LNG Tankers Dodge Price Slump on China-Yard Shutout: Freight

LNG Tankers Dodge Price Slump on China-Yard Shutout
South Korean yards have won all 13 of the new LNG tankers ordered this year through April, according to shipbroker Clarkson. The country also built 197 of the 372 tankers afloat. Photographer: Seokyong Lee/Bloomberg

Liquefied natural gas tankers, the most expensive type of vessel, have avoided a slump in new ship prices because of rising Asian gas demand and limited competition from Chinese shipbuilders.

Prices for tankers able to hold 160,000 cubic meters of gas have held steady at about $202 million since 2010, based on Clarkson Plc data, bolstering earnings for South Korea-based Samsung Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co., the biggest makers of the vessels. Capesize dry-bulk ship prices have plunged 18 percent in the period because of a glut partly caused by China financing orders to prop up local yards.

Chinese shipbuilders have been largely shut out of the LNG tanker market as the vessels are more complicated and more expensive to build than ships for carrying commodities or containers. That’s curtailing competition for the 140 new LNG tankers that ship-classification society ABS expects operators to order over the next five years.

“Our preference is to go to Korea unless there’s a specific reason not to,” said Sverre Prytz, managing director at BW Ventures, which operates 14 LNG ships through unit BW Gas. “Some people are trying to build in China, but they do it with hesitation.”

South Korean yards have won all 13 of the new LNG tankers ordered this year through April, according to shipbroker Clarkson. The country also built 197 of the 372 tankers afloat. Japanese yards, which last won an order in 2011, are the second-biggest builder with 103 in service. LNG is natural gas chilled to minus 260 degrees Fahrenheit (minus 162 degrees Celsius), liquefying it for shipment by tanker.

China Yard

Hyundai Heavy Industries Co., the world’s biggest shipyard, rose 3.8 percent, the most in more than three months, to close at 262,500 won in Seoul. Samsung Heavy advanced 3.5 percent to 35,800 won while Daewoo Shipbuilding climbed 2.7 percent to 26,750 won.

Only one Chinese shipbuilder, Hudong-Zhonghua Shipbuilding (Group) Co., has built LNG tankers. The yard, a unit of state-owned China State Shipbuilding Corp., has built five vessels for Chinese companies and is working through orders for five more. The Shanghai-based shipbuilder didn’t reply to faxed questions.

Samsung Heavy has built 11 ships that can each move 266,000 cubic meters of LNG for an Exxon Mobil Corp. venture in Qatar. The company, Daewoo Shipbuilding and Hyundai Heavy Industries Co. also shared orders for 44 vessels from Qatar in 2007. The three shipbuilders have a combined backlog of 55.

China Push

China is encouraging domestic ship operators to order LNG tankers locally to help the biggest yards expand. The country’s LNG imports will probably generate orders for 60 tankers over five years, according to Houston, Texas-based ABS.

China Shipping Development Co. will prefer to use domestic shipbuilders as it seeks new tankers, said Ding Zhaojun, the head of its finance department. The China Shipping Group Co. unit has ordered four LNG carriers from Hudong-Zhonghua through a venture with Mitsui O.S.K. Lines Ltd. It aims to have a fleet of 10 by 2016, Ding said.

China LNG Shipping Holdings Ltd., operator of the first China-built LNG tanker, has also issued a tender for two vessels to local yards. Three companies bid, including Hudong-Zhonghua, said Yan Weiping, China LNG’s general manager.

“As a Chinese operator, we favor Chinese yards,” he said. The other bidders were a unit of Shanghai-listed China Shipbuilding Industry Co., and Nantong COSCO KHI Ship Engineering Co., which is a venture between China Ocean Shipping (Group) Co. and Hyogo, Japan-based Kawasaki Heavy Industries Ltd.

Watching Construction

China LNG deployed as many as 30 people at a time to watch over construction of the Dapeng Sun, the first vessel built by Hudong-Zhonghua. Five is usually enough for dry-bulk ship orders, said Yan, who also made frequent site visits.

“I was even more anxious than people in the yard,” he said. The Dapeng Sun was completed in 2007, according to data compiled by Bloomberg. China LNG, a venture between Cosco Group and China Merchants Group, now sends fewer people to the shipbuilder because of rising experience, Yan said.

China may increase natural-gas consumption fourfold by 2030 to 600 billion cubic meters, according to Wood Mackenzie, an Edinburgh, Scotland-based consulting firm, because of economic growth and a move to pare its reliance on coal. The country is operating five LNG terminals and building six more that will open through 2014, China National Petroleum Corp. said in its annual oil and gas research report published in February.

China Petrochemical Corp. and PetroChina Co. are both buying gas from Australian projects, including Chevron Corp.-led Gorgon and Royal Dutch Shell Plc-led Sunrise.

Japan Imports

Japan, the world’s biggest buyer of LNG, boosted imports 12 percent in the first four months as it pares its use of atomic power following last year’s tsunami. The country may need as much as 90 million metric tons of LNG a year by 2025, Shigeru Muraki, the chief executive of Tokyo Gas Co.’s energy solution division, said yesterday. It imported 78.5 million last year, according to preliminary Ministry of Finance figures released in January.

Prices for LNG tankers have also been supported by Asian energy companies’ preference for chartering vessels on long-term contracts, often about 20 years. This security provides a further incentive for the ship operators to buy vessels from experienced yards where possible, said Ralph Leszczynski, the Beijing-based head of research at shipbroker Banchero Costa & Co.

Shipowners would “prefer to spend a little bit more to have a safe and reliable ship than save and have problems,” he said. “Moving from building simple bulk carriers to building LNG ships is a big step up.”

Tanker Costs

The high cost of LNG tankers and use of long-term deals have also helped prevent a capacity glut that has caused a slump in the prices in other vessels. Prices for very large crude carriers and ships able to carry 13,000 containers have fallen about 8 percent since April 2010, according to Clarkson.

Worldwide 71 LNG tankers are on order, with a total capacity of 11.1 million cubic meters, as of May 1, according to Clarkson. That’s equivalent to 21 percent of the capacity of the current fleet. The ratio for on-order container ships is 24 percent. It’s 29 percent for dry-bulk and 16 percent for oil tankers.

The shortage of new LNG tankers has pared the spot market to as few as three vessels over the past 18 months, underlining the demand for new ones, said Tony Regan, a consultant with Singapore-based Tri-Zen International Ltd. and former Shell LNG executive.

“I think we’re going see to an extremely tight market for at least the next couple of years,” he said. “There’s a tremendous growth in demand, and as routes get longer we’re going to require more vessels.”

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