Wu Xiuxia

It is recently reported that a Danish shipowner Celsius Tankers is seeking to order up to 12 large LNG carriers from a Chinese shipbuilder and negotiating with Yangzijiang Shipbuilding and China Merchants Heavy Industry. With the surging demand for large LNG carriers, LNG shipbuilding capacity is now in short supply, attracting more domestic shipyards with certain technology accumulation to snatch market share.

Previously, only CSSC Hudong Zhonghua has the performance of building large thin-film LNG carriers. At present, CSSC Jiangnan Shipbuilding and Dalian Shipyard have received its first order for large LNG carriers, and Yangzijiang Shipbuilding and China Merchants Heavy Industries may soon join them.

Industry experts said that large LNG carriers are known as the “Crown Jewel” of the world shipbuilding industry, and are typical high-tech and sophisticated ships. Although the demand is far lower than the three mainstream vessels, a few shipyards can build them, mainly concentrated in South Korea. Now with the “blowout” of the LNG ship market, the door for LNG ship and even large LNG ship market is open to more shipyards. And after a round of ship market cycle adjustment and ship construction technology big strides forward, various production factors, especially technology, workmanship and marine equipment strengths of some large Chinese ship companies are incomparable with a decade ago when China built the first large LNG ship “Dapeng Hao”, fully able to meet the challenges of building large LNG carriers, and all-round leaps in design, technology, workmanship, management and marine equipment are achieved by building this type of ships. However, as a high-tech and sophisticated ship type, building large LNG carriers also faces high risks. Shipbuilding enterprises should pay attention to steady operation, exercise delayed delivery management for planning, technology, construction, cost and key equipment management, and prevent the risk of later period ship delivery.

Demand Surge Entails Bullish Market

“A 174,000 m3 LNG ship was quoted as high as $270 million, and the delivery date is scheduled until 2027...” A South Korean shipbuilding company’s recent reply to the shipowner’s inquiry about a 174,000 m3 LNG ship put the industry in an uproar. Just two years ago, the price of the ship was just $186 million, up 29% in two years.

Behind rising LNG ship prices is a surge in demand and extremely tight capacity. Since 2021, high gas demand and freight rates have surged high due to geopolitical conflicts and other energy crises in Europe, and a global battle for LNG carriers is in a touchand-go state. Against this backdrop, orders for LNG newbuilding have increased significantly.

In the past decade, only South Korea's Hyundai Heavy Industries, Daewoo Shipbuilding and Marine, Samsung Heavy Industries, Japan's Mitsubishi Heavy Industries, Mitsui Shipbuilding, Kawasaki Heavy Industries, Japan United Shipbuilding and Imabari Shipbuilding, and China's Hudong Zhonghua have been able to build large LNG carriers. According to the annual data, the annual output of large LNG carriers does not exceed 50 ships. Due to the high construction cost of MOSS and SPB LNG carriers, GTT filmtype LNG carriers have become the mainstream of the market, and the production capacity of large thin-film LNG carriers is mainly concentrated in South Korea. This year, global orders for large LNG carriers have reached 122 units (all thin film), about $27 billion, a record high, exceeding the entire year so far, and new ship order placing continues and is growing. In this situation, the market demand has far exceeded the existing LNG ship production capacity.

At the same time, as the shipbuilding industry has entered a recovery cycle in the past two years, the ship orders led by container ships have soared, and the production plans of Chinese and South Korean shipbuilding companies have been full in the past three years, with little capacity space to meet the demand of LNG ship construction. Most LNG ship orders can only wait in a queue, and the shipyard's delivery time has been extended until 2026 and beyond. It is reported that South Korean shipbuilding companies that have won 94 large LNG orders this year have no capacity to undertake LNG orders to be delivered before 2027; Hudong LNG currently holds more than 36 LNG orders, and the latest delivery time of three LNG carriers has been scheduled to 2028. Among the Japanese three shipyards of film-type construction capacity -- Mitsubishi Heavy Industries, Mitsui Shipbuilding and Imabari Shipbuilding, only Imabari Shipbuilding is likely to undertake.

In this context, more and more Chinese ship companies are actively seeking to enter the LNG shipbuilding domain.

Hu Keyi, director of Jiangnan Shipbuilding Science and Technology Commission, said that it should be a good opportunity for domestic shipbuilding companies to enter the LNG shipbuilding sector. On the one hand, in the face of the increasing demand for LNG carriers and the shortage of ship space resources of shipbuilding enterprises, shipowners can only choose to try to explore shipyards that may build LNG carriers and related ship space resources, and will be more tolerant of the technical indicators of the ship type, technology and process equipment of the enclosure system, the relevant performance and management level of the shipyard. This is rare good news for shipbuilding companies. On the other hand, as the global shipbuilding industry has entered a new development cycle, the overall market environment has a certain supporting role in entering the LNG shipbuilding sector, and promotes the shipbuilding enterprises to step up the adjustment and upgrading of the product structure.

