David Rosenberg: The bullish case for LNG, a reliable energy source investors should tap into

Liquefied natural gas (LNG) should see strong growth in the next decade and more, writes David Rosenberg and his team.

By David Rosenberg and Brendan Livingstone

Financial Post

The Russia-Ukraine war is bringing to the forefront the importance of energy security, which has been neglected in recent years as supply exceeded demand and governments felt increased political pressure to reduce our reliance on fossil fuels.

However, with households confronting much steeper energy bills, which are at risk of rising further as winter approaches, the focus has shifted back towards providing reliable energy solutions at favourable costs. Liquefied natural gas (LNG), which involves cooling natural gas to a liquid state, is an attractive solution because it allows for an efficient way for transportation and storage — to areas not endowed with natural gas reserves — and it is relatively clean in terms of production and combustion.

Over the next decade plus, we see strong growth in LNG — and all that goes with it — and so we believe investors will benefit from seeking out exposure.

LNG is natural gas that has been converted to a liquid by cooling it at -1,620 C (-2,600 F). In its liquid state, natural gas is about 600 times smaller than when it is in a gaseous state, making it substantially easier to store. In addition, the liquefaction process allows for the transportation of natural gas to places where natural gas pipelines are not feasible or do not exist.

Export facilities receive natural gas from producers by pipeline and then liquefy it for transport via LNG ships. Once the tankers reach their destination, LNG is offloaded at import terminals, stored in cryogenic storage tanks and then returned to a gaseous state. After which, natural gas is transported via pipelines to customers.

In recent years, the United States has become a major player in LNG, increasing its export capacity to about 10.78 billion cubic feet per day at the end of 2021 from less than one bcf/d per day in 2015. By the end of 2022, the U.S. is poised to become the largest LNG exporter in the world. About half of U.S. LNG exports go to five countries: South Korea (13 per cent), China (13 per cent), Japan (10 per cent), Brazil (9 per cent) and Spain (6 per cent).

LNG produces 40 per cent less carbon dioxide than coal and 30 per cent less than oil, making it among the cleanest fossil fuels. In addition, it drastically reduces emissions of nitrogen oxide, and it emits almost zero sulphur and particulate matter. As a result, due to its relatively favourable emissions profile — and, critically, its reliability as a fuel source — we see LNG as a great complement to renewable energy as governments work towards a reduction in greenhouse gas emissions.

Some pundits have labeled LNG as a “transition fuel,” but this understates its role in the energy mix of the future since it is a great backup for the natural intermittency of renewables such as wind and solar.

A McKinsey & Co. report — the Global Gas Outlook to 2050 — estimates LNG demand will grow by 3.4 per cent per annum until 2035, requiring approximately 100 million metric tons of additional capacity. While it believes that demand will then slow substantially — to growth of 0.5 per cent between 2035 and 2050 — this will still necessitate more than 200 million metric tons of new supply.

Most of this increase is expected to come from the United States, with smaller contributions from Canada, Russia, East Africa and potentially the Middle East.

Against a backdrop of strong growth over the next decade or so, especially in the U.S., we believe investors should look to have exposure to LNG in a portfolio. Renewable energy undoubtedly has the greatest future growth potential — as governments strive for “net zero” by 2050 (193 parties have signed onto the Paris Agreement) — but the reliability of LNG, combined with the lower associated emissions (relative to other fossil fuels), means governments can concurrently improve energy security while simultaneously reducing pollution.

The importance of having LNG exposure, especially during energy crises, has been on full display this year. Bloomberg Intelligence’s LNG Liquefaction Peer Group — an equally weighted equity index of some of the major LNG producers globally — is up 25 per cent this year as of the end of August, versus the 17 per cent decline for the S&P 500.

Beyond its positive future growth profile, LNG stocks also have the benefit of being attractively priced. The group trades at an EV-to-EBITDA ratio of 4.7x, well below its 10-year average (8.6x), and considerably less than the S&P 500 (13.5x). Other ways to play the LNG theme are through companies involved in the regasification process, transportation (tankers) and infrastructure construction.

