Mitsui Ocean Development & Engineering Co. (MODEC) was recently selected as the floating production, storage and offloading (FPSO) unit supplier for the Barossa Project, an offshore gas field development project off the coast of northwestern Australia. The FPSO part of the project alone is estimated at US$1.5 billion. MODEC clinched the part on a turnkey basis.
MODEC is planning to design the FPSO unit before Dalian Shipbuilding Industry Co. builds it as a sub-subcontractor. Previously, MODEC established a joint venture for technology transfer and financial support to work more closely with the Chinese shipbuilder. In addition, in August this year, MODEC set up Jiangsu Yangzi-Mitsui Shipbuilding Co., Ltd. (YAMIC) in order to keep South Korean LNG ship builders in check in cooperation with Yangzijiang Shipbuilding of China.
The part of the project was expected to go to Samsung Heavy Industries, which signed a front end engineering and design (FEED) contract related to the project with American oil company ConocoPhillips in May last year. However, the Japan-China alliance beat the South Korean shipbuilder with a lower labor cost. At present, the average labor cost of Chinese shipyards is about one-third of that of their South Korean counterparts. “Chinese companies are putting up with low bidding prices and business losses as newbies in the offshore plant market and Japanese companies are beefing up cooperation with them by transferring technologies,” said an industry insider.
Cooperation between Japan and China in the shipbuilding industry is nothing new. Chinese shipbuilders, which are not very skillful yet, have been under the technical guidance of Japanese shipping companies for about 10 years. It is shipping companies that have ship-related original technologies in Japan whereas such technologies and techniques are owned by shipbuilders in South Korea. Japanese shipping companies have increased their access to marine transportation routes and the like in return for the technical guidance.
Chinese and Japanese companies are working together in new projects, too. For instance, China COSCO Shipping Group, which is the largest shipping company in China, signed a memorandum of understanding (MOU) with Mitsui O.S.K. Line in August this year for more cooperation in LNG and ethane gas transport. The Chinese group and the third-largest shipping company in Japan are likely to pursue new LNG transport contracts in relation to, for example, the Yamal Project, which is an LNG development project in the Arctic Ocean region. Also, a number of LNG ships are likely to be built by Chinese shipbuilders based on the cooperation between Mitsui O.S.K. Line and China COSCO Shipping Group.
With the global competitiveness of Japanese shipbuilders on the decline, they are focusing more and more on cooperation with China. As of the end of September this year, the shipbuilders’ order backlog hit a 17-year low of 12.83 million CGT. Moreover, they received new shipbuilding orders worth 1.96 million CGT for the first three quarters of this year, down 67 percent from a year ago and approximately one-third of those of South Korean and Chinese shipbuilders.
Japanese and Chinese companies are trying to catch up with South Korean LNG ship builders in particular. South Korean shipbuilders clinched more than 85 percent of new LNG ship projects worldwide last year and their LNG ship-related techniques and technologies are second to none in the world, examples of which include the full re-liquefaction of evaporation gases naturally generated in LNG carrier cargo holds.