South Korean LNG carrier order backlog grows

The combined order books for South Korea's three major LNG shipbuilders has grown compared with a year earlier, despite slower order placement.

The increased backlogs against lower order numbers suggests slow deliveries over 2019, which could mean that two of the builders have a significant number of vessels set to come on to the water in the coming years, buoying vessel availability.

A total of 123 LNG carriers are on order with Daewoo Shipbuilding and Marine Engineering (DSME), Korea Shipbuilding and Offshore Engineering (KSOE) and Samsung Heavy Industries (SHI), up from 104 a year earlier, according to builders' reports.

KSOE is facing the greatest rise of the three, with its undelivered orderbook rising to 54 vessels from 35. The firm incorporates three entities — Hyundai Heavy Industries (HHI), Hyundai Mipo Dockyard (HMD), and Hyundai Samho Heavy Industries (HSHI). HHI and HSHI's backlogs have both increased over the past year, while HMD — which has typically received orders for small-scale vessels in recent years — has an unchanged backlog.

But the total number of new LNG carrier orders placed with KSOE in 2019 fell to 24, from 25 in 2018, suggesting that deliveries were slow last year. This may mean that the firm has a significant number of vessels that are scheduled to come on the water in 2020-22. All of HSHI's 22-vessel backlog is scheduled for delivery in this period.

SHI's unfulfilled order book also rose through 2019, to 38 LNG carriers from 31, as orders rose marginally to 18 over the year from 17 in 2018, suggesting that the firm also has a significant number of vessels set to come on the water in the coming years.

But DSME's LNG carrier backlog fell in 2019, likely as a result of slower orders over the year and quick deliveries of the Yamal LNG project's Arc7 ice-class carriers. Its LNG order book fell to 31 vessels from 38. DSME received 10 vessel orders in 2019, down from 18 a year earlier. And DSME delivered six Yamal Arc7 carriers to their owners in 2019, suggesting that it made around 11 other LNG carrier deliveries over the period.

A number of shipowners have voiced concerns in recent months about an impending vessel surplus in the global LNG freight market, spurring them to change tack and attempt to tie more of their respective fleets to term charters.

And future vessel deliveries are set to be more competitive with much of the existing LNG carrier fleet. Most of the global order book is for larger, more efficient two-stroke propulsion carriers, with either partial or full reliquefaction, which may be more attractive to charterers seeking spot or term agreements.

South Korean shipyards have historically provided most of the global LNG freight market's tonnage, but China's Hudong shipyard has also significantly increased its annual capacity in recent years, which is set to further support newbuild supply.

By Samuel Good