David Rosenberg is founder of independent research firm Rosenberg Research & Associates Inc. Brendan Livingstone is a senior markets strategist there. You can sign up for a free, one-month trial on Rosenberg’s website.

U.S. Shale Giants Want In On The Global LNG Game

By Irina Slav - Feb 09, 2023

• U.S. gas producers are getting increasingly interested in LNG exports.
• 
  
• Producers such as Devon Energy and Chesapeake are looking to get exposure to international LNG markets.
• 
  
• Market observers expect demand from Asia to start climbing, now that prices are off their peak from last summer.

Over the course of just a few years, the United States became one of the top three exporters of liquefied natural gas. Last year, it was the biggest supplier of LNG to Europe. This was made possible by a handful of companies that invested billions in liquefaction plants along the Gulf Coast, with another handful coming in the next couple of years. But competition is intensifying.

Energy Intelligence reported this month that U.S. gas producers are getting increasingly interested in LNG exports. The report cited the chief executive of Devon Energy as saying the company was looking into diversifying with LNG exports to get some exposure to international markets.

"We're not going to be big LNG players like Cheniere or Freeport or anything like that," Rick Muncrief said at the NAPE conference in Houston last week. "I mean, from our perspective, it's how can we get some exposure in international markets and help our allies around the world. We do the same thing with oil."

The decision makes perfect sense. Demand for liquefied natural gas globally is on the rise, and strongly, after Europe joined the LNG party. Even though the EU's emission-cutting plans discourage European buyers from securing long-term LNG import deals, which U.S. producers find to be a problem, U.S. LNG will continue to flow to Europe.

At the same time, market observers expect demand from Asia to start climbing, too, now that prices are off their peak from last summer. Indeed, Bangladesh recently bought an LNG cargo after months of abstaining from such imports because of prices. It also plans to buy several more if prices remain where they are. And if more U.S. gas producers enter the LNG space, chances are that prices will get a ceiling once their facilities start operating.

Earlier this year, BloombergNEF predicted that U.S. LNG export capacity would soar to 169 million tons by 2027. That would make the United States the world's biggest LNG exporter, far ahead of Qatar, which plans to expand its capacity to 110 million tons by 2026.

"The US is in the lead because of its flexible contract terms and the competitive landscape of project developers," said BloombergNEF global LNG specialist Michael Yip. "Its aggressive but transparent pricing and reliability as an LNG supplier has made it easy for these new projects to secure contracts."

That's just the big guns in LNG exports. Add to that the smaller gas producers that are diversifying into LNG exports, and the potential future dominance of the U.S. on international LNG markets becomes even more pronounced. As long as the gas flows as it does now.

Earlier this year, two gas CEOs warned there might be a slowdown in drilling activity because of prices. At such prices, profitability is hard to come by, Adam Rozencwajg, the natural resources investor from Goehring & Rozencwajg, told Oilprice. And that may put a lid on the supply of gas.

"Companies with remaining core Tier 1 acreage can make a return at today's gas price—those are few and far between," Rozencwajg said. "More importantly, companies have come to realize just how difficult it is to maintain high-quality drilling inventory. In light of that, they are reluctant to increase activity and pull forward the inevitable moment they'll be short of high-quality drilling prospects."

What this means is that sooner or later, prices will go up. This will make LNG exports even more lucrative. And shareholders who mind increased drilling might change their minds.

"Most of our investors get it and they think it's a good idea," Chesapeake's Nick Dell'Osso, one of those CEOs who warned about lower drilling activity this year said at NAPE.

"At the end of the day, the way I describe it to our investors, is this is not arbitrage capture. This is diversification of market. The US gas is being sold in international markets. We should have exposure to that. That's diversification of your product sales points and ultimately like any other portfolio diversification."

Indeed, diversification has proven to be the optimal strategy both for producers and for consumers, as any European Union official is sure to tell you if you ask them.

