As a consequence of the aftermath of the Russia-Ukraine war, Samsung Heavy Industries has suspended the production of blocks and components for 10 out of 15 liquefied natural gas (LNG) carriers contracted with a Russian shipyard. This move aligns with the international community’s collaborative efforts in imposing economic sanctions on Russia, and the total contract value for the 15 vessels is reported to exceed 4 trillion won.
On Dec. 26, Reuters reported that Samsung Heavy Industries has halted the production of ship blocks and equipment for 10 out of 15 LNG carriers contracted with the Zvezda Shipyard in Russia. However, the contracts have not been canceled and remain in effect.
The shipbuilding method agreed upon by both parties involves Samsung Heavy Industries not directly constructing the carriers at its domestic Geoje shipyard. Instead, the Zvezda Shipyard in Russia receives ship blocks and necessary materials in a block format from Samsung Heavy Industries and proceeds with the construction. Samsung Heavy Industries has attributed the suspension of block production for the 10 ships to the challenges faced in conducting regular business operations following the Ukraine war. The company announced a disclosure regarding the supply of ship blocks and equipment, not a contract award notice, when it entered into an agreement with the Russian shipyard.
According to shipbuilding industry sources, Samsung Heavy Industries made this decision as there is an increasing possibility that Zvezda Shipyard may be added to the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) list of specially designated nationals (SDN) later this month due to Russia’s invasion of Ukraine. If listed, all assets of the company would be frozen, and transactions with foreign entities would be prohibited.
Samsung Heavy Industries had previously secured a contract for 15 icebreaking carriers for the “Arctic LNG-2” project, a large-scale LNG development initiative led by Russia, from 2019 to the end of 2020. The total contract amount exceeded 4 trillion won, making it the largest contract in the shipbuilding industry at that time. However, Samsung Heavy Industries clarified that it entered into a design contract as a technological partner with Zvezda Shipyard, emphasizing that it was not a construction contract. Zvezda Shipyard is one of the largest local shipyards located in Bolshoy Kamen, Russia’s Far East. In response to Reuters’ report, Samsung Heavy Industries stated, “Five ships have already been constructed while the remaining ten are currently on hold due to the aftermath of the Ukraine war, but discussions are ongoing.”
The repercussions of the Russia-Ukraine war are affecting other shipbuilding companies as well. Hyundai Samho Heavy Industries, a subsidiary of HD Korea Shipbuilding & Offshore Engineering, established a joint venture called “Zvezda-Hyundai LLC” in 2017 and currently holds a 49 percent stake in it. However, it has been confirmed that shipbuilding contracts with Russia have not been made by Hyundai Samho Heavy Industries or other shipbuilding subsidiaries of Korea Shipbuilding & Offshore Engineering. Daewoo Shipbuilding & Marine Engineering, the predecessor of Hanwha Ocean, had signed a contract with Russia for the construction of three LNG carriers until 2021. However, after the Ukraine war, the contracts were gradually terminated.