Hudong-Zhonghua Shipbuilding lands order for first four LNG carrier newbuilds, in QatarEnergy’s multi-billion-dollar shipbuilding programme
LNG shipping’s largest shipbuilding programme in history got underway in April, with the signing of a long-term charter agreement between QatarEnergy and Japan’s Mitsui OSK Lines (MOL). The agreement for four LNG newbuildings sets in motion a programme for as many as 151 vessels that will be built to satisfy future fleet requirements for fleet renewal and Qatari volumes from the North Field expansion projects, as well as cargoes from the Golden Pass LNG project in Sabine Pass, Texas.
Shipbuilding slots filling up
The long-anticipated newbuilding programme will ensure strong order books for LNG carriers for several years at South Korean and Chinese shipyards, where the 151 shipbuilding slots have been reserved, but leaves few options for other charterers looking for deliveries before 2025.
“Newbuildings are becoming a very hot topic as many potential charterers realise that their options for pre-2025 delivery are rapidly eroding,” says UK-based Howe Robinson. “Yes, we have a couple of end-2023 open vessels and quite rightly, these should be at a premium. 2024 is showing less than 10 vessels without firm commitment and whilst the 2025 deliveries are still some way off, and charters are still being evaluated, numbers of free vessels are also around the 10 level,” says the shipbroker. “With increased demand and the new projects starting up, this gives very little optionality for those charterers who wish to increase their fleets. With Qatar poised to confirm a considerable number of slots, the unbelievable orders being placed four years ahead is already becoming a reality.”
Other large shipbuilding programmes from charterers Petronas and Venture Global LNG are absorbing additional shipyard berths.
The groundwork for the programme began in April 2020, when QatarEnergy reserved shipbuilding slots at Hudong-Zhonghua and at Daewoo Shipbuilding & Marine Engineering (DSME), Hyundai Heavy Industries (HHI) and Samsung Heavy Industries (SHI) for its future LNG carrier fleet requirements. Concurrent with this initial long-term charter agreement, MOL signed design and shipbuilding contracts for the newbuilds with China’s Hudong-Zhonghua Shipbuilding, with deliveries set for Q2 and Q3 2024 and Q1 2025.
“Increased demand and new projects starting up gives very little optionality”
This is the first contract announced in response to QatarEnergy’s invitation to tender, issued in March 2021 to a large group of LNG shipowners for the chartering of LNG carriers for its future requirements. “Other shipowners that have been selected by QatarEnergy as part of such process will be announced in due course,” said the company in a press statement.
Commenting on the occasion, Qatari Minister of State for Energy Affairs and QatarEnergy president and chief executive Saad Sherida Al-Kaabi said: “These contracts mark the start of the construction phase of QatarEnergy’s historic fleet expansion programme in support of our LNG expansion projects.”
With exports of 77.1M tonnes of LNG, Qatar had a 22% market share of global LNG trade in 2021. It was the world’s second largest exporter of LNG in 2021 to Australia. China, India, Japan and South Korea were Qatar’s biggest customers.
QatarEnergy has been developing the North Field Expansion Project to expand its gas production from its current 77 million tons per annum (mta) to 126 mta by 2027.
These new LNG carriers would also serve Golden Pass LNG. The US$10Bn brownfield project between affiliates of QatarEnergy and ExxonMobil is adding three trains, with a total liquefaction capacity of 16 mta to the existing facility. The engineering, procurement and construction (EPC) contractor is CCZJV, a joint venture between Chiyoda International Corp, McDermott International and Zachry Group. Commissioning is slated for 2024.
LNGC details
Details of these initial LNG newbuilds were disclosed by Hudong-Zhonghua, a subsidiary of China State Shipbuilding Corp (CSSC), in October. At that time, Hudong-Zhonghua said the LNG carriers would be based on its G5 Changheng design, with an overall length of 299 m, beam of 46.4 m, moulded depth of 26. 25 m and capacity of 174,000 m3. The design “adopts the latest generation of double skeg lines and is equipped with a number of low-carbon energy-saving technologies,” said the shipbuilder, adding, “The cargo-handling system has the characteristics of strong adaptability to different routes. Compared with the previous ship type, its loading capacity has increased by 800 cubic metres, and the daily carbon emission has been reduced by more than 10 tonnes. EEDI meets the requirements of the fourth stage ahead of schedule, energy consumption indicators, [and] environmental protection performance.”
Containment technology
GTT reports the LNG carriers will be fitted with its GTT NO96 L03+ membrane containment system. GTT NO96 has primary and secondary membranes made from Invar — a 36% nickel-steel alloy — that are 0.7mm thick. The primary membrane contains the LNG cargo, while the secondary membrane, identical to the primary, ensures a 100% redundancy in case of leakage. Each of the 500-mm wide Invar strakes is continuously spread along the tank walls and is evenly supported by the primary and the secondary insulation layers.
The primary and secondary insulation in the original design of GTT NO96 was provided by plywood filled with expanded perlite. In GTT NO96 L03+, however, the perlite has been replaced by foam to improve the system’s boil off rate (BOR). As a result, the estimated BOR for a 170,000-m3 LNG carrier with a GTT NO96 L03+ membrane containment system is 0.10% — a marked improvement from GTT NO96’s BOR of 0.15%.
The LNG carriers will be fitted with two-stroke, dual-fuel engines, either with WinGD X-DF or ME-GI propulsion. Since those requirements were specified by QatarEnergy, MAN Energy Solutions has also released its two-stroke, Otto-cycle, dual-fuel engine to the market, ME-GA, which could be a considered for some of the newbuilds. From May 2021 when the first order was secured until February 2022, MAN Energy Solutions received orders for 100 ME-GA engines — all for LNG carriers.
