In part of its effort to “wage war on pollution,” as promised by Premier Li Kequiang, China’s shipyards will take upwards of $10 billion in orders for new LNG tankers this decade.
Most of this demand is local, according to Choe Young-keun, an executive on the marketing planning team at South Korea’s Samsung Heavy, competitor in the drill ship, liquefied natural gas (LNG) carrier and FPSO markets. “Hudong-Zhonghua is the only Chinese shipbuilder which has a track record of LNG carrier construction,” Choe said.
Six tankers constructed by Hodong-Zhonghua imported half of China’s LNG in 2013, and the company has contracts to build 14 more LNG ships.
Targeting 1/5 of World’s LNG Tanker Fleet
The American Bureau of Shipping (ABS) projects up to 50 LNG tankers will be built in China by the end of the year 2020. The fleet would account for more than 20% of the 225 LNG vessels expected to be added worldwide. This will give China more control over LNG for its eight new LNG terminals already on line, and the five new LNG terminals under construction. China plans to triple its LNG imports to around 60 million tons along with the buildout of its tanker fleet.
The increase in LNG ship orders comes during a five-year downturn in the global shipping industry, which Reuters reports is the worst in 30 years.
China’s growing fleet of LNG ships could eventually challenge South Korean and Japanese shipyards, which have dominated the supply of tankers for three decades. Over 79% of the roughly 125 LNG carriers and storage vessel orders are tied to South Korea.
The overall estimate of additional LNG ships needed to meet the global demand is approximately 394 vessels, which will require an investment of about $50 billion. Only 225 LNG vessels are currently scheduled to be built by 2020, but the ABS believes the remaining ships are likely to be ordered by 2020. The current average cost of a gas tanker is $200 million.
According to Investor’s Business Daily (IBD), the potential of LNG export/import and the specialized ships are gaining interest in international markets. In June, the IBD Transportation-Ship group stocks were up by 12%, a 66-month high, and their Oil and Gas Transportation/Pipeline group was up 20% from the beginning of the year – the highest in its history.
Japan and South Korea have been the biggest traditional LNG users. Demand for natural gas is rising and aims to replace nuclear generation plants in Japan and European countries. China and India are expected to be the “next wave” of LNG destinations. North American LNG export terminals now under construction will need fleets of LNG ships to reach the markets in Asia and Europe. Other LNG projects being built or planned in Qatar, Australia, Russia and Africa will contribute to the global need.
An arms race in the shipbuilding department is emerging among Asian countries, and China intends to surpass its neighbors. In recent years, Japan’s Mitsubishi Heavy Industries and other global shipbuilders have developed highly technical designs for modern day LNG carriers. “In [the] future, our output is going to outstrip that of Japan and Korea,” said Yang Baohe, principal naval architect at the Marine Design & Research Institute of China, a subsidiary of China State Shipbuilding Corporation (CSSC), according to Reuters.
[sam_ad id=”32″ codes=”true”]
Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.
