China’s Hudong Zhonghua Shipyard aims to construct ice-capable LNG Carriers for Novatek’s Arctic LNG 2 Project. This would be the Country’s first foray into constructing these highly specialised Vessels placing it in competition with Russia’s Zvezda Shipyard & South Korea’s DSME.
Last month Russia’s natural gas giant Novatek and its shipping partners took delivery of the last of fifteen ice-breaking Arc7 LNG carriers.
These highly specialised vessels transport liquefied natural gas (LNG) from the Yamal facility off Russia’s Arctic coast to markets in Europe and Asia.
With the opening of the Novatek’s next project, Arctic LNG 2, just three years away, the company is looking for the timely construction of an additional fifteen Arc7 LNG carriers.
While the original vessels were constructed by South Korean Daewoo Shipbuilding & Marine Engineering (DSME), China aims to secure contracts for this next batch of vessels.
The country’s largest shipyard, Hudong Zhonghua which is a subsidiary of the China Shipbuilding Industry Corporation, has submitted a bid for up to ten vessels.
Novatek Looking Abroad to Build New Arc7 Vessels
As part of Russia’s policy to reinvigorate domestic shipbuilding activities, Novatek had originally intended to procure all fifteen vessels for Arctic LNG 2 from the Zvezda shipyard located in Russia’s the Far East near Vladivostok.
The shipyard entered into a partnership with Samsung Heavy Industries for the transfer of technology as Zvezda has little experience constructing ice-capable carriers. However, despite Samsung’s assistance, concerns remain about Zvezda’s ability to deliver the vessels on time.
Novatek has now requested an exemption from having to contract with a domestic shipyard and asked permission for 10 out of 15 vessels to be built by Chinese or South Korean shipyards.
In a letter to President Putin, last month Novatek’s Chairman of the Board Leonid Mikhleson expressed urgency on the matter as expected orders for LNG carriers by the US and Qatar in the near future may cause a backlog in South Korean and Chinese shipyards.
Between Arctic LNG 2 and the newly proposed Obsky LNG project, Novatek is looking to procure enough shipping capacity to transport more than 25 million tons of additional LNG annually.
Large Steps for Chinese Shipyard
While South Korean shipyards have long been the leaders in constructing LNG carriers, China’s Hudong Zhonghua has moved rapidly into space.
The shipyard constructed China’s first-ever LNG carrier just ten years ago. Since then it has built 22 large LNG tankers and recently became the first shipyard with the ability to construct two membrane type carriers the most popular type of LNG carrier simultaneously.
With this, it now has the capacity to construct 8-10 large membrane-type ships annually.
Hudong Zhonghua now plays a vital role in supporting China’s “Belt & Road” initiative and promoting close energy cooperation with Russia.
In fact, the shipyard has already been contracted to build four conventional LNG carriers for the Yamal LNG Project. The vessels, which have no ice classification, are used primarily for the transport of LNG from transshipment hubs in temperate waters. The first two ships were delivered during the second half of 2019.
Competing for Arctic LNG Carriers
South Korea’s DSME, which developed the design of the Arc7 carriers with help from Finland’s Aker Arctic, is so far the only company with experience constructing these types of vessels.
However, a number of shipyards are now vying to construct the ten Arc7 carriers Novatek requested an exemption for. Besides China’s Hudong Zhonghua and South Korea’s DSME, bids for the ten vessels, each estimated to cost $300 million, have also been submitted by South Korea’s Hyundai Heavy Industry Group and Samsung Heavy Industry.
Hudong Zhonghua has been cooperating with Aker Arctic in refining the design of its Arc7 carriers testing prototypes at Aker’s facilities on multiple occasions. The vessels closely resemble the existing Yamal Arc7 carriers in terms of overall size and capacity carrying around 175,000 cubic meters of LNG.
The company received approval for its design by DNV GL and Lloyds Register, two large maritime classification societies, in 2018. Last month Hudong Zhonghua presented its design at the Marintec maritime trade show in Shanghai.
While Hudong Zhonghua may be new to constructing ice-capable LNG carriers, the company will likely compete in terms of price and offer very competitive financing options.
Similar factors as well as Russia’s and China’s close cooperation on energy, are said to have played a role in Hudong Zhonghua securing the order for four conventional LNG carriers for Yamal LNG in 2017.