The manufacturing of LNG carrier is known as the Pearl of the world shipbuilding industry. Previously, it has been monopolized by three shipbuilding enterprises in South Korea. Although China’s market share in the global shipbuilding industry has been rising in recent years, it has always been inferior to South Korea in the manufacturing of LNG ships.
On April 12, Qatar, the world’s largest LNG exporter, officially announced that the first batch of four LNG ship orders signed between its “100 ship plan” and Hudong Zhonghua, a leading LNG enterprise in China, came into force. Taking these four ships into account, Hudong Zhonghua has undertaken 11 LNG orders this year, ranking first among the major shipping enterprises in the world in parallel with Korea Hyundai Heavy Industry.
According to an insider familiar with the transaction, Hudong Zhonghua is expected to receive construction contracts for at least 16 LNG carriers in Qatar’s “100 ship plan”.
It has been four years since the Chinese side proposed the intention of cooperation to the formal entry into force of the order. What has happened in these four years? How did China win this valuable order from South Korea?
Chinese shipping enterprises win century orders for LNG ships
On April 12, China Cssc Holdings Limited(600150) Group Co., Ltd. and Qatar energy company jointly announced that the construction contract of the first batch of four 174000 cubic meters liquefied natural gas (LNG) transport ships of “Qatar 100 ship construction plan – Qatar northern gas field expansion ship purchase project” came into effect immediately, and China Cssc Holdings Limited(600150) subordinate Hudong Zhonghua, together with China shipbuilding trade, officially signed a new ship construction contract with merchant ship Mitsui of Japan Co., Ltd.
A few days ago, Mitsui, a Japanese merchant ship, also signed a package charter contract with Qatar energy company on the above LNG carrier.
In other words, the Chinese side’s Hudong Zhonghua is the shipbuilding party, and the Japanese merchant ship Mitsui is the owner. After the completion and delivery of the ship, the merchant ship Mitsui will be responsible for the daily operation.
LNG, or liquefied natural gas, is generally considered to be the cleanest fossil energy on earth. LNG carrier is a special ship. It needs to be kept at – 163 low temperature during transportation. It is an internationally recognized “three high” product with high technology, high difficulty and high added value. It is known as the “pearl on the crown” of shipbuilding in the world.
The four LNG carriers ordered under this contract are the fifth generation “Changheng series” independently developed and designed by Hudong Zhonghua.
It is reported that this 174000 cubic meter LNG carrier has a total length of 299 meters, a width of 46.4 meters and a depth of 26.25 meters. It is tailored to the technical standards of Qatar energy company. It has the advantages of fast performance, low navigation emissions, strong cargo carrying capacity and flexible oil and gas balance.
At the end of 2021, this fifth generation “Changheng series” won certificates such as general approval of ship type design (GDA) and pre classification approval (PCA) issued by four internationally famous classification societies, including American Bureau of shipping (ABS), Bureau Veritas de France (BV), Lloyd’s register of shipping (LR) and DNV.
Hudong Zhonghua is a leading manufacturer of LNG carriers in China. Public information shows that since 2001, Hudong Zhonghua has cooperated with GTT company of France to independently develop the first generation “evergreen” series, the second generation “Changjian” series, the third generation “Chang’an” series and the fourth generation “Changxing” series LNG ships, and has delivered more than 30 large LNG transport ships (equipment) in total.
Since this year, Hudong Zhonghua has accumulated 11 LNG orders, ranking first among the major shipping enterprises in the world together with Hyundai Heavy Industries of South Korea.
On January 6 this year, Hudong Zhonghua and China Cssc Holdings Limited(600150) (Hong Kong) shipping Leasing Co., Ltd. renewed the construction order of a 174000 m3 LNG carrier; On January 7, CNOOC’s medium and long-term FOB resource supporting LNG carrier project was officially signed, and Hudong Zhonghua once again won orders for six 174000 cubic meters of large LNG carriers, involving an amount of 7.5 billion yuan.