By Irina Slav for Oilprice.com

 

Galveston LNG Bunker Terminal Moves Ahead

Illustration courtesy Galveston LNG Bunker Port

PUBLISHED APR 9, 2024 1:39 PM BY THE MARITIME EXECUTIVE

 

Galveston LNG Bunker Port has filed applications with the United States Army Corps of Engineers (USACE) to build its small-scale LNG terminal on Shoal Point in Texas City, Texas. If approved, the project would be the first purpose-built LNG bunker terminal in the area, and the port's second LNG fueling service.

The planned terminal includes two liquefaction trains capable of putting out 600,000 gallons of LNG per day, two 3-million-gallon storage tanks, a bunker vessel loading berth, and associated marine and loading facilities.

In addition to the USACE application, partners Seapath Group and Pilot LNG have also asked the Texas Railroad Commission (TRRC) and the United States Coast Guard (USCG) for permission to build. 

"This facility is a critical investment into the resilience of the United States' maritime infrastructure," said Joshua Lubarsky, President of JV partner Seapath Group.

LNG is one of the most popular options for dual-fuel vessel orders. According to data from DNV, there were about 470 LNG-powered vessels in operation globally as of the end of 2023, with over 500 more on order. A record 240 LNG-fueled ship orders were placed in 2021, 222 more in 2022 and another 130 in 2023. The LNG-powered fleet should exceed 1,000 vessels by 2027, DNV reports. 

The growth has been particularly pronounced in the container ship, car carrier, and cruise ship sectors, and Galveston is a major cruise port. 

The new terminal expands on previous efforts to establish Galveston as a hub for LNG fueling. In 2021, the Port of Galveston and Stabilis Solutions agreed to launch the use of LNG as a marine fuel at the port. Stabilis provides the fuel, and Seaside LNG provides the bunkering barge. Customers include Carnival Jubilee, which became the first ship on the Gulf Coast to receive ship-to-ship LNG bunkering in December 2023. 

"The Galveston Wharves views LNG fueling of marine vessels as an important step in our commitment to environmental stewardship," said Rodger Rees, Port Director and CEO, in 2021. "With the number of LNG-fueled vessels in the global fleet growing rapidly, having LNG fueling services in the port is an important step in our commercial growth."

 

Study: LNG Will Be Most Affordable Compliance Option for EU GHG Rules

An LNG-powered boxship under construction (CMA CGM file image)

PUBLISHED JUN 15, 2023 7:25 PM BY THE MARITIME EXECUTIVE

 

LNG has its critics in environmental circles, but its fiscal attractiveness is  clear, according to industry advocacy group SEA-LNG. Setting aside any debate  about LNG's environmental merits, it will be the least-cost option for boxship owners who need to meet EU compliance requirements for GHG reduction, the group argues in a newly-released analysis. 

LNG is one of the most affordable marine fuels under normal market conditions, and it has a lower emissions profile than HFO or VLSFO. Using SEA-LNG's estimate for LNG's well-to-wake greenhouse gas reduction benefit - about 20 percent below VLSFO - switching to LNG is itself enough to comply with the FuelEU Maritime GHG reduction requirements out through the year 2039. After that, operators would have to blend in varying proportions of costlier bio-LNG and e-LNG. (E-LNG may be the most expensive alternative fuel, according to the Maersk McKinney-Moller Center for Zero Carbon Zhipping). 

As the proportion of "green" fuel in the blend goes up to meet strengthened requirements, so does the cost for compliance - except for ammonia, which declines in price and becomes cheaper than a 50 percent gray / 50 percent renewable LNG mix by 2050. Blue ammonia (produced from natural gas with carbon capture) comes out as the most cost-effective option by midcentury, but not before. 

"It is clear from this analysis that the LNG pathway to compliance offers massively lower fuel costs than that for both the methanol and ammonia pathways, particularly in the first 15 years of the vessel’s life – a period critical for vessel financing decisions. The methanol pathway is approximately 2.5 times more expensive and the ammonia pathway, 2.5 to 3.5 times more expensive," concluded SEA-LNG. 

