With demand for liquefied natural gas (LNG) rising recently and the market for floating liquefied natural gas production facilities (FLNG) expanding, expectations are growing for an earnings improvement at Samsung Heavy Industries, which has competitiveness in offshore plant projects. FLNG is an offshore plant facility that extracts natural gas at sea, then refines it, liquefies it into LNG, and stores and offloads it.

According to the shipbuilding industry on the 24th, Samsung Heavy Industries is set to sign a final contract to win the first FLNG order with U.S. LNG developer Delfin Midstream. With Delfin signaling that the final investment decision (FID) will be made within this month, the final contract is expected as early as next month or by the first half at the latest. Once financing is secured, the contract will proceed after the FID.

There is also a growing sense that Samsung Heavy Industries could win additional orders. Delfin CEO Dudley Poston said in Oct. last year, when it sent a letter of award (LOA), a step before a final contract, that “a foundation has been laid not only for the first FLNG but also for contracts for the second and third units.”

Delfin plans to build three FLNG units off Louisiana, U.S., capable of producing up to 13.2 million tons (t) of LNG annually. The Coral North FLNG project in Mozambique, Africa, which did not wrap up last year and was pushed to this year, is also expected to reach a final contract this year as the preliminary contract value continues to increase.

U.S. market research firm Allied Market Research said in a recent report that the global FLNG market is expected to post an average annual growth rate of 10.8% over the 10 years from 2023 to 2032. The market size is projected to grow from $19.2 billion (about 27.8 trillion won) in 2022 to $51.6 billion (about 74.7 trillion won) in 2032.

Samsung Heavy Industries set a higher order target for the offshore plant institutional sector. At last month’s earnings release, it presented a total order target for this year of $13.9 billion (about 20.134 trillion won), up $6 billion (about 8.691 trillion won) from the previous year, of which $8.2 billion (about 11.877 trillion won), or 58.9%, was for the offshore plant institutional sector.

Just the two projects, Coral North and Delfin’s first unit, total about $3.2 billion (about 4.635 trillion won), four times last year’s order volume. With negotiations underway for Argentina and Mauritania’s Golar’s MKIII, Canada’s Ksi Lisims LNG, and an Argentina LNG project, there is speculation that at least two more units will be added to the order book.

FLNG generates larger revenue per project than ships and has higher margins. The average price of an FLNG is $3 billion (about 4.3 trillion won), more than 10 times the average price per LNG carrier ($248 million as of Jan.) at about 359 billion won. With margins of 15% or higher, it offers greater profitability than LNG carriers, which record margins of 5% to 10%.

The first company in the world to build an FLNG was Hanwha Ocean, which received an order from Malaysia’s state-owned oil company Petronas in 2012 and delivered it in 2016. Including the first project, a total of 10 FLNG units have been ordered to date, and Samsung Heavy Industries has won six of them, maintaining its lead position in the market.

Samsung Heavy Industries is currently building three units at the Geoje Shipyard: Petronas’ third unit, Coral North, and Canada’s Cedar. As a competitor, China’s Wison shipyard, which has won three units, is often cited, but many assess that there is still a significant technology gap with Samsung Heavy Industries.
Source: ChosunBiz