33% price increase! Russian shipowner cancels order, Hyundai Heavy Industries makes a fortune

Affected by EU sanctions, South Korean shipbuilders are terminating previous LNG carrier construction contracts with Russia. These "low-priced" ship orders, once a headache for South Korean shipbuilders due to losses, have now become "hot commodities" in the LNG market amidst rapidly rising LNG carrier prices, allowing Korean shipbuilders to make a substantial profit.

On July 6, Korea Shipbuilding & Offshore Engineering (KSOE), the shipbuilding business holding company of Hyundai Heavy Industries Group, announced that the contract parties, contract amounts, and contract periods for three LNG carriers signed by the company in January and July 2021 have changedartment

KSOE stated that in January 2021, the company signed a construction contract with a Liberian shipowner for one 174,000 cubic meter class LNG carrier, at a contract price of 198.9 billion won (approximately 182 million USD at the time). In July 2021, the company signed an additional contract with the same shipowner for two 174,000 cubic meter class LNG carriers, with a total contract price of 420.7 billion won (approximately 371 million USD at the time), and a single ship cost of about 185.5 million USD.ipment

This type of vessel has an overall length of 289.9 meters, a molded breadth of 46.1 meters, and a molded depth of 26.3 meters. It is equipped with an LNG reliquefaction system, which can reliquefy the boil-off gas generated during LNG transportation, further improving the economic efficiency of LNG transport. According to International Ship Network, these three LNG carriers will all be built at Hyundai Samho Heavy Industries in Yeongam-gun, South Jeolla Province, with planned deliveries to the shipowner in the second half of 2023 and the second half of 2024, respectively.h

Although KSOE did not disclose the country of the original order's related party, according to Korean media reports, these might be LNG carrier orders for the Russian state-owned shipping company Sovcomflot. According to Clarkson's data, Sovcomflot successively ordered three LNG carriers from Hyundai Samho Heavy Industries in January and July 2021, and both the delivery times and ship prices align with KSOE's description.r

It is understood that these three LNG carriers under construction, along with the 174,000 cbm LNG carrier "SCF La Perouse" delivered by Hyundai Samho Heavy Industries to Sovcomflot in 2020, were originally built for a 7-year time charter contract with France's TotalEnergies. However, to comply with European sanctions against Russia, TotalEnergies has cancelled the charters for all four vessels.es

A KSOE official stated: "Due to issues with the supply of main components required for the construction of these three vessels, after negotiations with the shipowner, both parties reached an agreement to terminate the contracts. Following this contract termination, the company has re-signed construction contracts for these three LNG carriers with new shipowners."es

It is understood that due to EU sanctions, Russian companies cannot obtain the equipment and components required for sanctioned industries. Reportedly, the new EU sanctions against Russia directly target the Russian LNG industry for the first time. On April 8, the EU announced new sanctions, which will prohibit Russian-flagged vessels from entering EU ports, ban the import of Russian coal, and prohibit the sale, supply, transfer, or export of direct or indirect goods and technologies suitable for refining and LNG to Russia. These suppliers include France's GTT, Germany's Siemens and Linde, as well as marine engine giants Finland's Wartsila and Germany's MAN Energy Solutions. The sanctions also prohibit technical services.ment

It is reported that the new contracts with KSOE were signed by an Oceania region shipowner. The total contract price for the three LNG carriers reached 942.3 billion won (approximately 720 million USD), an increase of 322.7 billion won compared to the 619.6 billion won total contract price when signed last year. The cost per ship surged from over 180 million USD to 240 million USD, an increase of nearly 60 million USD.ipment

There are reports that Alpha Gas, owned by Greek shipowner Anna Angelicoussis, is the buyer behind these three LNG carriers. The company's fleet currently operates five LNG carriers. These three LNG carriers will continue to be built by Hyundai Samho Heavy Industries, with planned deliveries to the shipowner in August 2023 and August 2024, respectively, which is the same as the original contract's delivery period.nt

Korean industry insiders stated that the contract price for the 174,000 cubic meter LNG carriers has now exceeded 310 billion won per vessel. While the depreciation of the Korean won against the US dollar is a contributing factor, it is primarily a result of increasing demand for LNG carriers. Currently, new demand in the LNG carrier market is further stimulated by a combination of factors: increased global LNG production, growing replacement demand driven by stricter new environmental regulations from the International Maritime Organization (IMO), and increased LNG sea transport volumes and storage demand due to the Russia-Ukraine conflict. Additionally, shipbuilding companies' dock resources are tight, and raw material and energy costs have risen sharply, suggesting that the upward trend in LNG carrier prices will continue for some time.ent

Currently, the three major South Korean shipbuilders have secured orders for 63 LNG carriers this year. As typical high value-added vessels, LNG carriers significantly impact shipbuilders' economic benefits. Therefore, South Korean shipbuilders will negotiate with shipowners based on the trend of increasing volume and price in the LNG carrier construction market, aiming to re-sign contracts preferably through "replacement" methods. (Wang Chu)