Reducing methane slip

Most of the debate around LNG's climate effectiveness centers on methane emissions. Natural gas is mostly methane, a gas with substantially higher warming potential than CO2, and a percentage escapes during upstream extraction, transport and liquefaction. LNG-powered ships also emit varied amounts of methane during operation, with the amount dependent on engine type and operating profile. 

This last emissions category - methane slip - has captured the public debate for years, with some environmental groups arguing that it makes LNG an unattractive alternative. Though this debate gets headlines, it may soon be over. The industry's biggest players are quietly working to eliminate engine emissions of LNG by 2030, according to Steve Esau, SEA-LNG's chief operating officer. 

"There are a number of companies on the shipping side and the OEM side who are investing a significant amount of money to measure where the operational emissions are coming from on board ship, and then looking at solutions for addressing those," says Esau. "That would be a combination of operational solutions and pre- and post-combustion technologies to deal with methane slip. And I think they're very confident that methane slip will be eradicated by the end of the decade."

Big Oil Doubles Down on LNG as Renewables Falter

ANY EXCUSE WILL DO

By Irina Slav - Aug 06, 2024Supermajors are scaling back renewables projects and investments due to poor returns compared to LNG.

• 
  
• Big Oil prioritizes growing its LNG business, seeing strong demand for natural gas in the medium to long term.
• 
  
• Renewables commitments falter as European oil and gas firms focus on energy security amid the energy crisis and skyrocketing prices.
• 
  

The supermajors continue to bet on LNG while scaling back renewables projects and investments as oil and gas returns continue to trump the poor profits from renewables.   

The world’s top international oil and natural gas firms are sanctioning new LNG projects and buying stakes in new developments as they see demand for natural gas growing in the medium to long term.  

Bound by the pledges to return more cash to shareholders, Big Oil is betting on growing its much more lucrative LNG business than on wind, solar, or biofuels, where returns have been poor for years and haven’t really taken off despite soaring global capacity additions. 

In recent years, LNG trading has reaped a lot of profits for the European majors, while nearly all of them have had to take impairment hits on renewables projects in Europe and the U.S. 

The LNG market is set to see a wave of new supply from 2026 and could be oversupplied from 2026-2027 until the end of the decade. Yet, Big Oil is confident that demand will be there and that their trading strategies and the moves to lock in customers from LNG projects will pay off. 

Renewables Commitment Falters

At the same time, Europe’s top oil and gas firms haven’t seen improved market and business conditions to warrant the major push into renewables they had pledged before the energy crisis and skyrocketing prices in 2022 upended plans and shifted the focus onto energy security. 

BP, for example, booked a pre-tax impairment charge of $540 million in the third quarter last year related to U.S. offshore wind projects. BP and Equinor’s filing to renegotiate the power purchase agreements associated with the Empire Wind 1 and 2 and Beacon Wind 1 wind farms off the coast of New York was rejected. 

BP said in June that it was scaling back this year’s plans for the development of new sustainable aviation fuel (SAF) and renewable diesel biofuels projects at its existing sites, pausing planning for two potential projects while continuing to assess three for progression. 

“This is aligned with bp’s drive to simplify its portfolio, focusing on value and returns,” the UK-based supermajor said. 

Weeks later, the other UK-based giant, Shell, said it was pausing on-site construction work at a biofuels plant in Rotterdam amid weak market conditions, taking a $780-million impairment charge for the second quarter for this. 

The pause at the 820,000 tons-a-year biofuels facility at the Shell Energy and Chemicals Park Rotterdam in the Netherlands was needed “to address project delivery and ensure future competitiveness given current market conditions,” the company said. 

LNG Bet 

At the same time, both Shell and BP, as well as France’s TotalEnergies, are looking to further grow their LNG portfolios by raising their own liquefaction volumes and gaining access to additional third-party volumes. 

