Asian LNG Consumption Boom Floats Korean Tanker Builders

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--An outcome of rising Asian gas demand is the continued buoyant level of South Korea's LNG tanker construction industry.

At a time when China is financing orders for its local shipyards to build capesize dry-bulk carriers, the prices of LNG tankers with a capacity of 160,000 cubic meters have remained at about $202 million since 2010. Capesize dry-bulk vessel prices have slumped 18% in the same period, partly because of the glut caused by Chinese shipyards.

The Chinese shipbuilders have, to a large extent, been shut out of the LNG tanker market where Korean companies like Samsung Heavy Industries (SEO:010140) (Seoul, South Korea) and Daewoo Shipbuilding and Marine Engineering Company (SEO:042660) (Seoul) have boosted earnings. The fact that the LNG tankers are more complicated and more expensive to build than dry-bulk or container vessels has kept the competition at bay. The forecast is for 140 new LNG tankers to be ordered over the next five years.

Global shipbroker Clarksons reports that South Korean shipyards have won all 13 orders for new LNG tankers placed this year up to the end of April. Overall, Korea has built 197 of the 372 tankers now afloat. Japanese shipyards come second with 103 tankers in service, but last won a new order in 2011. Worldwide there were 71 LNG tankers on order at the beginning of May, with a total capacity of 11.1 million cubic meters, which is equivalent to 21% of the capacity of the current operating fleet. The ratio of "on order" to "operating" is 24% for containers ships, 29% for dry-bulk carriers and 16% for oil tankers.

Samsung Heavy Industries has built 11 vessels for Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) in Qatar that can each carry 266,000 cubic meters. Samsung, Daewoo and Hyundai Heavy Industries (SEO:009450) (Seoul) shared orders for 44 vessels from Qatar in 2007 and now have a combined total backlog of 55 vessels.

The only Chinese LNG tanker builder is Shanghai-based Hudong-Zhonghua Shipbuilding Company, which has built five vessels and has five more ordered. China is expected to push local tanker building, with LNG imports expected to generate 60 more orders over the next five years.

It is possible that China could increase its natural gas consumption to 600 billion cubic meters by 2030 driven by economic growth and a desire to reduce its reliance on coal, according to Wood Mackenzie (Edinburgh, Scotland). China is currently operating five LNG terminals and building a further six that will be commissioned during 2014, according to state-owned China Petroleum Corporation's (CPC) annual oil and gas research report.

CPC and PetroChina Company Limited (NYSE:PTR) (Beijing, China) are purchasing gas from Australian projects, including Chevron Corporation's (NYSE:CVX) Gorgon project and Shell's (NYE:RDS.A) (The Hague, Netherlands) Sunrise project.

Japan, which is the world's largest purchaser of LNG, raised LNG imports 12% in the first four months of 2012, as nuclear power generation was curtailed following the Fukushima disaster. The country may require up to 90 million tons of LNG annually by 2025, according to Tokyo Gas. In 2011, the country imported 78.5 million tons.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.