LNG vessel orders continue! Competition for orders intensifies between Chinese and South Korean shipbuilding industries

Driven by the soaring demand for LNG, new LNG carrier orders doubled in 2022, reaching a record high. Chinese shipbuilders, led by Hudong-Zhonghua, secured 32% of LNG carrier orders, with Hudong-Zhonghua's order volume ranking third globally. In 2023, the LNG carrier order boom is expected to continue. With South Korean shipbuilders taking the lead in securing the world's first LNG carrier order this year, competition between China and South Korea for this high-value ship type will intensify.

China secured 59 orders, accounting for 32% of the market! Global new LNG carrier orders hit a record high in 2022.

According to a recent report by Clarksons, new LNG carrier orders surged to 182 in 2022, more than double the record 83 orders in 2021, over three times the average of 59 per year over the past five years, and nearly four times the average of 49 over the past 10 years. In terms of investment, the 182 new LNG carrier orders totaled US$39.1 billion, exceeding the previous record of US$15.4 billion in 2014.

The report points out that while South Korean shipbuilders still dominate the LNG carrier construction market, the market share of Chinese shipbuilders increased significantly last year. In 2022, Chinese shipbuilders received a total of 59 LNG carrier orders, accounting for 32% of the market share; while South Korean shipbuilders received 122 LNG carrier orders, accounting for 67%. Besides the 181 orders received by China and South Korea, the only remaining LNG carrier order was a 3,500 cubic meter LNG bunkering vessel received by Mitsubishi Shipbuilding in March.

Looking at individual shipyards, HD Hyundai Group in South Korea ranked first in terms of order volume, with its two shipyards, Hyundai Heavy Industries Ulsan and Hyundai Mipo Dockyard, receiving a combined 44 LNG carrier orders. Daewoo Shipbuilding ranked second with 40 orders. Hudong-Zhonghua and Samsung Heavy Industries ranked third, each with 38 orders, setting a record high for Chinese shipyards' annual LNG carrier order volume, and increasing their market share from less than 7% in 2021 to nearly 21.8%.

Clarksons stated that the unprecedented order boom in the LNG carrier sector in 2022 was mainly driven by orders related to LNG projects, with a record level of LNG liquefaction capacity planned for commissioning between 2025 and 2026. Notably, 64 of the LNG carriers ordered in 2022 will be chartered to QatarEnergy, part of QatarEnergy's "100-ship plan," to be used for the North Field Expansion project in Qatar and the Golden Pass LNG project in the United States. In addition, 13 LNG carriers will be chartered to ExxonMobil, also for transporting Golden Pass LNG project cargo.

In addition to the LNG shipping demand driven by new project commissioning, record-high daily charter rates for LNG carriers also contributed to the surge in investment in this sector. Increased sales and purchase agreements (SPAs) are another supporting factor, with at least 70 million tons/year of LNG SPAs signed in 2022, some of which prompted buyers to use newbuilding contracts to meet their capacity needs.

Against the backdrop of the surge in orders, as of early 2023, the backlog of LNG carriers reached 320 vessels with a capacity of 53.17 million cubic meters, also a record high, equivalent to 50% of the existing fleet capacity. It is reported that Hudong-Zhonghua currently has a backlog of nearly 50 orders, with production tasks scheduled until 2028.

Although the current order backlog is enormous, Clarksons believes it is still manageable, partly because the delivery times for the backlog are spread from 2023 to 2026, and extend to 2028. In addition, over 85% of the backlog has been confirmed for use in specific LNG project transportation, and currently under-construction LNG projects alone require approximately 40 million cubic meters of LNG transportation capacity. The scrapping of old vessels, the conversion of floating storage and regasification units (FSRUs), and the slowing of older vessels to meet new environmental regulations all help to improve the supply-demand relationship.

LNG carrier orders are expected to drop to 83 this year, intensifying competition between Chinese and South Korean shipbuilders.

In 2023, the LNG carrier order boom is expected to continue. Clarksons predicts that global new LNG carrier orders this year will be roughly halved from last year, falling to 83, on par with 2021. Even so, this figure is still the second highest in history after 2022.

Clearly, the competition between Chinese and South Korean shipbuilders for LNG carrier orders will further intensify this year. The South Korean shipbuilding industry has fired the first shot, with HD Hyundai Group securing five LNG carrier orders worth nearly US$1.3 billion in just three days.