Top 10 countries for Qatar LNG exports | |
Country | MT |
China | 8.20 |
India | 10.72 |
Pakistan | 4.64 |
Bangladesh | 2.98 |
Japan | 8.69 |
South Korea | 9.46 |
Taiwan | 4.96 |
UK | 6.53 |
Turkey | 2.26 |
Italy | 5.05 |
Source: IGU World LNG 2021 |
Prices rising
With demand high and availability tight at South Korean and Chinese shipyards, Howe Robinson questions where the prices for LNG newbuilds will go. “Historically, Korean yards have been reticent to give prices too far ahead due to steel prices and potential currency fluctuations. However, we are in unprecedented times, spurred on by the wish to diversify away from pipeline gas. Whilst energy policies are reviewed, gas still remains the viable alternative for the short to medium term,” says the shipbroker.
“Gas remains the viable alternative for the short to medium term”
A surge of orders for container ships and LNG carriers, combined with rising prices for steel and energy, are driving prices higher. Shipbroker Fearnleys says prices for all types of vessels are trending higher, reporting the cost of a 170,000-m3 ME-GI-propelled vessel at US$221M as of mid-April. This represents a substantial US$32M jump — an increase of 17% — since April 2020, when the same LNG carriers were going at US$189M apiece.
Back in April 2020, QatarEnergy (then Qatar Petroleum) had inked an agreement to place orders worth about US$3Bn with the Chinese shipbuilder. At the time the agreement was struck, Mr Al-Kaabi said: “By entering into this agreement to reserve a major portion of Hudong’s LNG ship-construction capacity through the year 2027, we are confident we are on the right track to ensuring our future LNG fleet requirements will be met in due time to support our increasing LNG production capacity.” That LNG shipbuilding capacity is understood to be four berths. He added: “The value of this landmark agreement has the potential to be well in excess of QR11Bn (US$3Bn), depending on our requirements and the extent of China’s LNG shipbuilding capacity expansion.”
MOL did not disclose the value of these latest shipbuilding contracts with Hudong-Zhonghua.
In June 2020, QatarEnergy reached an agreement with South Korean shipyards, securing approximately 60% of the global LNG shipbuilding capacity through 2027 “to cater for our LNG carrier fleet requirements in the next seven to eight years, which could reach 100+ new vessels with a programme value in excess of Qar70Bn (US$19Bn),” according to Mr Al-Kaabi. QatarEnergy reportedly has five berths each reserved at DSME and SHI and another six at HHI.
Germany wants Qatari LNG
With energy security and reducing dependence on Russian natural gas top of mind in Europe, Germany and Qatar announced the formation of a long-term energy partnership in March. The news came following a state visit to the UAE and Qatar by Germany’s Economic Minister, Robert Habeck, and a high-ranking business delegation. Following a meeting with Qatar’s Emir Sheikh Tamim bin Hamad Al Thani, Mr Habeck said the deal would be a “door-opener” for Germany’s economy as it seeks to wean itself off Russia’s influence following the Russian war against Ukraine.
He was quoted by news agency DPA as saying: “We might still need Russian gas this year, but not in the future.”
The details of the Qatari deal, the scope of supply and the sums involved were not revealed. Mr Habeck, in a televised interview with the state broadcaster Deutsche Welle, said: “The companies that have come with us will now enter into deeper contract negotiations with the Qatari side.”
At present there are no LNG import terminals in Germany for carriers to feed their cargo into the national pipeline system.
In 2020, German firm Uniper abandoned plans for a 10 billion cubic metre (bcm) per year FLNG import terminal at Wilhelmshaven and opted instead to look for hydrogen imports.
In late February, days after the invasion of Ukraine, the German Chancellor Olaf Scholz announced the country would accelerate developments at the two LNG import projects in Brunsbuttel and Stade. Both projects have suffered setbacks.
“The current environment for FSRUs is very favourable”
In November 2021, Dutch storage company Vopak announced it was ending its “active participation” in the Brunsbuttel project and the Stade project’s developer Hanseatic Energy Hub pushed back the binding capacity process for the site until later in 2022, due to volatility in the market.
Qatari officials said they welcomed Germany’s decision to ‘fast-track’ the developments of the two LNG terminals. On 15 April, the German ministry of finance announced it was releasing €2.94Bn (US$3.19Bn) to acquire the floating LNG import terminals.
FSRUs from Qatar?
With Europe looking to fast-track LNG import terminal capacity, one source of FSRU tonnage might be Qatar. One of the world’s largest LNG ship operators, Qatar Gas Transport Co, better known as Nakilat, is the majority owner of one FSRU, Exquisite, through a joint venture with Excelerate Energy. The FSRU has a storage capacity of 150,900 m3 and a regasification rate of 745 million cubic feet per day (mcfd).
During a conference call with investors discussing Q1 2022 company earnings on 18 April, Nakilat head of investor relations Fotios Zeritis called the current environment for FSRUs “very favourable.” Said Mr Zeritis: “With additional regasification capacity being announced by many countries in Europe, there is a significant upside for European LNG import demand. There is definitely more interest in the FSRU space, and in particular, around the Europe area. For example, Germany is among the front-runners chasing FSRUs among other EU countries such as Italy, and Greece. The FSRU market is a very interesting segment, and the market expects to see an increased demand for FSRUs through new orders of FSRUs, and/or conversion of existing LNG ships.”
Back in February, Qatargas acquired 10 steam-turbine-propelled LNG carriers from Japanese owners K-Line, MOL and NYK Line which could be candidates for conversion to FSRUs. Additionally, Qatar’s shipping arm, Nakilat, has a memorandum of understanding with Karpowership to jointly own and operate FSRUs for the LNG-to-power market.
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