“In our Integrated Gas business, we said we would continue to grow our LNG portfolio by increasing both our liquefaction and access to third-party volumes,” Shell’s CEO Wael Sawan said last week when the company reported better-than-expected earnings for the second quarter. 

Shell has extended existing partnerships in Oman, invested in backfills in Manatee in Trinidad and Tobago, and agreed to acquire Pavilion Energy in Singapore to increase portfolio length, the executive of the world’s top LNG trader added. 

Shell also leads the LNG Canada joint venture project in Kitimat, British Columbia, where it is “working hard to achieve first production” by the middle of 2025, Sawan said.  

In addition, Shell, BP, TotalEnergies, and Japan’s Mitsui have just signed a deal with Abu Dhabi’s ADNOC to take 10% each in the Ruwais LNG project in the UAE as international partners.  

BP works towards building an LNG portfolio of 30 million tons by 2030, up from 23 million tons of long-term LNG portfolio last year. The company is looking at long-term contracts and at short-term market opportunities, Carol Howle, EVP, trading and shipping at BP, said on the earnings call last week. 

TotalEnergies has also been busy sanctioning LNG projects in recent months. The French group gave the green light to the Marsa plant in Oman, Marsa LNG, as well as the Ubeta gas project in Nigeria, which will supply Nigeria LNG.  

“These projects will not only contribute to the objective to grow our upstream by 2% to 3% per year in the next five years, but they will also boost the underlying free cash flow generation and ultimately shareholder distributions,” CEO Patrick Pouyanné said on TotalEnergies’ earnings call. 

“I think there is a fundamental structural demand coming from India, and we are convinced that the Indian market will take the relay I would say, for the traditional, Korea, Japan, and even China,” Pouyanné added. 

LNG demand in China is becoming more seasonal as Beijing is “moving very quickly on these renewables, continuing to increase its coal production,” the executive noted. 

Big Oil is positioning for a major boost in global LNG demand as a way to earn more money from their core business amid low or negative returns in the renewable energy industry.  

By Tsvetana Paraskova for Oilprice.com

Adam Pankratz: Natural gas is the elephant in the room that Trudeau and Scholz are ignoring

Special to National Post - 

This week, German Chancellor Olaf Scholz is visiting Canada. Many items will be on his agenda with Prime Minister Justin Trudeau but one critical item is blatantly missing: liquified natural gas. Failure to discuss an LNG deal during this meeting is a further demonstration of a wanton and failing energy policy from both sides. The only question is, who is worse? The one whose country is currently paying €250 per megawatt hour for gas (more than 10 times what it was last year) or the one whose country is sitting on trillions of cubic meters of the stuff, yet can’t get it to market?


© Provided by National PostPipes at a natural gas plant near Fort St. John, B.C., Thursday, Oct. 11, 2018.

Canada’s proven gas reserves as of 2020 amounted to 2.4 trillion (yes, with a “T”) cubic meters of gas. That’s 83 trillion cubic feet if you prefer imperial. We also produce 165 billion cubic meters of gas annually, making us the fifth largest producer of gas in the world. Yet, despite our incredible reserves and large production we fail time and time again to get market value for our product.

Current price differentials in the LNG market boggle the mind. AECO, the Alberta or Canadian reference price, has fluctuated between $4 and $5 per gigajoule in recent months, most recently dropping below $2. They could even turn negative in September. Meanwhile, in the United States, the reference price of Henry Hub currently sits at a touch over $12 or US$9/MMBtu. While this differential may be enough to drive Canadian producers mad, it pales in comparison to what Europe is paying for gas with current prices over the equivalent of $90/MMBtu.

The reason for this differential blowout is simple: Canada lacks the infrastructure to get our gas to the world. With Canada’s LNG unable to be exported due to lack of pipelines and terminals our gas is held captive by our own domestic market. Our LNG should be transported all over the world to get the highest price but right now it remains largely trapped within our borders. Since Russia’s Ukraine invasion oil and gas prices worldwide have risen enormously. But in Europe, gas prices have soared more than anything else because of the lack of supply options other than Russia. Europe deserves heavy blame for their lack of gas substitutes and Europeans will suffer heavily this winter because of bad political judgement, particularly in Germany.

