Korea, China and Japan Competing for LNG-powered Vessel Orders
Shipbuilders in Korea, China, and Japan are having fierce competition in order to take a bigger share of the global LNG-powered vessel market. As the global energy demand is shifting to eco-friendly sources, the shipbuilding market is shifting its focus to LNG-powered ships from those powered by coal and oil.
For now, Korean shipbuilders have taken the lead in terms of LNG-powered ship order intake. However, Chinese shipbuilders, who are enjoying full support from the Chinese government, are mounting a serious challenge. On top of that, Japanese shipbuilders are trailing their Korean rivals through strategic alliances with China.
A total of 13 companies are participating in the global market. Among them, only eight companies have received LNG-powered ship orders — three Korea shipbuilders (Daewoo Shipbuilding & Marine Engineering (DSME), Hyundai Heavy Industries (HHI), and Samsung Heavy Industries), one Chinese shipbuilder (Hudong-Zhonghua Shipbuilding), and four Japanese shipbuilders (Mitsubishi Heavy Industries, Kawasaki Heavy Industries, Japan Marine United, and Imabari Shipbuilding).
Among them, Korean shipbuilders are superior to their Japanese and Chinese rivals. Korean shipbuilders built 66 (91.7 percent) of the 72 LNG-powered ships awarded in 2018 and 48 (80 percent) of the 60 ships ordered in 2019, according to Clarkson Research, a shipbuilding and shipping analysis agency. In the world's largest-ever tender for LNG carriers held by Qatar in 2020, three Korean shipbuilders signed a deal to build 100 units for 23.6 trillion won, while Chinese shipbuilders signed a 3.5 trillion won deal for 16 ships and Japanese shipbuilders went home empty-handed.
The competitiveness of the three Korean shipbuilders comes from their design of fuel tanks and fuel supply systems that require state-of-the-art technology. Only in the 1990s, shipbuilders favored the "MOSS" type with an independently designed hull and LNG fuel tank in order to enhance the stability of LNG storage. However, the “Membrane” type which integrates a hull and a fuel tank to increase load capacity by 40 percent compared to the MOSS type, has become the main stream.
DSME and Samsung Heavy Industries have built ships through membrane design only and even Hyundai Heavy Industries which was the only company in Korea that secured MOSS design technology, quickly switched to the Membrane system. However, as Japanese shipbuilders insisted on the MOSS type, LNG-powered ship orders to Japanese shipbuilders have plummeted since 2015.
In fuel supply systems, a key technology for LNG-powered ships, the three Korean shipbuilders have all secured their own fuel supply systems — the HI-Gas of Hyundai Heavy Industries (HI-Gas), the HiVar of DSME and the FuGas of Samsung Heavy Industries.
Hyundai Heavy Industries won a total of six LNG-fired ships from Singapore's EPS in April 2018 and recently succeeded in the world's first test drive. On the other hand, a Chinese shipbuilder won an LNG-fired ship from CMA CGM of France in September 2017, seven months ahead of Hyundai Heavy Industries. But the Chinese shipbuilder has not even met the delivery date due to a lack of technology.
China and Japan are also busy. In the case of China where the shipbuilding industry directly linked to national security, the Chinese government is devoting itself to helping Chinese shipbuilders build LNG-fired ships.
"China is concerned that if foreign shipowners or shipbuilders stop shipping for political and economic purposes, China will be seriously hurt as the nation depends on the outside for 60 percent of LNG it needs," said an official of the shipbuilding industry. "China is securing its competitiveness through mergers and acquisitions of large shipbuilders and increased investment under the leadership of the Chinese government." Following China's first self-designed LNG carrier export in January 2015, China's Hudong-Zhonghua Shipbuilding agreed with DNV GL, a Norwegian ship classification association to develop a 270,000-cubic-meter LNG carrier, the world's largest. The 270,000-cubic-meter LNG carrier is capable of transferring 155 million-cubic-meter LNG once, the amount which can be used by 4.7 million households for one month.
Japanese shipbuilders are trying to find a way out of their slump by setting up joint ventures with Chinese shipbuilders. They aim to combine their technology with Chinese shipbuilders low production cost. In August 2019, Mitsui E&S Shipbuilding of Japan and Yangzijiang Shipbuilding, a Chinese shipbuilder, jointly launched a shipyard in China. The two sides plan to invest a total of US$300 million in building a medium-sized LNG carrier to move LNG to China and Southeast Asia in 2022 and a large 180,000-cubic-meter LNG carrier by 2026. Kawasaki Heavy Industries of Japan also established a joint shipyard in China with China's China Cosco Shipping Group and is expanding its operations.