China seeks to boost domestic LNG shipping sector

China will need up to new 100 LNG carriers to meet the country’s mounting demand for LNG in the next decade. Credit: Visual China
China will need up to new 100 LNG carriers to meet the country’s mounting demand for LNG in the next decade. Credit: Visual China

China’s state council has issued guidelines calling for the country’s maritime sector to strengthen its liquefied natural gas (LNG) shipping segment. Beijing aims to boost its own fleet to meet the country’s surging demand for LNG.

Song Wei, chief technology officer of Hudong-Zhonghua Shipbuilding, said policies would be presented to help the LNG carrier industry, including fresh government-backed capital.

China has seen a surge in the construction of LNG infrastructure as it seeks to combat air pollution and switch from coal to gas consumption, and this has been driving LNG imports.

LNG imports reached a record 39.5 million tonnes in 2017, leading China to outstrip South Korea as the world’s second-largest LNG importer after Japan.

For the first seven months of 2018, China’s LNG imports soared by a third compared with the same period last year, and the country is expected to become the world’s largest LNG importer within five years. But China’s LNG shipping relies heavily on external fleet capacity, which accounted for more than 60% of the total imported last year, according to Song Wei.

“China’s reliance on LNG imports will be highlighted if foreign shipowners impose a ban on transporting LNG cargoes to China due to some unforeseen political instability or economic reason. That’s a major concern for the government,” Song Wei said.

As of the end of 2017, China had built 17 LNG receiving stations, located in 11 coastal regions, giving a total receiving capacity of 50.4 million tonnes per year. More LNG receiving stations are under construction, and these will begin operation by 2020. China aims to double its LNG receiving capacity by 2030.

“China will need up to 100 new LNG carriers to match its growing LNG receiving capabilities for the next 10 years. This is a great opportunity for domestic LNG shipping companies to get into the business, and domestic LNG shipbuilding and the equipment industry will benefit a lot from this,” said Song Wei.

At the moment, most LNG carriers are built in South Korea and Japan. Three South Korean shipbuilders – Samsung Heavy Industries, Daewoo Shipbuilding and Marine Engineering, and Hyundai Heavy Industries – take approximately 70% of market share.

Japan has four shipyards – Mitsubishi Heavy Industries, Kawasaki Heavy Industries, Imabari Shipbuilding, and Japan Marine United Corporation – which take 20% of market share. Hudong-Zhonghua Shipbuilding is the only Chinese shipyard that has the capability to build large LNG carriers.

In June 2017, Hudong Zhonghua won an order for four new LNG carriers from Japan’s Mitsui OSK Lines on the back of a long-term charter contract for the Yamal project developed by Russia’s Gazprom.

In February, Hudong Zhonghua won another round of 18,600 m³ LNG bunkering vessel orders amid tough competition from South Korea’s Hyundai Heavy Industries.

According to the data compiled by IHS Markit, of the 39 LNG vessels ordered so far this year, all were contracted to South Korean yards.

Song Wei pointed out that Chinese yards were lagging behind their Korean counterparts. Ships take longer to build in China, partly because it must import much of the equipment needed for these types of ships.

“The LNG carrier equipment industry has a long way to go before our shipyards can catch up with global competitors,” Song Wei said.