Concerns are rising over a drought in orders as domestic shipbuilders experience a sharp decline in orders for liquefied natural gas (LNG) carriers, which hold a competitive edge over China. The shipbuilding industry is pinning hopes on increased exports of LNG from the United States due to tariff agreements with the European Union (EU) and the Korea-U.S. shipbuilding alliance.
According to a recent report published by The Export-Import Bank of Korea's Economic Research Institute, the amount of new ship orders for domestic shipbuilders in the first half of this year (January to June) is 4.87 million CGT (Compensated Gross Tonnage), which is a 34% decrease compared to the first half of last year. During the same period, the order amount fell by 32% to $16.14 billion.
In particular, orders for LNG carriers, which had been the main vessel type for major domestic shipbuilders in recent years, have sharply decreased. The amount of LNG carrier orders in the first half of the year was eight large vessels and six medium LNG bunkering vessels, representing a 78% decrease compared to the first half of last year. The proportion of LNG carriers among the ordered vessels has dropped to about 17%.
The decline in LNG carrier orders is significantly influenced by the sharp drop in charter rates since the fourth quarter of last year, which has depressed orders for LNG carriers. In the first half of the year, global LNG carrier orders amounted to 1.05 million CGT, an 83% decrease compared to a year ago. The proportion of LNG carriers within the total orders has also fallen to 5.4%, dropping to one-third.
Domestic shipbuilders had stockpiled work for 3 to 4 years focused on high-value-added vessels such as LNG carriers until last year. China, which holds the number one global ship order market share, is sweeping up bulk carriers and container ships, which have relatively lower added value, but it is still evaluated that the shipbuilding technology for LNG carriers lags behind Korea.
Last year, Korea's share of orders for LNG carriers issued worldwide was 62%, while China accounted for 38%. In the case of Hanwha Ocean, the proportion of LNG vessels in its commercial ship division revenue reached as high as 61% in the second quarter.
Domestic shipbuilders are hopeful for the expansion of U.S. LNG exports. If exports increase, the demand for LNG carriers to transport LNG will also rise. The EU reached a tariff negotiation agreement with the United States last month and agreed to purchase U.S. energy products valued at $750 billion (approximately 1,000 trillion won) over the next three years, which amounts to $250 billion annually. While the import quota for LNG has not been disclosed, with President Donald Trump pushing for an increase in LNG exports, it is expected that EU imports of LNG will significantly rise.
GTT, a company specializing in insulation materials that maintain the LNG storage tank's internal temperature at ultra-low temperatures, recently announced its second-quarter results, predicting that the demand for LNG carriers will increase again due to the EU's expansion of imports of U.S. LNG and regulations mandating the introduction of eco-friendly vessels. GTT analyzed that the delay in LNG carrier orders in the first half of this year was due to uncertainties related to U.S. regulations on the Chinese shipbuilding and shipping industries and the potential for mandatory use of U.S. vessels.
If the U.S. government mandates the use of U.S. LNG carriers, it could present an opportunity for Korea. U.S. shipyards currently lack the capability to construct LNG carriers on their own. If Korea-U.S. shipbuilding cooperation materializes, the possibility of joint construction by both countries is being mentioned. Recently, Hanwha Ocean signed a contract to jointly construct one LNG carrier with Hanwha Philly Shipyard, which it acquired last year. It is reported that most of the work will be done at Hanwha Ocean's Geoje Shipyard, with final assembly taking place in the U.S.