The order book for high value-added ships at Korea's shipyards is expanding from liquefied natural gas (LNG) carriers to very large gas carriers and very large ammonia carriers (VLGC, VLAC) that carry liquefied petroleum gas (LPG) and ammonia. As freight rates for LPG carriers remain high due to rising LPG exports from the United States and Middle East risks, shipping companies are placing more newbuilding orders. Korea's shipbuilders are leading the market, winning about 75% of the VLGC and VLAC orders placed worldwide this year.
VLGCs and VLACs are in the same family, with similar basic designs for cargo tanks and gas handling systems, and are high value-added ship types with higher prices and technical complexity than general merchant ships. Recently, the order flow has been shifting to hybrid-spec vessels that can carry both LPG and ammonia or can be adapted for ammonia transport in the future.
◇ Even with transits through the Strait of Hormuz, the gas carrier shortage is prolonged
According to shipbroking and shipping market firm PUNLIS on the 29th, the spot rate in the third week of May for an 84,000-cubic-meter VLGC was $6 million per month (about 9 billion won), up $300,000 (about 450 million won) from the previous week. A simple conversion puts that at about $200,000 per day (about 300 million won). PUNLIS said that with not enough ships available to load June cargoes departing the U.S. Gulf, some recently concluded contracts set a new record high on a per-ton basis.
Although easing tensions in Middle Eastern straits have somewhat reduced oil prices and bunker costs, gas carrier rates are not coming down easily. With LPG volumes from the U.S. Gulf to Asia increasing and operational uncertainty around the Strait of Hormuz prompting carriers to redeploy fleets, the number of ships actually available has declined. Even for the same cargo volumes, longer voyage distances require more ships, so the expansion of U.S.-origin LPG exports to Asia is propping up rates.
In fact, cargo contracts concluded for June loadings from the U.S. Gulf and East Coast totaled only about 20, according to tallies. That is roughly 30 fewer than in April and May, respectively. With transport demand strong but ships hard to match to cargoes, contracted volumes are also being capped. The industry sees a high likelihood that this shortage of tonnage will continue at least until July.
◇ Korea sweeps 22 ships just this month
Newbuilding orders are following the increase in LPG transport demand. According to Clarksons Research, as of the 25th, VLGC and VLAC orders placed this year totaled 36 ships, already 63% of last year's total orders (57 ships). By country, Korea has 27 ships, China 8, and Japan 1.
In particular, orders have concentrated at Korea's shipyards this month. HD Hyundai Heavy Industries won 9 VLGCs; HD Hyundai Samho won 2 VLGCs and 6 VLACs; and Hanwha Ocean won 3 VLACs. In addition, Samsung Heavy Industries secured 2 more VLGCs on the 26th, bringing Korean shipbuilders' cumulative VLGC and VLAC orders this year to 29 ships.
These ships are difficult to build due to cargo tanks, gas handling systems, and fuel propulsion technologies. Ammonia carriers must also be equipped with storage and transport technologies that address toxicity and corrosiveness. Recent contract prices for newbuilds are around $120 million per ship, higher than for general bulkers and tankers, making them an attractive segment for Korea's shipyards. Daehan Shipbuilding, a mid-sized yard, is also preparing to enter this market, expecting VLGC demand to grow further.
An industry official said, "Chinese shipyards are also increasing gas carrier orders, but because VLGCs and VLACs are more complex to build than general merchant ships and have more demanding safety requirements, shipowners who value proven construction experience and schedule reliability still tend to prefer Korean yards," adding, "If the ammonia transport market expands in earnest, demand for VLACs will increase further."