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South Korea Dominates Global LNG Shipping Market

South Korea is continuing to hold its dominant position in tanker delivery of liquefied natural gas (LNG) by winning major shipping orders over the next three years valued at more than $9 billion. It’s all part of an economic sector expected to see substantial growth as LNG becomes an attractive power source for several global markets.

Daewoo Shipbuilding & Marine Engineering, Hyundai Heavy Industries, and Samsung Heavy Industries have won more than 50 orders placed for new large-scale LNG tankers for delivery in the next three years. These new ships are expected to increase the global LNG fleet by around 10 percent. All three companies are making the necessary shipyard investments, with expected rising equities, while builders in the key competitive market of Japan are either flat or down.

These new mega-vessels are taking off as shipping companies see LNG rebound from a sector-wide slump two years ago.

One major shipping brokerage, Braemar, estimates that South Korean yards have taken 78 percent of all LNG-related orders this year, with just 14 percent and 8 percent going to Japan and China, respectively. These numbers including floating LNG storage and support vessels.

On the LNG consumption side, these three countries have also been the largest importers of the fuel. In recent weeks, these three major markets have come close to reaching maximum storage capacity; that’s helped LNG prices take a tumble.

Despite fluctuating prices, demand has stayed strong around the world. The three Asian countries have been ready to deliver the shipments. Related: Goldman Expects Extreme Volatility In Oil Markets This Month

“The demand for LNG carriers surged followed by increased global demand of LNG,” said Park Hyung-gun, vice president of Daewoo Shipbuilding & Marine Engineering (DSME). “There is a bright outlook ahead for LNG demand and South Korean shipbuilders will be able to excel in the LNG market.”

Asia continues to be the driver for LNG demand in a global market that has grown by about 5 million metric tons since 2015 in monthly deliveries. Regional markets identified as Northeast Asia and Other Asia and Oceania made up the lion’s share of LNG demand this year, according to a study by Refinitiv Eikon. The two regions will account for about 23.7 million metric tons of LNG per month by the end of this year, according to the study. Europe, the Americas, and the Middle East are only expected to account for 7.9 million metric tons per month during that time.

China is a ripe market for LNG, as government policy leans in that direction. The country wants to reduce reliance on coal power and increase its natural gas consumption for both industrial and residential end users. The goal is to offset rampant air pollution, particularly in its growing cities. The government has mandated that at least 10 percent of the country’s electricity be powered by natural gas by 2020. That should be increasing by 2030, according to earmarks being set by the government.

Chinese state-owned energy giant CNOOC has committed to making for a 20 percent rise in gas supply, the company recently stated. The energy giant at that time said it would be supplying 24.6 billion cubic meters of natural gas during the heating season in that week. That was expected to delivery a 20 percent increase in the fuel to meeting rising natural gas demand in the country.

South Korean carriers are seeing their business come from all over the world. Most of the new LNG projects in the Russian Arctic, Papa New Guinea, Australia, the U.S., East Africa, and Qatar, are scheduled to be delivered on South Korean ships.

DSME has taken on 12 orders for LNG tankers this year. These deals come out to about $2.2 billion for the company, according to data from Daiwa Capital Markets. The company said that about half its business this year has come from LNG tankers. That brought a much-needed recovery from near collapse in 2016-2017. The company’s stock were suspended during one of the largest shipping industry downturns ever recorded. Related: The Oil Industry Is Facing A "Capex Conundrum"

Korean companies have increased their competitive presence by reducing the cost of building LNG carrier ships for as low as $175 million. Japanese ships are costing more than $200 million, according to industry sources.

Another reason Korean shippers are gaining market share has been switching over from the traditional Moss tanker design that became the industry norm in 1973. Customers are taking to their Membrane-type vessels that leave less dead space within the ship’s hull. Korean shippers can offer the Q-Max vessel, the largest class of Membrane carrier, that can load up to 260,000 cubic meters of LNG versus 182,000 cubic meters on the largest Moss-type tanker.

“Ship designs are changing,” said Park Moo-hyun, an analyst at Hana Financial Investment in Seoul. “China and Japan are not well responding to the change... and this led to no orders (there)... and that’s why European ship owners are placing orders to South Koreans,” he added.

By Jon LeSage for Oilprice.com

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