China has made rapid inroads into the new market for liquefied natural gases (LNG) tankers. Both local and international shipowners are turning to China’s shipbuilders to build specialty vessels. Long dominant yards in South Korea have been fully booked.
Nearly 30% of all record orders this year for 163 new LNG carriers were won by three Chinese shipyards, with only one having built large LNG tanks. This is a market where South Korea typically holds the majority of business.
Chinese LNG tanker orders for Chinese yards increased by three times as China’s fleet operators and gas traders sought shipping security after record freight rates rose following Russia’s invasion Ukraine.
South Korean shipbuilders were overwhelmed by the orders to serve Qatar’s huge North Field expansion. Chinese yards attracted more international bookings. This included first orders from overseas for ship builders that have just been certified to construct membrane-type LNG carriers.
Li Yao (founder of Beijing-based consulting SIA Energy) stated that as more Chinese traders in gas engage with local shipyards they will have to learn and grow the industry.
According to Clarksons Research, this is five times the value of their orders in 2021. This year, 45 LNG tanker orders were won by Chinese shipyards.
Late November saw Chinese yards grow their LNG orders to 66, a significant increase from 21 in the previous year. This gave them 21% global orders of around $60 billion.
According to Clarksons, Chinese shipyards produced only 9% of global LNG fleet.
The only Chinese yard that has experience in building large LNG carriers is Shanghai-based Hudong-Zhonghua Shipbuilding, which delivered dozens of vessels since 2008. It received 75% of China’s latest orders this year.
According to Clarksons, industry representatives and officials, Hudong Zhonghua received 26 orders from local buyers compared with nine in the previous two years.
China Merchants Heavy Industry, CMHI and Yangzijiang Shipbuilding, YAZG.SI – two other yards were also certified to construct large LNG carriers in this year’s market and attracted both local and international shippers.
Like aircraft carriers, LNG tanks are one of the most complex vessels, and can take up to 30 month to construct. In order to build membrane containment tanks, 200 people spend 2 months welding barriers made from paper-thin steel with 130km (81 mile) connecting lines.
Gaztransport & Technonigaz is a French engineering firm that has the rights to patent its designs and licenses them to shipbuilders.
Hu Keyi (corporate technology chief, Jiangnan Shipyard) stated that the learning curve for newer builders will be more steep. He also said there would be a shortage in skilled workers.
Jiangnan has begun construction of its first 80,000 cu metre, tanker for Guangdong’s trader JOVO Energy. In March, Abu Dhabi National Oil Company received an order for two 175,000 cu m LNG carriers.
Jacky Cai (director at JOVO) said that considering the relatively low financing cost of Chinese banks, investing in a newbuild provides greater security than term chartering.
China’s need for LNG tankers comes from the requirement to transport 20 million tonnes of gas annually to the United States. This is part of an unprecedented boom that will increase the world LNG fleet by one third in the next five year, according to Robert Songer of commodity consultancy ICIS.
According to Li, SIA Energy’s Li, China requires approximately 80 vessels for U.S. LNG transport.
Clarksons Research managing director Stephen Gordon said that the vessel could be used for more than just servicing Chinese demand.
An increase in local shipbuilding is a benefit to state energy giants PetroChina, China National Offshore Oil Corporation, (CNOOC), and Sinopec, as well as private company ENN Natural Gas Co, which helps to secure the fuel needed to meet China’s 2060 emission-neutral goal.
CNOOC and PetroChina secured orders for Hudong Zhonghua before their counterparts, most likely via joint ventures. These were formed with COSCO Shipping Energy Transportation. and China Merchants Energy Shipping (CMES). This was in response to President Xi Jinping’s request for energy security.
Industry officials said that Sinopec is also in negotiations to acquire newbuilds at Jiangnan or Dalian. Sinopec refused to comment.
COSCO Shipping Energy “is ready to work hand in-hand with shipowners, yards,” Qin Jiong said at an industry seminar last month. He also pointed out another benefit of local shipyards.
Although their labor costs can be higher than those of other countries, Korean yards – like Daewoo Shipbuilding & Marine Engineering or Hyundai Heavy Industries, are cheaper to design and construct and also have a local supply network, according to Sunny Xu founder of C-LNG, a Singapore-based LNG provider.
A source in the South Korean shipbuilding sector declined to identify himself but stated that shipowners have an optimistic view of Korean shipyards. “They seem to want to realize the design shipowners desire, be able to meet deadlines and operate without problems,” he said.
Nevertheless, 19 LNG tanker orders were received by Chinese yards this year. This number will likely grow.
Songer, an ICIS analyst said that Chinese yards are more appealing due to the South Korean backlog and rising costs.
He said that the relationship between GTT and Chinese yards also benefits.
It is reasonable to assume that China will build more vessels in future.