaction system (FRS), which fully re-liquidates the evaporating gas and pumps back the liquid form to the cargo tank, is also another growth engine that contributes incrementally to South Korea’s LNG shipbuilding industry.
Backed by the Qatar deal, South Korean shipbuilding industry is hoping to chase off its Chinese rivals who are rapidly expanding their presence in the industry. Although China’s shipbuilding capacity may not come close to that of South Korea’s yet, Chinese shipbuilders have been largely supported by shipping finance. China’s shipping finance is what helped China’s Hudong-Zhonghua Shipbuilding Co. land its largest deal with Qatar last month. This deal came as a surprise even to the industry insiders. Chinese banks offer financial support that amounts to 60 percent of the ship cost for ships built in their own country and covers 80 percent of the construction cost for offshore plants. One official in the shipbuilding industry said, “It is very likely that the Export-Import Bank of China promised financial support for Qatar’s LNG vessel order. This level of financial support would have been extremely advantageous amid financial challenges brought on by the COVID-19 pandemic and the overall economic recession.”
While the Qatar deal may be interpreted as signs of optimism for the domestic shipbuilding industry, some point out that it may be too early to say that the industry has turned a corner. Bae Jae-sun, a researcher at Hyundai Motor Securities, said, “What really matters is whether the LNG vessel order cycle will continue after 2022. This will be largely up to the United States that occupy 88 percent of LNG-related projects with high feasibility.”
Source: Business Korea