At the beginning of this year, Jiangnan Shipbuilding and Dalian Shipbuilding successively received orders for large thin-film LNG carriers, forming three legs of a tripod -- Hudong Zhonghua, Jiangnan Shipbuilding and Dalian Shipbuilding, changing the situation of Hudong Zhonghua going it alone in the past. In addition, China Merchants Heavy Industry and Yangzijiang Shipbuilding are also seeking to enter the large LNG shipbuilding market.

The insider says, for all wellstacked handheld orders of domestic companies and very tight dock resources, the LNG ship value is high and future prospects are broad and optimistic, it belongs to the strategic ship market; therefore, it still attracts strong domestic companies into the market, and trying to build LNG carriers to further enhance competitiveness.

Corporate risk prevention and control

Relevant domestic ship enterprises have made great efforts to enter the LNG shipbuilding market for many years. In recent years, Dalian Shipbuilding has completed R&D of 140,000 m3,150,000 m3,175,000 m3 and 210,000 m3 LNG carriers, recognized by French GTT and mainstream classification societies; it has completed the construction of the world's largest NO96 LNG carrier simulation module and the world's first fully enclosed MARK Ⅲ LNG carrier simulation module. In recent years, Jiangnan Shipbuilding has realized the full coverage of R&D, design and construction of full-spectrum LNG vessels with Type A, Type B, Type C and thin-film low-temperature LPG enclosure system.

The 175,000 m3 LNG carrier and 180,000 m3 LNG carrier developed by China Merchants Heavy Industry and its design company Deltamarin won AiP certificates of CCS, LR, ABS, BV and DNV. This is a phased achievement of China Merchants Heavy Industry (Jiangsu) to promote the business of large thin-film LNG carriers, paving the way for undertaking large LNG carriers.

On September 8 this year, Yangzijiang Shipbuilding officially signed the Technical Assistance and License Agreement (TALA) on thinfilm enclosure system with GTT Company of France, indicating that Yangzijiang Shipbuilding has officially obtained the GTT’s qualification certification, thus qualified for building a large LNG carrier with GTT MARK Ⅲ-type film enclosure system. It has been reported that China Merchants Heavy Industry and Yangzijiang Shipbuilding have made progress in newbuilding negotiations with Danish shipowner Celsius Tankers, with the total order value estimated to be up to $2.8 billion (about 20 billion yuan) at current ship prices.

Hu Keyi said that compared with more than a decade ago, China's relevant shipbuilding enterprises have achieved a significant leapfrog in foundations and conditions of professional production, equipment supply and professional installation team of LNG carriers, especially MARK Ⅲ thin film enclosure system components and installation equipment. It can be said that the time is ripe to enter the LNG shipbuilding sector.

However, the market entry opportunity is also accompanied by risks. Hu Keyi said that LNG carriers are internationally recognized as a high-tech and sophiscated ship type, and it will take several years for new shipbuilding enterprises to have capabilities of professional technology, process and tooling, and liquid cargo system installation and debugging to build LNG carriers on large-scale and batch basis. Therefore, shipbuilding enterprises should pay special attention to rationally grasp the pace of receiving orders. Moreover, after the realization of LNG carrier-related technology breakthrough, shipbuilding enterprises should make more efforts to reduce costs, shorten the cycle, improve the construction quality and build professional construction teams, so as to form a large-scale production capacity and competitiveness in the international market.

Eight domestic shipyards have signed TALAs with GTT, among which, Hudong Zhonghua LNG carrier handheld orders account for about 11% of the global market, and Jiangnan Shipbuilding and Dalian Shipbuilding, which have received large LNG carrier orders, hold 6-ship and 2-ship orders respectively.

A Korean shipbuilding industry source said that South Korea is unable to accept orders for large LNG carriers to be delivered before 2027, and Chinese shipbuilding companies have an advantage in ship delivery schedule, so European shipowners, who have been ordering LNG carriers from South Korea, are flowing to China. This year, Chinese shipbuilding companies have taken orders for nearly 30 LNG carriers, 26 of which are large LNG carriers, which has surpassed the 14 Chinese LNG carriers they received in the full year of 2021. The gap between China and South Korea is narrowing. Industry insiders expect the LNG carrier building capacity of Chinese shipyards to hit 30 per year after the abovementioned new entrants reach design capacity.