With Iran moving to respond with military retaliation against Middle Eastern countries after U.S. and Israeli airstrikes, raising the possibility the Middle East crisis could drag on, attention is turning to the potential impact on the shipbuilding industry. Some expect that if the war is prolonged, orders for liquefied natural gas (LNG) carriers could increase.

On the 3rd (local time), the Guardian in the United Kingdom and Reuters reported that QatarEnergy, the state-owned energy corporations of Qatar, the world’s largest LNG exporter, halted operations at its LNG facilities in Ras Laffan after an Iranian drone attack. Iran’s attack was also reported to have targeted the southern Qatari region of Mesaieed, where petrochemical facilities are located.

The Strait of Hormuz, through which 20% of the world’s oil and most Qatari LNG pass, has effectively been paralyzed. According to Iran’s semi-official ISNA news agency, the Islamic Revolutionary Guard Corps (IRGC) said, “We will set fire to every vessel attempting to pass through the Strait of Hormuz,” and, “Not a single drop of oil will be allowed to leave this region.” As of the 1st, three ship attack incidents were also reported near the Strait of Hormuz.

Energy prices are soaring. Natural gas prices (Europe benchmark) have surged about 46%, and oil prices at one point jumped about 13% intraday on the 2nd, hitting the highest since January last year.

Some also warn that if the crisis continues into and after fall, when LNG demand surges for heating, the LNG supply chain itself could face problems. With Russian natural gas supplies halted due to the outbreak of the Russia-Ukraine war in 2022, if Qatar, which accounts for 20% of global LNG, also struggles to supply, there would be few alternatives.

In the energy industry, there is talk that production could increase in countries such as the United States and Australia. If production increases in the United States, ton-miles (a value calculated by multiplying cargo weight by distance traveled, used as an indicator for ocean freight rates) would rise, potentially boosting orders for LNG carriers and benefiting Korean shipbuilders.

Because East Asian countries, the main consumers of LNG, would face longer sailing distances than when supplied via the Strait of Hormuz, vessel demand would increase. After the outbreak of the Russia-Ukraine war, orders for LNG carriers to Korean shipbuilders also grew.

Yang Jong-seo, a senior researcher at The Export-Import Bank of Korea’s Overseas Economic Research Institute, said, “If the blockade of the Strait of Hormuz continues and Qatari LNG cannot be distributed, orders for Korean shipbuilders could increase depending on how much the United States can ramp up production,” adding, “Whether this situation lasts into fall is the crucial point.”

Soaring ocean freight rates due to Middle East risk could also lead to increased vessel orders for domestic shipbuilders. If the distribution of petroleum products from countries such as Saudi Arabia encounters problems, there would be little reason for shipowners not to increase orders for petrochemical product carriers (PCs) amid higher ocean freight rates.

Views are split on additional orders for crude oil tankers. The outlook for increased orders is based on the premise that when shipping companies make money, they place additional orders. Just as container lines previously increased orders to match manageable capacity even while knowing a future downturn would lower rates, crude tanker orders are also expected to rise in line with higher ocean freight rates.

On the other hand, some believe additional orders for crude oil tankers are unlikely to increase, given the trend toward strengthening carbon neutrality and the potential for oil demand to decline in the mid to long term.
Source: ChosunBiz