On January 16, Korea Shipbuilding & Offshore Engineering, the shipbuilding holding company of HD Hyundai Group, announced that it had signed a contract with an Oceania shipowner for the construction of three 200,000 cubic meter ultra-large LNG carriers, with a total contract value of 971.4 billion won (approximately US$785 million). On January 18, the company announced the signing of an additional contract for two LNG carriers, with a total contract value of 626.7 billion won (approximately US$508 million).

Although Korea Shipbuilding & Offshore Engineering did not disclose specific information about the shipowner, it is said that the first order came from the Greek shipowner Dynagas. The company is a well-known LNG shipping company in the global market and a major client of the Chinese and South Korean shipbuilding industries. Late last year, it ordered two LNG carriers from the China State Shipbuilding Corporation.

Currently, the South Korean shipbuilding industry is improving profitability by lowering its overall order target and focusing on high value-added vessel orders. A relevant person from Korea Shipbuilding & Offshore Engineering said: "Inquiries for LNG carrier orders have been continuous since the beginning of the year. This year, we will focus on receiving orders for environmentally friendly, high value-added vessels such as LNG carriers, and strive to strengthen profitability."

Taking Korea Shipbuilding & Offshore Engineering as an example, its order target for the whole year is US$13.3 billion. This is 11.6% lower than last year's target of US$15.05 billion and 41.1% lower than the actual order volume of US$22.839 billion last year. Daewoo Shipbuilding has also lowered its order target for this year to US$6.98 billion, a decrease of about 22% compared to the US$8.9 billion target in 2022, and only 67% of the actual order value of US$10.4 billion in 2022.

To secure more LNG carrier orders, Chinese and South Korean shipbuilders are also expanding their production capacity to meet the growing demand for LNG carrier construction. HD Hyundai Group (formerly Hyundai Heavy Industries Group) increased its capital expenditure in fiscal year 2022 to approximately 440 billion won (approximately US$309 million), an increase of more than 20% year-on-year. Samsung Heavy Industries plans to increase investment by 2.2 times, and Daewoo Shipbuilding also plans to increase investment by nearly 30%. These three major shipbuilders plan to repair and expand their docks.

As a leader in the research, development, and construction of LNG carriers in China, Hudong-Zhonghua, a subsidiary of China Shipbuilding Group, proposed the annual goal of "implementing a doubling strategy for LNG production capacity and optimizing the layout of the entire industrial chain" at the 2023 business strategy release conference held at the beginning of the year, confidently promoting the on-time and high-quality delivery of large LNG carrier projects.

It is understood that Hudong-Zhonghua started construction of its Phase II project last year, which will include a 400-meter-long and 96-meter-wide dry dock for building large LNG carriers. It is expected to be substantially completed and put into operation in 2024, and its LNG carrier production capacity will increase from approximately 5 vessels per year to 10-12 vessels per year in 2025. Meanwhile, Dalian Shipbuilding Industry Company, under China Shipbuilding Group Corporation, also plans to achieve an annual delivery capacity of 8 LNG carriers by 2028.

At the same time, Hudong-Zhonghua is fully mobilizing its shipbuilding resources. On January 16 this year, the company's LNG carrier industry capacity improvement project—the Dadong LNG carrier sectional construction base—successfully passed the strict qualification audit of the Qatar LNG series vessel sectional project team and the ship owner. Shanghai Huarun Dadong Shipbuilding Engineering Co., Ltd. is a Hudong-Zhonghua affiliated enterprise and a backbone repair shipyard under China Shipbuilding Group Corporation, ranking among the top ten ship repair companies globally. In recent years, Huarun Dadong has achieved remarkable results in the repair, modification, and sectional construction of LNG carriers, gradually becoming an important part of the full life-cycle maintenance of LNG carriers in Hudong-Zhonghua's complete LNG industry chain. The company's passing of this qualification audit will provide strong support for Hudong-Zhonghua's mass production of large LNG carriers.

With the continuous improvement of the full industrial chain system, the continuous expansion of product lines, and the continued enhancement of production capacity and core supporting capabilities, Hudong-Zhonghua will continue to implement its LNG capacity doubling strategy, optimize the structure of the entire industrial chain, and make greater contributions to ensuring China's LNG energy security and achieving the transformation and upgrading of China's shipbuilding industry.