Some people believe that the past LNG orders of Hudong Zhonghua are based on the cooperation at the national level or “state-made ships”. This order from Qatar is the first market-oriented order of Hudong Zhonghua LNG carrier. The completion quality and customer satisfaction of this order also determine the future market-oriented process of Hudong Zhonghua in this field.
According to an insider familiar with the transaction, Hudong Zhonghua is expected to receive construction contracts for at least 16 LNG carriers in Qatar’s “100 ship plan”, which is not only a landmark event in the process of China’s construction of the whole LNG industry chain, but also ushered in a new era of China’s LNG carrier construction projects.
Hukou grabs food
The order did not come easily.
It has been nearly four years since Qatar first announced the expansion of production and purchase of ships, and two years since China and Qatar signed an agreement of intent.
At the beginning of 2019, Qatar Petroleum Corporation said that it would conduct international bidding to order up to 60 LNG ships to meet the transportation needs of the four LNG production lines completed in 2024. Subsequently, Qatar announced that it would build more than 100 LNG ships in the future, hence the name of Qatar’s “100 ship plan”.
Located in the Middle East, Qatar has rich natural gas storage resources and is very easy to exploit. It is the largest producer and exporter of liquefied natural gas in the world. In 2019, Australia surpassed its market share and became the world’s largest LNG exporter for the first time. In order to maintain its market share, Qatar announced early to expand production and purchase ships.
Tu Jianjun, President of Agora (Bozhong Zhihe) energy transformation forum in China and former director of the China Cooperation Department of the International Energy Agency, told times finance that the supply and demand contracts of LNG are mainly medium and long-term agreements, and the upstream, middle and downstream are usually bound together, “There is a fixed production scale in the upstream and relatively fixed customers in the downstream. LNG ships must be used for transportation in the midstream. In fact, most of the production capacity is locked with downstream customers except for some entering the spot market.”
Qatar’s big order of the century immediately attracted great attention from the international shipbuilding industry, and a large number of shipbuilding enterprises showed interest in the project. Among them, the three shipyards in South Korea are bound to win this century’s big order. At that time, some market observers said that the LNG ship orders in Qatar may be taken by the three major shipyards in South Korea.
In 2019, the CEO of Daewoo shipbuilding, one of the three largest shipping enterprises in South Korea, Zheng Jiancheng said that the vast majority of LNG ships owned by Qatar are built by the three largest shipping enterprises in South Korea. He hoped that Qatar could regard South Korea as the primary choice for building new LNG ships.
In recent years, Korean shipyards have monopolized the new LNG ship building market. Among the nearly 130 new shipbuilding contracts in the world, the three major Korean shipyards have divided up nearly 90%.
South Korea is full of confidence, but the plot will soon usher in a turning point.
In November 2019, the delegation of Qatar natural gas company immediately transferred to Beijing to contact China Cssc Holdings Limited(600150) industry group after the visit to South Korea.
According to China Cssc Holdings Limited(600150) news, as early as February 2019, the China shipbuilding trade union Hudong Zhonghua under China Cssc Holdings Limited(600150) group has officially expressed its intention of cooperation to Qatar.
In April 2020, Qatar energy company took the lead in signing the LNG ship construction project agreement with China Cssc Holdings Limited(600150) group with an amount of 20 billion yuan, which achieved the largest new shipbuilding agreement signed by Chinese shipbuilding enterprises so far.
In October 2021, China Cssc Holdings Limited(600150) Industrial Trading Co., Ltd., a subsidiary of China Cssc Holdings Limited(600150) Group Co., Ltd., and Hudong Zhonghua officially received the order for the construction of the first batch of four 174000 cubic meters of liquefied natural gas (LNG) carriers.
On April 12, 2022, Qatar announced that the order came into force.
Tu Jianjun believes that there are two reasons why Hudong Zhonghua can “grab food from the tiger’s mouth” from South Korea, “First, from the perspective of upstream LNG producing countries, Qatar actually does not want the construction of LNG ships to be monopolized by one country, so it is willing to see the competition between shipyards in different countries, so it will have more options and greater negotiation space. Therefore, Qatar will probably continue to maintain cooperative relations with all parties in the LNG industry chain of China, South Korea and Japan in the future.”
