October 22, 2012 10:14 pm
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Export opportunities abound for US manufacturing, technology, and service companies in Chinese shipyards where, spurred by the proliferation of natural gas as a fuel source, shipbuilders are producing small- and large-scale liquefied natural gas (LNG) carriers and related service vessels.
With the US undergoing a natural gas boom and China beginning to service its 25 trillion cubic meters of untapped shale gas resources, the shipping and shipbuilding industries are poised for a revolution.
“The last time we saw something like this was when container vessels came into the market,” Geoff Green, managing director of UK-based marine engineering consultancy Wavespec, told XPortReporter.
Chinese shipyards are an emerging player in an industry long-dominated by Japanese and Korean companies and their entrenched supply chains, and a unique opportunity for potential suppliers.
Chinese shipyards building a head of steam
The first LNG carrier built domestically in China was completed in 2008 by Hudong-Zhonghua Shipbuilding, a subsidiary of state-owned China State Shipbuilding Corporation. The industry has grown substantially since then in the highly-specialized LNG shipping sector.
The same shipyard won a USD 1bn contract to build four LNG carriers for ExxonMobil and Japan’s Mitsui OSK Lines in January 2011. Just last month, it successfully landed a bid to build four to six LNG carriers for a consortium that includes Australia’s Origin Energy, US’s ConocoPhillips and China’s China Petroleum and Chemical Corporation (Sinopec).
Subsidiaries of state-owned enterprises China Shipping Industry Corporation, China Rongsheng Heavy Industries Group and China Ocean Shipping (Group) Company (COSCO) have also expressed interest in developing LNG carrier tanks, with various reports stating they have been bidding on contracts.
The sudden rise of Chinese shipyards in the LNG carrier sector has caused some alarm from competitors. Reports emerged late last year that a consortium of three South Korean shipbuilders were considering an acquisition of France-based Gaztransport & Technigaz, the leading supplier of LNG containment systems, in order to maintain the country’s dominance in LNG shipbuilding.
Thus far, the emergence of Chinese-built LNG carriers has mostly been fueled by orders from foreign companies. Chinese state-owned energy companies will soon be entering the market as they commercialize the massive shale gas resources in the country, further increasing demand. For example, China National Offshore Corporation (CNOOC) is planning to commission four large LNG carriers and at least 10 small LNG carriers with capacities of 30,000 cubic meters and 10,000 cubic meters, respectively, a CNOOC spokesperson told this news service. The state-owned energy giant is planning to spend at least USD 80m for the larger vessels and USD 50m for the smaller vessels, which will all run on dual-fuel diesel-electric engines, as previously reported by this news service. The orders are part of a broader strategy by CNOOC to expand LNG distribution around the country.
A rising tide lifts all boats
LNG carriers were a niche market in 2002, when, there were just 126 LNG carriers in the world. By 2015 that number is expected to reach 485. In 2010 orders for 130.5 million deadweight tons of new vessels worth USD 96bn were placed, of which 8.4m dwt, or 15% were carriers. That number is expected to rise as an increase ship owners’ attention turns to LNG carriers, according to a 2011 PWC report.
A rise in demand for small- and large-scale LNG carriers, offshore units, and related service vessels could be the industry’s saving grace as the Chinese and US energy industries capitalize on massive reserves and LNG becomes a global commodity.
Currently, the shipbuilding industry is primarily serviced by European, Korean, and Japanese companies with a steady, intransient supply chain. Nevertheless, if Chinese shipyards prove themselves capable, a shake-up in the supply chain would benefit US companies, a source at a major Chinese engineering group said.
First, LNG carriers are specialized vessels that need advanced technologies. When natural gas is transported across oceans it must first be cooled to about -162 degrees Celsius. Thus, the systems that hold LNG are critically important to carriers. Gaztransport & Technigaz currently dominates the market for membrane containment tanks, which are used in nearly all of the LNG carriers on the books, said Wavespec’s Green.
However, Wavespec, a subsidiary of Braemar Shipping Services, is preparing to license a new semi-membrane LNG containment system to shipbuilders in China, this news service recently reported. The company jointly developed the system with NASSCO, a division of US-based General Dynamics. Wavespec’s new semi-membrane tank is designed to alleviate a large problem with membrane tanks – sloshing, or the motion of fluid within the tank – which can damage the ship’s hull.
Suppliers of industrial cryogenic materials—compressors, valves, pumps, and pipe towers—may also benefit from more advanced Chinese shipyards.
For instance, UK-based Bestobell Valves, which manufactures cryogenic valves, recently supplied its products to the four LNG tankers built by Hudong-Zhonghua Shipbuilding.
The company is also getting involved in other LNG related projects. It is negotiating contracts with China National Petroleum Corporation (CNPC) and CNOOC to supply its products to a floating storage regasification unit (FSRU), this news service recently reported.
Currently most US cryogenic companies build valves, pumps, compressors and other manufactures exclusively for the shore side market and are not competing with European, Korean, or Japanese cryogenic firms, a US-based naval architect said.
Dual-fuel diesel-electric engines also present an interesting opportunity. In 2002, 100% of the world’s fleet was steam powered. By the end of 2012 roughly 50% of the world’s fleet will be powered by dual-fuel engines.
CNOOC is currently executing plans to upgrade its inland LNG capacity and is backing a major initiative in the country to convert tens of thousands of river vessels to dual-fuel engines, this news service recently reported. Chinese shipyards will need diesel generator sets, electric motors, converters, transformers, cargo pumps, and fixed-pitch propellers, all essential components of dual-fuel engines.
Primarily, Finnish Wartsila and German MAN Diesel & Turbo supply the Chinese shipping industry with dual-fuel diesel engines, though US companies like Caterpillar and Electro Motive Diesel are getting more involved in small-scale, high-speed units, one representative at a marine shipping consultancy said. Smaller companies, such as Girard, Ohio-based Altronic GTI, have also broken into the Chinese market. Altronic sells its dual-fuel engines to manufacturers Shengli Oilfield Shengli Power Machinery Group Company and Jinan Diesel Engine, a company official told this news service; however, it could also find leads in the shipbuilding side.
Opportunities exist for US manufacturing and technology companies if they are willing to step outside the comfort zone and compete in a new, uncertain market.
by Matthew Volkov in New York, Alexander Gladstone and Ivy Zhang in Shanghai
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