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Offshore Plant Order Drought Expected to Continue into Next Year
No Recovery in Sight
Offshore Plant Order Drought Expected to Continue into Next Year
  • By Jung Min-hee
  • November 29, 2019, 12:17
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An offshore plant order drought is expected to continue into next year, negatively affecting Korean shipbuilders.

An offshore plant order drought will continue into next year, affecting the three major Korean shipbuilders -- Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering, and Samsung Heavy Industries, industry analysis reports say.

One major reason is that big projects are being canceled one after another due to low oil prices. Shipbuilders are responding to an order cliff by reducing the proportion of their offshore plant business and relocating their plant workforce to the shipbuilding sector.

Industry analysts say that new offshore plant orders to be awarded next year will be similar to this year’s level. Among the three shipbuilders, only Samsung Heavy Industries landed one offshore plant order this year. “International oil prices are not rebounding due to a boom in shale oil development in the United States,” said Jung Ha-neul, a researcher at Korea Investment & Securities. “The offshore plant business will only add uncertainties to the shipbuilders.”

The shipbuilding industry is paying attention to the fact that drillship orders have been suspended for several years. Contracts on drillships already built are being scratched off one after another.

Korea enjoyed the boom in the offshore plant business in the late 2000s, which was fueled by high oil prices. However, the Korean shipbuilding industry suffered a deficit of tens of trillions of Korean won in offshore plants as oil prices plummeted in 2014. It has yet to recover from the setback. The recent slump is blamed on low oil prices. Industry insiders believe that offshore plant orders will be placed when oil prices exceed US$70 per barrel.

Shipbuilding companies are trying to improve efficiency by placing redundant workers to building merchant ships. Daewoo Shipbuilding & Marine Engineering (DSME) has transferred 600 workers in the offshore plant sector to commercial shipbuilding since August. Without new orders, DSME’s offshore plant yards will be left empty starting the first half of next year.

Hyundai Heavy Industries has moved commercial shipbuilding work to offshore plant yards to prevent workers from loitering since August. The company won an order for an offshore plant from Mexico in October last year. the first time in four years since landing an order for the Nasr facility in the United Arab Emirates (UAE) in 2014. Prior to winning the order, Hyundai Heavy Industries laid off or gave paid leaves to 2,000 employees.

Samsung Heavy Industries is in a better position than its competitors as it has secured work that will run until the end of 2023. The company has four projects including a floating production storage and offloading (FPSO) order received from Reliance of India in April.