\u3000\u3000 “In addition, it is also inseparable from the efforts of China’s shipbuilding industry in recent years. Through the collective cooperation and vigorous tackling of key problems of relevant parties in China, China has basically conquered the core technology of manufacturing LNG ships. The shipbuilding cycle of Chinese shipyards may be longer than that of South Korea, especially there is a certain gap with that of South Korea. However, from the perspective of Qatar, an upstream LNG producing country, comprehensively compare the shipbuilding cycle, cost, quality and government relations And many other factors, we must make the procurement decision that is the best for our own interests. “
It is worth noting that China is now the world’s largest LNG importer. According to a report released by IHS Markit, China imported 81.4 million tons of LNG in 2021, a year-on-year increase of 18%; Japan’s LNG import volume was 75 million tons, basically the same as that of the previous year. IHS Markit said that this marks the first time since the early 1970s that China has become the world’s largest LNG importer and Japan has retreated to the second place.
“China is a big customer of Qatar’s natural gas. From the perspective of Qatar, they lock in cooperation with Chinese head ship manufacturers, which can not only meet the shipping demand brought by their own expansion of LNG upstream capacity, but also benefit the country to further maintain good bilateral relations with China in the future.” Tu Jianjun pointed out.
From the signing of the agreement in April 2020 to the formal entry into force of the contract in April this year, this order has experienced a full two years. A person close to Hudong Zhonghua told times Finance: “what was signed before was a framework agreement, which was intentional and not legally binding. From Qatar’s determination to build a ship to negotiating specific business details with Hudong Zhonghua, the contract was officially signed after negotiation. There are several time nodes in the middle, and the final time shall be subject to the signing time of the contract.” He pointed out that at present, the order takes effect and there is a formal contract.
Tu Jianjun also said that in early 2019, Qatar energy company announced its grand plan to build 100 LNG carriers, which immediately attracted great attention from the international shipbuilding industry. In March 2020, Qatar energy company issued an invitation for public bidding to the global shipbuilding industry. “During the epidemic period, the personnel of the two countries cannot communicate with each other, which will have a certain impact on the field investigation, contract negotiation and corresponding investment decisions. Therefore, the first batch of shipbuilding contracts were officially announced to take effect only recently. As time goes by, more shipbuilding contracts will be announced by officials in the future.”
At the same time, Tu Jianjun also pointed out that the contract has taken effect legally after it is signed. Unless there is a major irresistible geopolitical crisis, both sides of the transaction will move forward steadily.
For the global shipbuilding industry, the broad market of Qatar LNG will undoubtedly bring more new orders.
In March this year, Robert habek, German Deputy Prime Minister and Minister of economy and climate protection, led a delegation of more than 20 entrepreneurs to visit Doha, the capital of Qatar, to seek more LNG exports from Qatar to Germany Germany said it had reached a long-term energy cooperation agreement with Qatar.
Tujianjun pointed out that at present, due to the conflict between Russia and Ukraine, the global LNG supply and demand balance is further tense. Germany is highly dependent on Russia in the field of pipeline natural gas import, and now has to face the potential risk of Russia’s cut-off of natural gas supply.
\u3000\u3000 “In order to hedge the risk of sudden interruption of energy supply, Germany and other EU member states are working with the US government to transport more US LNG to Europe and replace Russian pipeline natural gas as much as possible. For the German government, it is also accelerating the construction of two LNG terminals and encouraging the procurement of floating LNG ships. In addition, Germany is also working directly with Qatar, a LNG producing country, to reach an agreement at the Intergovernmental level The intention to purchase LNG has been, and the contract negotiation will be specifically promoted by the German company and the Qatar energy company in the follow-up meeting. “
Under the conflict between Russia and Ukraine, Europe is in urgent need of LNG ships, and China and South Korea now have a large number of orders. However, considering the manufacturing cycle, it is difficult for new orders to enter the market. “In the future, shipyards in China, South Korea and even Japan are expected to get more orders.” Tu Jianjun said.
