By Nam Hyun-woo
Hyundai Heavy Industries and other Korean shipbuilding companies are facing an increasingly uncertain outlook as Japan and China are poised to award more LNG ship orders to their domestic shipbuilders, according to industry officials Wednesday.
Mitsui O.S.K. Lines (MOL), one of Japan's top three shippers, said it recently signed an MOU with China Ocean Shipping Company (COSCO) last week for future LNG carrier projects and ethane carrier projects. COSCO, a state-run firm, is China's No. 1 shipper.
With the MOU, the shipping giants are expected to strengthen their ties in existing and new LNG projects by MOL transferring its LNG shipbuilding technologies to Chinese dockyards. In Japan, shippers tend to have the core technologies required to build advanced vessels, as the country conducted a major restructuring of its shipbuilding industry in the 1980s.
The two shippers are already participating in an Australia Pacific LNG project and Yamal LNG project, which is an LNG plant on the Yamal Peninsula in northern Russia. In doing so, they jointly own and operate 17 LNG carriers, and 14 of them were built or are under construction by China's Hudong-Zhonghua Shipbuilding.
"After the two sides strengthen ties, they will likely funnel their LNG vessel orders into Chinese and Japanese shipbuilders, so they can catch up with Korean shipbuilders, which excel in building LNG carriers," an official at a domestic shipbuilder said.
Korean shipbuilders have maintained dominance in the global LNG carrier market over the past few years. According to market tracker Clarksons Research, Korean shipbuilders have clinched 21 out of 27 global orders for LNG carriers, equivalent to larger than 170,000 cubic meters, in the first half of this year. Samsung Heavy bagged 10, followed by DSME with six and Hyundai Heavy with five.
The three shipbuilders scored 66 out of 76 global LNG carrier orders last year, accounting for 86 percent of the total.
Analysts said this is due to Korean shipbuilders' advanced technologies in building LNG vessels, but they should avoid complacency, as China and Japan continue to enhance ties to increase their shares in the LNG vessel market.
"Korea became the powerhouse in LNG shipbuilding after the country expanded its natural gas reliance in the 1990s, and China is now following in its footsteps," said Yang Jong-seo, a senior research fellow at the Overseas Economic Research Institute of the Korea Export-Import Bank.
"Since 2017, China has been importing more LNG than Korea and replacing its coal power plants with LNG plants. To cope with its own LNG demand, China will ramp up its shipbuilders' capacity to build LNG vessels."
Yang expected up to 80 LNG vessel orders will be up for grabs in the second half of this year, and Korean shipbuilders will likely bag 50 of them as firms of China and Japan will take their own shares.
"Since LNG vessels require advanced technologies, it will take time for Chinese shipbuilders to win global shippers' trust," Yang said. "However, it seems obvious that Chinese firms will increase their shares gradually as they show progress in technologies."