Canada may not have been able to affect European decision making but we do control our own destiny. Regardless, in past years, governments have shirked and ignored the huge LNG opportunity for enviro-political gain.

In British Columbia, there were multiple LNG projects proposed in recent years, but ultimately only one, with much delay and struggle — LNG Canada — has made it through the province’s byzantine regulatory and consultation process. Still not complete, LNG Canada will allow Canadian gas to access the world market for the first time, ever. On the East Coast there is no LNG export terminal, despite multiple attempts to build one. In February, Ottawa nixed Énergie Saguenay’s proposed LNG facility, which had been in the works since 2014. It was crushed just in time to watch Russia invade Ukraine two weeks later and use gas as an economic weapon.

We can bowdlerize with polite insinuations of a missed LNG opportunity, but the reality is that Canada’s performance on LNG has been short-sighted, ideological, unrealistic and foolish. There has been little concrete leadership by politicians who have more broadly preferred a starry-eyed, half baked approach to LNG policy discussions. Oil and gas are not disappearing anytime soon and it’s time Canadian policy started to reflect that reality.

Even those resistant to oil should be able to recognize that LNG is the next enormous economic opportunity for Canada. LNG is the bridge fuel which can replace coal, while producing at least 40 per cent fewer emissions than coal and about 25 per cent less than oil. This gives us a cleaner burning alternative as we transition (over decades) towards fully renewable energy. If there is a more economically and environmentally compelling argument in the world today, I have not seen it.

But there is also a moral and societal argument here in Canada as well. That argument is the huge economic opportunity LNG represents for First Nations communities in Canada, and particularly in British Columbia. LNG Canada and the Coastal Gas Link (CGL) will bring in billions of dollars in royalties and jobs to these communities. Multiple Indigenous leaders have spoken on the importance of this issue for their communities, including Crystal Smith of the Haisla Nation, Karen Ogen-Toews, CEO of the First Nations LNG Alliance, and Ellis Ross, Haisla member and MLA for Skeena.

LNG is here to stay as an important energy source for longer than many unrealistic politicians would like to admit. For over a century we have been using fossil fuels to grow and prosper; that will not change overnight. LNG will have a decades-long run ahead as a reliable, transition fuel. This is an opportunity Canada cannot miss. We must develop, in conjunction with indigenous communities, more pipelines, more gas wells and more LNG export terminals so that our precious resources find equitable prices in the growing world market. Any politician who can’t find space for an LNG discussion in their agenda today is woefully failing their citizens.

Adam Pankratz is a lecturer at the University of British Columbia’s Sauder School of Business and is on the board of directors of Rokmaster Resources.

ALL CAPITALI$M IS STATE CAPITALI$M

South Korea Expands Support for Shipbuilders as Challenges Grow

Ministers announced additional support during a visit to the HD Hyundai shipyard in Ulsan (file photo)

PUBLISHED MAY 10, 2023 3:22 PM BY THE MARITIME EXECUTIVE

 

The South Korean government announced a series of new initiatives planned to further support the domestic shipbuilding industry. Government officials cite the strong orderbook built over the past two years as the industry rebounded and leadership in what they term “high-value” ships while also recognizing the growing competition and need to develop new technologies.

Minister of Trade, Industry, and Energy, Lee Chang-yang outlined the plans to support the industry with further investments during a tour of the HD Hyundai Heavy Industries shipyard in Ulsan on Wednesday, May 10. Supported by the Ministry of Justice and the Financial Services Commission, he said the government would be expanding its investments to support the development of new technologies while also increasing the foreign worker programs and providing new financial support programs all designed to expand South Korea’s position in the industry.

Previously the government had launched programs to support research and development of advanced technologies including ammonia, hydrogen, and electric propulsion. They have also outlined programs to support training and recruitment to meet the long-term employment needs and address the current shortage of skilled workers.

