With the realignment of the global energy supply chain gaining momentum due to the U.S.-Iran conflict, business development for liquefied natural gas (LNG) related vessels appears to be accelerating. This is driven by active moves to secure safer suppliers than the Middle East, where geopolitical instability has been exacerbated by the potential blockade of the Strait of Hormuz.

For this reason, interest is growing in Samsung Heavy Industries, regarded as a leader in Floating Liquefied Natural Gas (FLNG) production facilities. Attention is also being drawn to HD Hyundai Marine Solution, which has a portfolio in retrofitting Floating Storage and Regasification Units (FSRU).

According to industry sources on March 24, Italian energy company Eni recently announced it is considering a new FLNG project for the Perla field in Venezuela and the deployment of a third FLNG in Mozambique, Africa. The projects have annual production capacities of 3.5 million tons and 6 million tons, respectively.

Eni currently operates two FLNGs, one each in Congo and Mozambique. The company is also pursuing a project to deploy an FLNG in the Vaca Muerta basin, one of the world’s largest shale gas reserves, in partnership with Argentina’s state-owned energy company YPF and others.

The Delfin LNG project, led by U.S. LNG producer Delfin Midstream, is accelerating. The Export-Import Bank of the United States recently formalized financing of about $1.4 billion (approximately 2.1 trillion won). The project involves installing up to three FLNGs in the U.S. Gulf of Mexico to achieve an annual LNG production capacity of up to 13.2 million tons.

An FLNG is an offshore facility that can drill for natural gas at sea, then liquefy, store, and offload it. At around 3 trillion won (approximately $2.1 billion) per unit, it is considered a jackpot in the shipbuilding industry. Of the 10 FLNGs ordered worldwide to date, Samsung Heavy Industries has secured contracts for six, and Daewoo Shipbuilding & Marine Engineering (now Hanwha Ocean) for one.

As both the Italian Eni and American Delfin projects are linked to Samsung Heavy Industries, expectations for more FLNG orders are projected to rise. In the case of Delfin, Samsung Heavy Industries has signed a Letter of Award (LOA) with Delfin Midstream for FLNG construction. Samsung has previously received two FLNG orders from Eni, delivering one unit in 2021, while the other, Coral Norte, is currently under construction in Geoje.

Global LNG projects appear to be gaining more traction since the U.S.-Iran conflict. This is because LNG exports from Qatar and the United Arab Emirates (UAE) are facing disruptions due to the potential blockade of the Strait of Hormuz, through which 20% of the world’s LNG cargo passes.

In particular, QatarEnergy mentioned the possibility of declaring ‘force majeure’ after its Ras Laffan facility was damaged by an Iranian attack. This effectively means it could cancel its supply contracts. Consequently, demand is also increasing for LNG from geopolitically safe sources like the United States or Australia.

Choi Kwang-sik, an analyst at Daol Investment & Securities, explained, “Samsung Heavy Industries is aiming to build one to two FLNGs annually, but the project pipeline is so strong that it seems they might need to increase production capacity. While there could be short-term concerns like a decrease in cargo volume due to the war, a favorable environment will unfold in the mid-to-long term.”

Along with FLNGs, orders for FSRUs are also expected to increase. An FSRU is a facility for regasifying stored LNG offshore and supplying it to land, often called an ‘offshore LNG terminal’. Converting an old LNG carrier into an FSRU offers advantages such as a shorter construction period and lower costs.

Typically, a new LNG carrier costs in the late 300 billion won range and takes two to three years to build, whereas an FSRU conversion costs around 100 billion won and takes about one year. For this reason, attention is focused on the potential for increased orders for HD Hyundai Marine Solution, which operates in the FSRU conversion business.

Kim Yong-min, an analyst at Yuanta Securities, stated, “With the U.S.-Iran conflict leading to the diversification of global LNG supply sources and an increase in storage demand, FSRU conversion projects will see progress within the year. We expect orders to emerge for converting aging LNG carriers into FSRUs due to the uncertainty of offshore LNG supply from Qatar.”
Source: Business Korea