Seizing Opportunities:China's Rebound in Large LNG Carriers Market

By Wu Xiuxia

Thanks to the surging demand of LNG carriers (LNGC) in recent years,and based on the construction and accumulation of technical capacity and infrastructure of Chinese shipbuilding enterprises,China is becoming an important pole in the field of international large-scale LNGC construction.Data show that a number of Chinese shipbuilding enterprises have the ability to build large LNGC and have received batch orders,and this year,China's global market share in the large LNGC shipbuilding field has soared to 35%,China's shipbuilding enterprises are fulfilling their potential with ＂group combat＂instead of ＂fighting alone＂ in large LNGC,a typical ＂three high＂ (hitech,high difficulty,high added-value)product field.

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Recently,large LNGC construction and delivery has set off a wave of small climax.On October 11,CSSC Hudong-Zhonghua Shipbuilding(Group) CO.,Ltd.delivered the 174,000-cubic-meter LNGC “Wen Cheng”three and a half months ahead of the contract period.On October 23,the first 180,000-cubicmeter large LNGC of China Merchants Industry Holding Co.,Ltd.started construction in Haimen base.In December,the construction of two 175,000-cubic-meter LNGCs will start construction.

With the ＂blowout＂ of the LNGC market,the large LNGC market door is opened to more Chinese shipbuilding enterprises.After the capacity adjustment of the last industry cycle and the great progress of shipbuilding technology,China's relevant shipbuilding enterprises have accumulated relatively profound technical strength in the construction of large LNGC.In recent years,CSSC Dalian Shipbuilding Industry CO.,Ltd.has completed the construction of the world's largest NO96 LNGC simulation tank and the world's first fully enclosed MARK Ⅲ LNGC simulation tank.CSSC Jiangnan Shipyard (Group) Co.,Ltd.has realized the full coverage of Type A,Type B,Type C and membrane lowtemperature liquefied gas containment system for the full spectrum of liquefied gas carrier development,design and construction;175,000-cubicmeter LNGC and 180,000-cubicmeter developed by China Merchants Industry in collaboration with the CMG design company Deltamarin won the AiP certification of CCS,LR,ABS,BV and DNV.YangZiJiang Shipbuilding Group and French GTT company officially signed the Technical Assistance and License Agreement (TALA) for membrane containment system,obtained the qualification certification of GTT and won the qualification to build large LNGC with GTT MARK Ⅲ membrane containment system.

As more shipbuilding enterprises obtain relevant qualifications and orders,China has formed a large LNGC construction enterprise cluster dominated by CSSC Hudong-Zhonghua,Dalian Shipbuilding,Jiangnan Shipyard,China Merchants Group and YangZiJing Shipbuilding,changing the situation of Hudong-Zhonghua ＂fighting alone＂ in the past.

The large LNGC is one of the three＂pearls＂ in the crown of the shipbuilding industry.In 2008,China's first selfbuilt large LNGC ＂Da Peng Hao＂ was delivered and put into operation.Thus,the construction situation of large LNGC which had been monopolized by foreign shipyards for many years was broken.Subsequently,through upgrading of the first,second,third and fourth generation of hull forms,large LNGCs have constantly gained fans in the international market.On September 3 of this year,the design of 271,000-cubic meter very large LNGC developed by Hudong-Zhonghua obtained AiP certification of ABS,LR,DNV and BV.This is the largest ever LNGC developed and designed in the world,which means that China's LNGC R&D,design and construction has stepped from large-scale to the very large domain,and also marks another big step for the R&D and design capabilities of China's high-end ship to reach the world leading goal.

Demand surge,puts large LNGC capacity in urgent need

In this ship market recovery cycle,the demand for large LNGC increased,and the LNGC shipbuilding capacity was in short supply.After the surge of ship orders represented by container ships in the past two years,the production of Chinese and South Korean and other countries’ shipbuilding enterprises have been fully scheduled in nearly three years,with almost no capacity space to meet the demand of LNGC construction.Most LNGC orders can only wait in line,and the delivery time provided by the shipyard has been extended to 2026 and beyond.

Meanwhile,the prices of large LNGC have been on the rise in recent years.According to Clarkson Research,the average price of 174,000-cubic meter was $265 million,much higher than in the previous two years.

Against the backdrop,a number of Chinese shipbuilding enterprises with certain technology accumulation have entered the large LNGC shipbuilding field.Last year,Jiangnan Shipyard,Dalian Shipbuilding,YangZiJiang River Shipbuilding and many other shipyards achieved large LNGC orders breakthrough.Meanwhile,Hudong-Zhonghua delivered more than 40 LNG carriers (equipment) of various types.At present,more than 50 large LNGCs are ordered,and the production task has been scheduled to 2028.

Industry experts said that the current should be a good opportunity for domestic shipbuilding enterprises to enter the large LNGC shipbuilding field.On the one hand,in the face of the increasing demand for large LNGC and the shortage of space resources of shipbuilding enterprises,ship owners can only try their best to explore shipbuilding enterprises and related accommodation resources that may build LNGC,and be more lenient to the technical indicators of ship types,the technology and process equipment of the containment system,and the related performance and management level of the shipyards.On the other hand,as the global shipbuilding industry enters a new development cycle,the overall market environment has a certain supporting role for the shipbuilding enterprises to enter the LNGC shipbuilding field,and promotes the shipbuilding enterprises to ramp up adjustment and upgrading of the product structure.