The announcement of the new programs comes as the shipbuilding industry is under pressure as global orders have slowed since late 2022. Clarkson Research in its latest monthly update highlighted that April saw the lowest monthly level in three years, with just 80 ships (1.85 million compensated gross tons) ordered, a 62 percent decline over a year earlier and a 44 percent decline versus the previous month. South Korea’s shipyards received orders for only 13 ships, 20 percent of the market, while China grew its market share to 70 percent.

Minister Lee however highlighted that South Korean shipbuilders currently have orders for nearly 40 million tons or 35 percent of the order backlog. He pointed to the $9.4 billion in orders booked in the first three months of the year and a 12-year high of 38.68 million CGT in March, enough to “generate income for the next three years.” Korea won 70 percent of the high-value and green shipping orders in March, including 17 of the 19 LNG carriers ordered worldwide. The Minister expects the industry will generate $21.5 billion in exports this year alone.

"The world has a close eye on our shipbuilders' technology and manufacturing capability, and the business environment is changing favorable to us, with ship prices rising and more demand for environment-friendly vessels," Lee said during his presentation. "The government will spare no effort to support the industry's rebound and for market leadership in the future.”

To address the labor shortage, the government said that approximately 5,500 foreign workers had entered South Korea so far this year. They have already reached a third of the industry’s goal of 14,000 foreign workers this year with the government promising more efforts to simplify visa and labor regulations.

Other programs include investments of approximately $135 million for R&D of new technologies. The government looks to expand efforts in autonomous shipping and eco-friendly designs to continue the leadership in high-value shipbuilding. The Financial Services Commission is also expanding finance programs designed to extend more support to medium-sized shipbuilders. More state-run and commercial lenders will be involved to ensure more access to financing for the large and medium-sized shipbuilders as well as increase the guarantee rate for shipbuilders to protect from contacts terminated due to a builder’s default.

The ministers said the industry is coming back from years of an industry-wide recession but it will be critical to maintain South Korea’s competitive price, quality, and technological advantages.

Korea Commissions LNG Bunker Vessel with Domestic Containment System

Blue Whale employs a domestically designed containment system and tanks (Ministry photo)

PUBLISHED MAY 12, 2023 6:43 PM BY THE MARITIME EXECUTIVE

 

South Korea christened its new domestically designed and built liquified natural gas bunker vessel this week. The ship marks a milestone as it incorporates the country’s newly developed second-generation LNG containment system. The goal was to develop a domestic technology that will be competitive on the international market and provide a marketing advantage for Korean shipbuilders.

Christened the Blue Whale, the vessel has the capacity to provide 7,500 cubic meters of LNG fuel directly to vessels, which represents an advancement as it replaces up to 250 trucks required to deliver the same amount of LNG. The vessel was built in a project led by Korea LNG Bunkering which is a subsidiary of KOGAS, which in turn was selected by the Ministry of Trade, Industry and Energy in 2020. The government provided a subsidy of $11.7 million to support the development and construction of the bunker vessel with the new tank design and technology

The completion of the ship marks a 20-year effort by Korea to develop a domestic LNG containment system. Officials noted that while their shipyards continue to be a leader in the construction of LNG carriers, they and their competitors continue to license containment technology at a cost of up to $7.5 million per vessel. The goal of the project was to end Korean dependence on technologies from French giant GTT, the world’s leading company in the design and construction of LNG tanks and containment systems.

“We will be able to secure advanced, high-value homegrown cargo technology, as the Blue Whale will verify the KC-2 system for commercialization,” said Korea’s Ministry of Trade, Industry and Energy.

The new system is the second attempt by the South Koreans in a project that began in 2004 when Korea Gas Corporation in partnership with Daewoo Shipbuilding and Marine Engineering, Hyundai Heavy Industries, and Samsung Heavy Industries, began to jointly develop LNG tanks with support from the government.

