21 July 2006
In late May, South Korean shipyards once again underlined their dominant position in the Middle East oil and gas carrier market, when the three biggest Samsung Heavy Industries (SHI), Hyundai Heavy Industries (HHI) and Daewoo Shipbuilding & Marine Engineering Company (DSME) shared an estimated $4,000 million order from Qatar Gas Transportation Company (Nakilat). The order had been expected, given that in late 2004, Nakilat reserved building slots with the three yards for its massive procurement programme.

However, the latest award had a unique aspect to it. Of the 10 vessels on order, three were for the Q-Max carriers, which, at 265,000 cubic metres each, will be the largest liquefied natural gas (LNG) vessels ever built.

In the space of two years, Nakilat has come from nowhere to become one of the biggest customers relying on South Korean shipbuilding expertise. The latest order took the total number of LNG vessels placed with the Korean yards to more than 40, and more are expected as Nakilat builds up its LNG carrier fleet to about 70 by 2011.

'Nakilat is our number one client,' says DSME general manager of commercial shipping Kyung-Yoon Kim. 'With gas demand in the US [the world's largest consumer] growing sharply, the total volume of LNG seaborne trade will increase three times by 2015. Doha will be at centre-stage and Nakilat's target is to acquire a fleet of 70 tankers. Our aim is to be at the heart of this business.'

Taking 16 months from steel-cutting to final completion, Korean shipbuilders are working flat-out to meet their contractual commitments. 'LNG tankers account for 50 per cent of our total orders and we are willing to take up the challenge,' says Kim. DSME has capacity at its Opko yard south of Pusan to build up to 50 vessels a year covering LNG tankers, very large crude carriers (VLCCs), container ships and dry and bulk product vessels. Next door on Koje island, SHI's yard can take orders for up to 10 LNG tankers a year.

Korean shipyards are not just servicing the regional needs of gas exporters, however. Middle East national oil companies (NOCs) are proceeding with an equally ambitious replacement and upgrade programme of their existing VLCC fleets: according to DSME, regional NOCs will require an additional 100 VLCCs by 2013.

Orders are already flowing. In March, Vela International Marine the shipping arm of Saudi Aramco contracted DSME to build six tankers. Each of the 318,000-dwt vessels will have capacity to transport 2.2 million barrels of crude oil, with the first due for delivery in the first quarter of 2008. Vela, Kuwait Oil Tanker Company and National Iranian Oil Tanker Company are all preparing to issue new tenders soon for at least 15 more vessels.

Along with the need to transport additional volumes of Middle East crude, the regional fleet acquisition programme is being driven by a mandatory requirement to replace single-hull oil tankers with double-hull vessels.'About one-third [of the existing VLCCs] are single-hull and will have to be replaced by 2015,' says DSME's Kim.

Technological advances are playing a key part in the Korean ability to meet the regional challenge. The majority of the Nakilat LNG orders have been for the Q-Flex type vessel, which has a capacity of 210,000-217,000 cubic metres. Although smaller than the Q-Max type, Q-Flex is still 30 per cent larger than the traditional LNG carrier of 135,000 cubic metres. Costs have also been falling: the average price of a 147,000-cubic-metre vessel has halved since the late 1990s, to an estimated $110 million-140 million. 'Technology has given us an edge and we hope to draw more benefits. Our profit margins are now averaging a healthy 10 per cent,' says MH Lee, SHI's shipbuilding and offshore division manager.

It has not all been plain sailing for the Korean shipbuilders. They are having to come to terms with a doubling in the price of steel plate to $600 a to

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications