Qatar Petroleum places big LNG carrier order with Chinese shipyards

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Qatar Petroleum places big LNG carrier order with Chinese shipyards
Total value of the contract could reach US$3 billion, depending on requirements
 
29 Apr 2020 | Michael Marray

QATAR Petroleum has signed an agreement to reserve LNG ship construction capacity at Chinese yards, in order to ensure that it can meet its future LNG carrier fleet requirements, including those related to the vast North Field expansion.

The agreement was entered into between Qatar Petroleum and Hudong-Zhonghua Shipbuilding Group Co Ltd (Hudong), a wholly owned subsidiary of China State Shipbuilding Corporation Limited (CSSC).

Under the terms of the agreement, a significant portion of Hudong's LNG ship construction capacity will be reserved for Qatar Petroleum up to 2027. The total value of the contract could reach as much as 11 billion Qatari riyals (US$3 billion), depending on Qatar Petroleum's requirements and the extent of China’s LNG shipbuilding capacity expansion.

China has ambitious plans to expand production of hi-tech vessels such as LNG carriers, which create more value added than other vessel types such as container ships, bulk carriers and oil tankers. Large LNG carriers typically cost between US$200 million and US$250 million each.

The first of Hudong’s self-developed 174,000 cubic metre carriers, the Pan Asia, was built for a joint venture between China National Offshore Oil Corporation China LNG Group, BW Group and Teekay, and has been operating since 2017 on a route from Australia’s Queensland Curtis LNG terminal to China. Three more of this vessel type, the Pan America, Pan Europe and Pan Africa, have since been delivered. Each operates under a 20-year time charter contract, plus extension options, with Methane Services Limited, a wholly-owned subsidiary of Shell.

China has also built some of the vessels needed for the Yamal LNG project in Russia in which China National Petroleum Corporation and Silk Road Fund hold a combined 29.9% stake. The specialized ice breaking LNG carriers were built by Daewoo at Korean yards, but some of the conventional LNG carriers were built in China.

In January Mitsui O.S.K. Lines (MOL) held a naming ceremony at a Hudong-Zhonghua Shipbuilding yard for an LNG carrier jointly ordered by MOL and China COSCO Shipping Corporation Limited.

The LNG Merak is the second of four newbuilding contracts for the Yamal LNG Project signed in 2017, and the sister vessel of the LNG Dubhe which was delivered at the end of October 2019 in the same shipyard. LNG Merak will operate between transshipment terminals in Europe and Asia.

MOL has been operating eleven LNG carriers built in China on other projects, and LNG Merak will be the twelfth LNG carrier built in China to join its fleet. MOL also operates some of the icebreaking LNG carriers sailing from the Yamal LNG terminal in Russia to Asia via the northern route.

This close relationship with shipping companies such as MOL has helped China gain expertise in LNG carrier construction. MOL has assigned technical experts to Hudong to form a multinational shipbuilding supervision team, and a statement from MOL as the LNG Merak was being delivered said that the LNG carriers for the Yamal project are being built to an outstanding quality level.

This experience helped Hudong-Zhonghua put itself in a position to win the huge contract with Qatar LNG.  

The three Korean shipbuilders - Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding and Marine Engineering - won the 2004 order for 53 LNG carriers from Qatar LNG, and were also bidding on this latest order.

However, given its vast LNG projects, Qatar LNG has requirements for additional vessels that go beyond the capacity of Chinese yards. More orders will need to be signed in the coming months, many of which will likely be with Korean yards. 

“The 174,000 cubic metre LNG carrier for Qatar Petroleum is the latest generation of LNG carrier design customized by CSSC for Qatar,” Lei Fanpei, the chairman of CSSC said at the virtual signing ceremony. “The agreement signed today will be an important milestone for the cooperation of CSSC Group and Qatar Petroleum.”

The deal marks a global recognition of Chinese manufacturers and will support the further upgrading of China's high-end maritime equipment manufacturing, he added.

The agreement was signed by Saad Sherida Al-Kaabi, minister of state for energy affairs and also president and CEO of Qatar Petroleum, and Lei Fanpei, in the presence of Sheikh Khalid Bin Khalifa Al Thani, CEO of Qatargas, and Chen Jianliang, chairman of Hudong.

In 2019 the Chinese government approved the merger between CSSC and China Shipbuilding Industry Corporation.

Earlier this year CSSC had its internal restruturing plan approved by the China Securities Regulatory Commission. CSSC is to acquire in full or part of the stakes of Jiangnan Shipyard, Waigaoqiao Shipbuilding and Chengxi Shipyards.

The North Gas Field expansion projects will increase Qatar's LNG production capacity from its current level of 77 million tons per annum to 126 million tons per annum in 2027.

With total recoverable gas of more than 900 trillion standard cubic feet (tscf), this field, which was discovered in 1971, is considered to be the largest single non-associated gas reservoir in the world.

Qatar Petroleum’s LNG carrier fleet programme is the largest of its kind in the history of the LNG industry and will play a pivotal role in meeting the shipping requirements of Qatar Petroleum’s local and international LNG projects, as well as replacing some of Qatar's existing LNG fleet.

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