Even amid the shutdown of Qatar's liquefied natural gas (LNG) production due to the Middle East war, Korean shipbuilders' construction and delivery schedules for LNG carriers are proceeding without disruption. Some had warned that ships left without destinations because of gas production disruptions could flood the market and dampen newbuilding demand, but a wave of large new projects in North America and replacement demand for aging vessels are combining to keep new orders flowing.
On the 19th, the three Korean shipbuilders—HD Korea Shipbuilding & Offshore Engineering, Samsung Heavy Industries, and Hanwha Ocean—said there were no changes to delivery schedules linked to the Qatar project. An industry official said, "There has been no response from shipowners to delay deliveries; rather, LNG carrier orders are up compared with last year." Another industry official also said, "LNG carrier demand remains solid, and contract prices are staying high," adding, "The Qatar situation is not one that would affect orders."
In fact, for HD Korea Shipbuilding & Offshore Engineering, LNG carrier orders that stood at zero by mid-April last year have risen to 12 this year. Samsung Heavy Industries' orders expanded from one to six, and Hanwha Ocean's from two to four. Global order volumes are also increasing. According to Clarksons Research, a U.K.-based shipbuilding and shipping market analysis firm, a total of 39 LNG carriers were ordered in the global market this year, up 126% from the same period a year earlier.
◇ Concerns spread over order cancellations after Qatar force majeure declaration
Fears that LNG carrier orders could be hit stem from the force majeure declaration by QatarEnergy, the Qatari state-owned energy company. After gas facilities in the Ras Laffan area, which account for 20% of global LNG supply, were destroyed in Iran's retaliatory attacks on the United States and Israel, QatarEnergy notified major customers, including Korea, on the 24th of last month that it could invoke force majeure to be exempted from obligations to perform long-term LNG supply contracts. Saad Al Kaabi, the QatarEnergy CEO, said, "Facilities responsible for 17% of export production capacity were damaged by the Iranian attacks, and full restoration will take three to five years." He estimated about four months for short-term recovery.
As production facilities were destroyed and gas volumes fell, 15 LNG carriers that had been slated for this project lost their assignments. The market projected that up to 40 idle ships could be released into the charter market. If charter rates fall due to increased vessel supply, shipowners have less incentive to order newbuilds. This is why concerns have spread that Qatar-driven LNG newbuilding orders could be canceled or deliveries delayed. In addition to the 113 vessels it already operates to transport LNG, Qatar has ordered 98 more from shipyards. Of these, more than 70 are being built at Korean shipyards.
◇ Replacement of aging vessels and North American orders expected… "Demand is solid"
But the shock has not been as great as feared due to structural constraints of Qatar's fleet and replacement demand. The ultra-large vessels that form the backbone of Qatar's fleet cannot pass through the Panama Canal, which has beam restrictions, to link North America and Asia. No matter how many of these ships flood the charter market, they cannot carry LNG bound from North America to Asia going forward. As a result, the industry view is that even if some Qatar-origin LNG carriers with lost assignments come onto the market, the volumes will not be large and replacement demand can sufficiently absorb them.
On top of that, new LNG projects in North America are sequentially clearing investment approvals, raising expectations for new orders. As Middle East risk has intensified, the U.S. Department of Energy is actively approving LNG exports to non–free trade agreement (FTA) countries. Han Seunghan, an analyst at SK Securities, said, "Projects in North America where final investment decisions (FID) are being finalized, including Commonwealth LNG, alone will create demand for 128 new ships, which is expected to absorb Qatar-origin idle volumes."
Route reshuffling due to Middle East risk is also helping clear excess supply. If shippers replace the Middle East with the U.S. Gulf to import gas to Asia, the average voyage distance increases by about 70%, from 5,500 kilometers to 9,400 kilometers. As distances lengthen, more ships must be deployed to carry the same volume, offsetting roughly 10 ships' worth of excess supply.
Replacement demand for aging LNG carriers is also driving orders. An industry official said, "The replacement cycle for LNG carriers has arrived, and with tighter global environmental regulations overlapping, inquiries from shipping lines are continuing," adding, "Even before North American project orders fully kick off, we are seeing competition to secure building slots." Analyst Han Seunghan said, "The average scrapping age of older fleets with low operating efficiency has fallen to about 21.8 years this year, supporting newbuilding demand," adding, "Qatar risk will not put the brakes on Korean shipbuilders' relay of orders." The three Korean shipbuilders, which currently have three years of backlogged work, are expected to fill their 2029 delivery slots within the second quarter of this year.