In order to ensure the smooth delivery of large LNGC,relevant shipyards have carried out construction of their LNGC capacity.The second phase of Hudong-Zhonghua which kicked off last year is to build a 400 meters long and 96 meters wide dock for building large LNGC,which is expected to be basically completed and put into operation in 2024;the shipyard completed and operated the only new invar special process workshop for supporting NO.96 LNGC,further enhanced the advantages of special supporting centralized production of LNGC insulated container,invar prefabricated parts,low temperature tube module,and further consolidated the foundation of LNG capacity doubling.Jiangnan Shipyard raised 484 million yuan for ＂large LNGC building capacity guarantee project＂,including the special materials warehouse with a new covered area of 10392 square meters,a 410 meters new water frontage,adding new liquid cargo system process simulation software,liquid cargo system R&D platform,liquid cargo simulator among other verification equipment systems of liquid cargo containment system.Dalian Shipbuilding invested and built the three-dimensional warehouse for supporting LNG,low-temperature pipe processing workshop and civil engineering renovation of LNG comprehensive training center and successfully completed them,and the capital construction of low-temperature pipe module assembly workshop was also completed.

Industry experts believe that the production capacity will expand rapidly and more and more shipyards will join the construction of LNGC as long as the market is large enough.But in the short term,the LNG transportation market will still be in an imbalance between supply and demand.

Increase the localization rate,stride across technology and cost difficulties

The current surge of large LNGC ordering climax and the resulting production capacity shortage have provided a rare market entry opportunity for Chinese shipbuilding enterprises with relevant technology accumulation.Chinese shipbuilding enterprises must strive to cultivate reliable supply chain upstream and downstream of the domestic LNGC shipbuilding industry,jointly break through the ＂bottleneck＂ problems of key products,improve the utilization rate of domestically manufactured parts from the source,so as to improve profitability and localization rate if they are to make great achievements in the large LNGC shipbuilding field.

It is under stood that the equipment localization rate just only about 20% of China's first large LNGC＂Da Peng Hao＂ delivered 15 years ago.Industry experts said that the localization rate can be said as the key to the domestic LNGC industry growing from large to strong.The increase of the localization rate can not only significantly enhance the bargaining power of enterprises,but also enhance the international competitiveness and ensure the security of the industrial chain and supply chain.Take insulated container as an example,a large LNGC has more than 1000 models,which require high accuracy.If all of them are imported,the total price of insulated containers used by a large LNGC is more than $4 millions.The cost is almost halved after localization,and the supply is more guaranteed.

In recent years,led by relevant departments and with persistent work of domestic shipbuilding enterprises,the equipment localization rate of large LNGC sharply improved,China related companies have substantially improved basis and conditions in components and installation equipment specialized production,equipment supply and professional installation team of large LNGC MARK Ⅲ membrane containment system.

Industry experts said that for the construction of LNGC,the localization of marine equipment products is a necessary ＂cost hurdle＂ to stride across.Although compared with the south Korean enterprises,Chinese enterprises’ labor cost is lower,South Korean shipbuilding enterprises with leading advantages continuously conducted core technology R&D,continuously introduced domestic equipment and system,such as high manganese steel LNG storage tanks,LNG cargo protection system,air lubrication system,gas system,reliquefaction system,etc.,has realized the high level large LNGC equipment localization.In addition,Korean shipbuilding enterprises leaning on having become the world's main LNGC production base and large-scale construction advantages even directly produce LNGC equipment products getting over equipment manufacturers,which not only ensures the stability of the supply chain,but also drastically reduces the equipment supply cost.In this respect,there is still a large gap with Chinese shipbuilding enterprises,and new comers also face big investment challenges in the production facilities and training needed for the construction of the first ship.Compared with the technical difficulties,it may be more difficult for Chinese shipbuilding enterprises to overcome the cost difficulties before forming largescale production of LNGC and high level localization of equipment supply.Therefore,it is necessary to accelerate the building of the local LNGC equipment supply chain and industrial chain.In this regard,it is necessary for China to further bolster the support for the R&D of key materials and core equipment products of LNGC,and to build a high-level and modern LNGC industry chain and supply chain as early as possible.

Furthermore,large LNGC is internationally recognized as hightech and complex vessels,and it will take several years for new comers to have the professional technology,process and equipment to build large LNGC in batches,as well as the installation and commissioning capabilities of liquid cargo system.Therefore,shipbuilding enterprises should pay special attention to the rational grasp of the pace of receiving orders,while steadily improving the LNGC production capacity,work to prevent the rush,pay attention to the operational risks brought by the large-scale expansion of production capacity.After the realization of LNGC related technology breakthroughs,shipbuilding enterprises should make more effort to reduce costs,shorten the cycle,improve the construction quality and cultivate professional construction teams,so as to build a large-scale production capacity and competitiveness in the international market.