South Korean shipbuilders eyed for LNG carriers deal worth $3.8 billion

HD-Hyundai Marine Engine

12/10/2016 06:36

(Repeats with added topic and product codes. No change to text) 
    * CBI Energy and Chemical would be new player in LNG trade 
    * Firm has ambitious plans for LNG supply network in Asia 
    * Shipbuilders have seen new orders slump to 20-year lows 
    * South Korean firms seen as leaders in building LNG tankers 
    * LNG capacity rising amid demand for cleaner energy 
 
    By Benjamin Kang Lim and Hyunjoo Jin 
    SEOUL/BEIJING, Oct 12 (Reuters) - A little-known investment 
company said it intends to order up to 20 liquefied natural gas 
(LNG) carriers, probably from South  Korean shipbuilders. The 
contracts would be worth as much as $3.8 billion, two people 
with direct knowledge of the matter told Reuters. 
    CBI Energy and Chemical, which is controlled by Australian 
and Canadian investors and has offices in Hong Kong, also 
disclosed in a statement to Reuters that it would be seeking to 
buy floating LNG production and import facilities as part of an 
ambitious plan for Africa and Asia. 
    The orders would be a major shot in the arm for South 
Korea's ailing shipbuilding industry, which has been hit by a 
collapse in new orders as global trade growth slows and after 
the slump in commodities prices in recent years. 
    CBI Energy would be taking advantage of low shipbuilding 
costs and cheap credit, that make it easier for newcomers to tap 
into a global switch towards cleaner sources of energy, LNG 
traders said. Depressed LNG prices are encouraging demand for 
the fuel, they added.  
    The company said in a statement to Reuters that "there is a 
need to custom-build specialty LNG carriers that will meet 
CBI's business needs." 
    It said that CBI has plans for Africa and Asia that include  
natural gas extraction, pipelines, marine transportation 
logistics, LNG plants, rail transport, power generation, 
chemical plants, and an LNG distribution network, including 
retail gas stations. 
    CBI has entrusted Korea Offshore and Ship's Technology Co 
Ltd (KOST) to find South Korean shipbuilders for the projects, 
officials from the two companies said. 
    "South Korea's LNG carriers are the best in terms of design, 
shipbuilding and delivery speed," an executive at CBI, who 
declined to be identified, told Reuters. "The shipbuilding 
industry is in a slump. This would be a stimulus." 
     
    MASSIVE OVERCAPACITY 
    KOST could approach STX Offshore & Shipbuilding, Daewoo 
Shipbuilding & Marine Engineering Co  042660.KS , Samsung Heavy 
Industries  010140.KS  and Hyundai Heavy Industries Co Ltd 
 009540.KS  to build the vessels, the person added. 
    It is not yet clear whether the contract would be 
concentrated with one or two shipbuilders or be spread more 
widely, said the official from KOST, who also declined to be 
identified. Initially there would be 10 firm orders, with an 
option to buy 10 more carriers, this person said. 
    South Korean shipbuilders have also been hit by increased 
competition from Chinese and Japanese yards, and massive 
overcapacity in the shipping industry. 
    The collapse of Hanjin Shipping  117930.KS , the world's 
seventh largest container shipper at the end of August, dealt a 
further blow to sentiment. Korea Development Bank forecast in a 
report the same month that the country's shipbuilders would 
suffer a 92.3 percent plunge in orders this year. 
    "Global shipyards including those in the main shipbuilding 
countries of South Korea, China and Japan, have seen the volume 
of orders in tonnage terms slump this year to the lowest level 
in more than 20 years," said Peter Sand, chief shipping analyst 
at ship owners lobby group BIMCO. 
    LNG carriers are a bright spot, though, because of demand 
for cleaner energy, said the KOST official.  
    The person said talks with shipbuilders would start after 
detailed plans were made, adding that it would take two to three 
months to select contract winners based on price, quality and 
the ability to meet delivery deadlines. 
    The vessels would each have the capacity to transport 
120,000 to 175,000 cubic metres of LNG, the two sources said.  
    The first ship was due to be delivered in 2019, they said, 
adding the remaining vessels would be delivered at a rate of one 
ship every two-to-three months.   
     
    SHIPPING LNG TO CHINA     
    CBI Energy is a holding company registered in the British 
Virgin Islands and lists offices in Hong Kong, Beijing and 
Switzerland. 
    Its core investments are in coal poly generation, a "clean 
coal" technology, as well as LNG and associated supply chain 
businesses, according to the company statement. 
    The CBI executive said the group was 70 percent Australian 
owned and 30 percent Canadian owned. He declined to provide 
further details. 
    It has raised 2 billion euros from European private equity 
investors to fund the orders, the executive added.  
    The KOST official said CBI planned to ship LNG from Africa 
and the Middle East to China.     
    KOST, which is based on South Korea's southeastern island of 
Geoje, the country's shipbuilding hub, supervises shipbuilding 
projects.  
    The order would increase the global fleet of LNG tankers by 
more than 3 percent, making CBI a significant new player in the 
LNG logistics business if it opted to operate all the vessels 
itself. There are currently 460 tankers in service, with a 
further 170 on order.  
    A 174,000 cubic metre LNG carrier costs around $198 million 
to buy, down from $205 million two years ago, shipping services 
firm Clarkson said. 
    South Korean shipbuilders, Samsung Heavy and Daewoo 
Shipbuilding and Marine Engineering, are the most popular 
shipbuilders for LNG tankers, having built 22 percent and 21 
percent respectively of the LNG carriers operating worldwide, 
according to data from shipbroker Banchero Costa (Bancosta). Of 
the LNG carriers under construction and on order, 37 percent of 
the current order book is placed at Daewoo shipyards, 14 percent 
at Hyundai Heavy and a further 11 percent at Samsung, Bancosta 
said. 
    Between 2016 and 2020, global LNG production capacity is 
expected to rise by about 50 percent to around 370 million 
tonnes a year, with major new projects in Australia, the United 
States and elsewhere, and this expected run-up in supply has 
dragged on prices. 
    "Although as many as 2,200 new cargoes of LNG are set to 
come on-stream by 2019 or 2020, the growth in the sector 
continues to be quite uncertain," according to a Bancosta report 
last month. 
    "European Union demand is fairly stable, global gas demand 
has slowed in the face of competition from other energy sources 
within the power sector, and from the persistence of low prices 
in energy commodities." 
 
 (Reporting by Benjamin Kang Lim in BEIJING and Hyunjoo Jin in 
SEOUL; Additional reporting by Keith Wallis in SINGAPORE; 
Editing by Alex Richardson and Martin Howell) 
 ((hyunjoo.jin@thomsonreuters.com; 82-2-3704-5685; Reuters 
Messaging: hyunjoo.jin.thomsonreuters.com@reuters.net)) 
 
Keywords: SOUTHKOREA SHIPBUILDING/LNG