lng tankers china

Now We Are Becoming Dependent on China for LNG Tankers

Liquefied natural gas from ships is to replace Russian pipeline gas. But there are not enough tankers. They are mostly manufactured in Korea, where there is hardly any spare capacity, as current satellite images show. Only one country can help.

“Economy from above” is a collaboration between WirtschaftsWoche and LiveEO. This is a translation of the original article written in German by “Thomas Stölzel“. Access the original article here.

The natural gas storage facilities in Europe and Germany are full. The West once again stocked up on Russian pipeline gas in the summer. But this is unlikely to work for the next few winters.

As a result, natural gas has to be transported to the continent in liquefied form by freighter.

The problem is that ships are in short supply. And the latest satellite images from LiveEO show that the shipyards where they are primarily built will probably not be able to produce enough of them in the next few years. Only China can step in for the foreseeable future.

In 2022, the gas industry has already ordered a record 150 new LNG carriers. In the previous year, 78 ships were ordered. A total of 252 such tankers are now on the order books of the shipyards. This is a huge number, considering that just 570 LNG carriers are currently sailing the world’s oceans.

Still, that won’t be enough to compensate for the loss of pipelines like Nordstream, says an expert from Paris-based shipbroker BRS. This would require at least 170 more ships. But the shipyards that currently build such LNG tankers could hardly accommodate them.

The Big Three

Which shipyards in Korea build the LNG Tankers

korea lng tankers

Around the world, there are currently only five shipyards that have the capability to do this. The three most important by far – Daewoo, Hyundai and Samsung – are located in South Korea. These three manufacturers account for 196 of the ships currently on order. Two shipyards in China are to build another 37 ships, the broker’s data show. There, however, the construction would have to be strongly supervised as a client in order to ensure quality. This is because there have been technical problems with Chinese LNG tankers from time to time in the past. The remaining 25 ships are to be built in cooperation with Samsung in Russia.

A look at recent satellite images shows that the dry docks and berths of Korea’s most important shipyard, Hyundai’s in Ulsan, were packed with LNG carriers even before Russia’s invasion of Ukraine. Today, the ships, which are at varying stages of construction, dominate the yard. It is true that Hyundai could cut back on the production of container ships, for example. But these are also urgently sought at the moment.

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Images: LiveEO/Airbus/Google Earth, LiveEO/Maxar/Google Earth, LiveEO/Pleiades

Tonci Tokic, who develops the LNG business at shipbroker Gibson in Singapore, therefore warns against such a move. Containers, oil, bulk, LNG – they all depend on each other. “Simply saying I’m now producing fewer container ships but more LNG tankers is very dangerous for the global economy,” the expert said. Increasing the capacity to build LNG carriers in Korea is also why it is very difficult, he said.

LNG Tanker Prices Are on the Rise

A look at the price shows how scarce these are in the meantime. While an LNG carrier cost around $190 million in 2019, it is now going for around $250 million. That’s a price increase of more than 30 percent. And the waiting times are long. A ship ordered this year will not be delivered until 2025 at the earliest, if not 2027.

The LNG carriers are clearly visible in the satellite images. Whereas such ships used to have several hemispherical superstructures – a Norwegian design – modern examples have superstructures with the cross-section of a trapezoid. Nowadays, they almost always contain special membrane tanks made by the French company GTT, which can maintain extremely low temperatures for a long time.

Jiangnan Shipyard
Jiangnan Shipyard, Changxing Island, Shanghai, China.
A recent detail view from above of an LNG vessel under construction at Hyundai in late August 2022 (top image). The LNG carrier “STL Yangtze” is docked at Hyundai’s Ulsan shipyard in 2021. The superstructures typical of this type of ship, under which the huge tanks are located, are clearly visible in both images.
Image: LiveEO/Pleiades, imago-images

Even if this technology is not considered a bottleneck, shipbuilding capacity at Samsung’s shipyard on the small island of Geoje in southeast Korea is not much better than in Ulsan. Here, too, recent photos show that masses of LNG carriers have already been built at the shipyard for years, and other dry docks are occupied by oil tankers and container ships.

The shipyard had already added several floating dry docks a little over ten years ago to expand capacity. At least here it seems possible to install more such docks.

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Images: LiveEO/Airbus/Google Earth, LiveEO/Maxar/Google Earth, LiveEO/Pleiades

The emirate of Qatar on the Persian Gulf in particular is generating a great deal of demand for LNG ships. Alongside the USA, the country is seen as the great hope for supplying Europe with liquid natural gas in the future. Virtually all the ships currently on order in Korea and China are directly linked to deposits whose gas they are to transport. Only very few of them go to speculators.

But according to Gibson broker Tokic, the orders from Qatar are largely not to replace Russian pipeline gas. Many of the ships are to replace old LNG carriers that Qatar plans to phase out in the foreseeable future due to stricter environmental regulations.

Seven kilometers west of the Hyundai shipyard, in another bay on Geoje Island, the competitor Daewoo is also busy. According to the satellite images, LNG carriers are being built here as well. Due to the geographical location, it is hardly possible here, as at Hyundai in Ulsan, to build further floating dry docks to expand capacity.

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Images: LiveEO/Airbus/Google Earth, LiveEO/Maxar/Google Earth, LiveEO/Pleiades

Hopes of increasing the number of LNG carriers even further are therefore pinned primarily on China. France, once the market leader in the construction of freighters, and Japan withdrew from the business a few years ago and left it to Korea. Experts believe it is unrealistic that these countries will be able to get back into the business. They simply no longer have the know-how. The situation is different in China, which has been building LNG carriers since 2008.

With Jiangnan and Hudong-Zhonghua, the country already has two shipyards that can build LNG carriers – albeit still in smaller numbers than the Koreans. Both shipyards are located right next to each other, close to the metropolis of Shanghai. Three more shipyards are also planning to enter the business, including Yangzijiang, a non-governmental shipyard for the first time.

However, a satellite image from August shows no LNG carriers at the shipyard, which is also located in Greater Shanghai. According to industry insiders, how quickly they and the other newcomers in China can ramp up their capacity for this now depends on whether the Chinese state forces Jiangnan and Hudong-Zhonghua, which belong to the China State Shipbuilding Corporation, to share their lucrative know-how.

Jiangnan Shipyard China
Jiangnan Shipyard, Changxing Island, Shanghai, China
12.2021: Three LNG tankers are in dry dock here. By now a typical picture in this Chinese shipyard. The interior of the membrane tanks, in which the liquefied natural gas will later be stored in deep-freeze, is clearly visible.
Image: LiveEO/Maxar/Google Earth

Satellite images of the Jiangnan shipyard at least show that over the past three to four years, the number of LNG carriers being built here at the same time has gradually increased – as has the Chinese market share.

However, the shipyard also builds plenty of warships, including the new aircraft carriers for the Chinese Navy. An order here would pose a risk, especially for U.S. gas suppliers, should relations between the U.S. and China deteriorate further and military saber rattling between the two countries increase.

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