Another delay for the large order of 14 LNG ships? Shipbuilding giant: Great!

A large order for 14 LNG carriers, worth nearly 15 billion yuan, placed four years ago by two major South Korean shipbuilders, has been delayed again. However, this setback has minimal impact on the South Korean giants, who hold a record-breaking order backlog. Instead, it provides them with an opportunity to free up available docks to compete for higher-value new contracts.

Another 4-year delay? TotalEnergies' order for 17 LNG carriers is delayed again.

Recently, HD Hyundai (formerly Hyundai Heavy Industries Group) shipbuilding business holding company HD Korea Shipbuilding & Offshore Engineering and Samsung Heavy Industries announced that the construction of a total of 14 174,000 cubic meter LNG carriers, initially agreed upon in a Letter of Intent (LOI), has been delayed due to the shipowner. The original signing date, scheduled for early next year, has been postponed to 2028-2029, a delay of approximately 3-4 years.

HD Korea Shipbuilding & Offshore Engineering's order consists of 6 vessels, with a total value of approximately 120.97 billion KRW (approximately 6.334 billion RMB), to be built by its subsidiary HD Hyundai Samho Heavy Industries. Samsung Heavy Industries' contract comprises 8 vessels, with a total value of approximately 162.67 billion KRW (approximately 8.518 billion RMB).

On May 14, HD Korea Shipbuilding & Offshore Engineering announced that the final contract for 6 LNG carriers worth approximately 120.97 billion KRW, undertaken by its subsidiary HD Hyundai Samho Heavy Industries, has been delayed. The original signing date, scheduled for early next year, has been postponed to 2028-2029, a delay of approximately 3-4 years.

Although the two shipbuilders have not publicly disclosed the specific names of the shipowners, industry insiders believe that these delayed LNG carriers are likely orders from the Letter of Intent (LOI) for LNG carrier construction signed in 2020 for the Anadarko LNG project in Mozambique. This is because the Mozambique LNG project, led by French energy giant TotalEnergies, has been delayed overall due to the increasing influence of local rebels and instability in the region.

It is understood that in February 2020, TotalEnergies signed Letters of Intent (LOIs) with HD Hyundai Samho Heavy Industries and Samsung Heavy Industries for the construction of 8+1 and 8 170,000 cubic meter LNG carriers, respectively. Typically, shipowners first sign a Letter of Intent (LOI) with shipbuilders in the preliminary stages of ordering ships. If circumstances remain unchanged, most will proceed to sign a final contract.

According to the original plan, TotalEnergies would not directly own these LNG carriers but would use them through chartering. The shipowners are Maran Gas Maritime, a subsidiary of Greek shipowner Angelicoussis Shipping Group, and three major Japanese shipping companies: NYK, MOL, and K Line. Of the 9 LNG carriers undertaken by HD Hyundai Samho Heavy Industries, at least 5 are owned by MOL; while the 8 LNG carriers undertaken by Samsung Heavy Industries are owned by NYK and Maran Gas Maritime, with each shipowner ordering 4 vessels. The total construction cost of these 17 new vessels is approximately US\$3 billion, with delivery scheduled for 2023 to 2025.

According to relevant South Korean industry insiders, it was initially expected that if TotalEnergies selected the final shipowners in March 2020, these new vessel orders would officially take effect. Subsequently, these orders were repeatedly delayed. South Korean shipbuilders hoped to sign the construction contracts for these LNG carriers by the end of August 2020, but due to the need to simultaneously sign charter contracts with the shipowners, the timeline was further postponed.

However, due to the unstable political situation in Mozambique, in April 2021, TotalEnergies announced that it would halt the Mozambique LNG project and withdraw all its personnel from the country, causing the related LNG carrier construction project to be naturally "shelved." At that time, the South Korean industry stated that this was a "very painful matter" for South Korean shipbuilders.

South Korean shipbuilding industry responds to order delays: No problem! We are "comfortable".

LNG carriers, as high-yield, high-value-added vessels, have always been a source of pride for the South Korean shipbuilding industry. In the Qatar "100-ship plan" LNG carrier project, South Korean shipbuilders, with their technological advantages, were also ranked first in the order-taking battle. However, the recent delay of 14 LNG carrier construction contracts by 3-4 years has drawn significant attention from the industry.

In this regard, South Korean industry insiders analyze that the impact on the two major shipbuilders will be "more positive." If this situation had occurred during the global shipbuilding market downturn before 2020, it could have become a negative factor leading to deterioration in corporate performance and stock price declines. However, the situation has changed. Since the relevant shipbuilders have already undertaken orders for 3-4 years and their docks are full, scheduling ship construction has become relatively easy. In addition, the price of newly built ships has recently approached its historical high, making it easy for shipbuilders to sign new ship order contracts at higher prices.

First, since the shipowners have already paid part of the deposit, the possibility of the contract being cancelled is very low. Even if the contract is cancelled, it will not be difficult for the shipbuilders to obtain new orders. South Korean industry insiders believe that: "In recent years, many shipowners have hoped that shipbuilders will deliver LNG carriers and container ships as soon as possible, so it is not difficult for shipbuilders to find new contracts. Moreover, if new orders are accepted now, the order price can be further increased. This is even more advantageous for shipbuilders."

It is reported that on May 3, HD Korea Shipbuilding & Offshore Engineering received an order for two LNG carriers at a price of approximately 733.4 billion KRW, with a single-ship price of US\$270 million, once again setting a new price record for this type of vessel. On May 29, Samsung Heavy Industries, together with Hanwha Ocean (formerly Daewoo Shipbuilding & Marine Engineering), also obtained a Letter of Intent (LOI) for the construction of 6+4 large LNG carriers from ADNOC (Abu Dhabi National Oil Company), with a single-ship price of US\$267 million. The 14 LNG carrier orders whose signing has been delayed have a single-ship price of only approximately US\$176 million.

For reference, according to Clarkson Research Services, the current price of a new 174,000 cubic meter LNG carrier is US\$264 million. This shows that the price of the 17 LNG carrier orders signed by TotalEnergies in 2020 is only two-thirds of the current ship price.

Secondly, the historically high new ship prices are also a positive factor for the shipbuilding industry. In April this year, the Clarkson Research Services newbuilding price index reached 183.9 points, close to 96% of its historical high of 191.6 points in September 2008. If new ship prices remain high, South Korean shipbuilders can avoid the low-price offensive of Chinese shipbuilders and selectively accept orders based on shipbuilding profits.

Finally, in addition to LNG carriers, the demand for container ships has also increased recently, which is also positive for the global shipbuilding industry. The industry originally expected container shipping freight rates to decline, but due to multiple factors such as the Red Sea crisis, spot freight rates for container ships have recently surged, with the Shanghai Containerized Freight Index (SCFI) exceeding 3000 points, and the demand for new container ship orders is also increasing.

Earlier, the maritime industry predicted that major shipping companies such as CMA CGM of France and COSCO SHIPPING of China would soon order container ships worth US\$7.5 billion. It is understood that some shipping companies are contacting shipyards to explore the possibility of receiving container ships ahead of schedule. A relevant person in the South Korean shipbuilding industry said: "New container ship orders are very likely to be obtained by China, which has relatively ample berths, but this will help raise new ship prices and will also have a positive effect on the South Korean shipbuilding industry."