The first product, the KC-1 LNG tank technology, took 10 years to develop and was adapted for use on four domestic ships, but structural defects caused gas leakages, and installation of the tank on carriers was halted. Based on lessons learned with the KC-1 membrane technology, the Korean government launched a second project in 2017 to upgrade the system to come up with the advanced KC-2 tank design.

The Blue Whale will be operated by Hyundai LNG Shipping after winning a bidding contest in January for the right to run the vessel. It will be employed for bunkering and will undergo a rigorous series of tests and demonstrations. Korea expects to commercialize the KC-2 technology to provide a new competitive advantage in the sector.

Korean shipyards continue to be the leader in shipbuilding for gas carriers although China has begun to compete for new orders. The Blue Whale was built by Hyundai Heavy Industries at the Ulsan Shipyard at a cost of $41.7 million. Hyundai Heavy Industries highlights that it has built a total of 100 LNG ships to date and that it currently has orders for 58 of the 155 LNG carriers to be built worldwide.
 

HMM Enters Bidding to Acquire Hyundai LNG Shipping

Hyundai LNG introduced Korea's first LNG carrier 30 years ago and became independent during Hyundai's liquidity crisis (Hyundai LNG Shipping)

PUBLISHED MAY 12, 2023 2:18 PM BY THE MARITIME EXECUTIVE

 

HMM has reportedly decided to enter the bidding to acquire its former LNG shipping operation that was spun off a decade ago during the company’s liquidity crisis. The Korea Herald is reporting on Friday that HMM notified IMM Holdings, owners of the gas carrier, of its intent to enter the bidding and to begin a due diligence process.

South Korea’s largest LNG carrier, Hyundai LNG Shipping was put up for sale by the investment company that has owned it since 2014. IMM reported its plans to sell the company it had acquired for a reported $375 million a decade ago opening the bidding process in March. Since then, an initial list of 20 potential buyers has reportedly been narrowed to four, with all of them being foreign companies. Media report said the potential buyers are located in the United States, the UK, Denmark, and Greece, with bidding expected to be completed later this month.

HMM reportedly had sought to buy the gas carrier at the end of 2022 but could not agree on a price and gain the support of its two large shareholders. IMM then placed the company up for sale, but recently there have been objections because of the critical role the company plays in the import of LNG to Korea. The shipping industry recently objected to the government over the possible foreign sale of Hyundai LNG Shipping. Reports said that the government is also considering the ramifications of a foreign sale and looking to possibly block it on the grounds of national security.

HMM is also currently beginning a process to be privatized by its owners Korea Development Bank and the Korea Ocean Business Corporation, both government institutions that had become the largest shareholders during a financial rescue of the company then known as Hyundai Merchant Marine. The banks recently named a group of advisors to structure the sale process for HMM. It is expected that they might launch bidding later this year for the carrier.

The company which is today primarily a container carrier had previously reported its strategy was to grow its operations including in bulk shipping. In July 2022, HMM detailed a five-year strategy calling for $11.4 billion in investments that would double its container capacity. They also said investments would be made to increase the bulk fleet, which includes 10 VLCC crude oil tankers as well as one Suezmax, two chemical tankers, and one LNG carrier. HMM also has a fleet of dry bulkers for iron ore and coal transport.

Hyundai LNG Shipping reports it launched Korea’s first LNG carrier in 1994. After the IMM acquisition in 2014, they won a transportation contract with KOGAS and more recently began expanding the fleet including with LPG carriers. Earlier this year they took delivery on three VLGCs built by Hyundai Samho Heavy Industries with two more due for delivery later this year.  The total fleet will consist of 16 LNG carriers and six LPG carriers. They also recently launched Korea’s first LNG bunker vessel.

The Korea JoongAng Daily is reporting that the bidding process for Hyundai LNG Shipping will now be delayed to permit HMM to enter a proposal. IMM had previously said it had not received a reasonable financial offer from a Korean company but that it is not opposed to selling the company to Korean investors at a fair price.