After Enlarging LNG Carriers in Negotiations with Qatar Energy
After HD HHI won a provisional contract to build 17 liquefied natural gas (LNG) carriers from Qatar Energy in October, renegotiations kicked off between the two companies to discuss heightening specifications.
Qatar Energy has recently started renegotiations with HD HHI to build 17 LNG carriers with a capacity of 174,000 square meters, according to industry sources. On March 27, Qatar Energy, a state-run energy company of Qatar, signed a memorandum of agreement (MOA) to build 17 LNG carriers for US$3.9 billion based on the tentative agreement.
The two companies are discussing expanding LNG carrier sizes and raising prices. Qatar Energy’s proposed specification is known as the Q-Class, a so-called super-sized carrier model. In the early 2000s, Qatar ordered very large LNG carriers such as the Q-Plex (210,000 cubic meters) and Q-Max (260,000 cubic meters) from Korean shipyards as it promoted LNG production projects. A 210,000-cubic-meter LNG carrier alone can carry 20 percent more LNG than one with the original specification.
Qatar also needs ships to carry as much LNG as possible at once. As the world’s largest LNG producer, Qatar has raised its LNG production target from 77 million tons to 126 million tons to meet growing demand.
Size expansion is expected to push up ship prices. When the MOA was signed last month, the price per vessel was set at US$229 million, which is somewhat lower than the recent newbuilding price of US$260 million. However, as the size of the vessel increases, the price is expected to rise to around the current price of a 174,000-cubic-meter ship. Although size expansion requires significant vessel design modifications, the construction period per vessel is not much different, so it is not a big burden for HD HHI. In particular, in the case of large Q-class ships, only Korean shipbuilders such as HD HHI, Hanwha Ocean, and Samsung Heavy Industries have experience in building them, which gives them a slight advantage in price negotiations.
The number of ships built may drop as the vessel size expands, some experts say. Assuming that cargoes (LNG) for the LNG carriers which Qatar Energy ordered to HD HHI are fixed, if their specification is changed to a 210,000-cubic-meter LNG carrier, the cargo volumes will remain unchanged even if only 14 ships are built not the current 17.
Meanwhile, Hanwha Ocean and Samsung Heavy Industries preparing to win a second project in Qatar, may be partially affected by this contract change. Hanwha Ocean recently announced that it reorganized a production system at its Geoje shipyard so that it can simultaneously build four LNG carriers on the shipyard’s largest dock. This is based on 174,000-cubic-meter vessels. If Hanwha Ocean wins an order for a 210,000-cubic-meter carrier through further negotiations with Qatar Energy, the process may change somewhat.