Qatar Petroleum (QP) has placed the largest order in the history of shipbuilding to a Chinese company. QP has secured slots for building eight 175,000 cbm LNG carriers along with the option for eight additional vessels at China’s Hudong–Zhonghua Shipbuilding. This deal is reportedly worth $3 billion and the vessels are scheduled for delivery to Qatar in 2024-25.
Qatar Petroleum is gearing up to book 120 newbuild slots at Global LNG shipyards to cater to its planned North Field Expansion (NFE) project which will increase the country’s liquefaction capacity from 77 mtpa to 110 mtpa – some sources claim to 126 mtpa.
Qatar’s North Field Expansion Project
North Field, the world’s biggest single non-associated natural gas field, lies offshore north-east Qatar peninsula – it was discovered in 1971. The field is owned by Qatar Petroleum and is operated by its subsidiary Qatargas.
Qatar Petroleum (QP) had announced the expansion of the gas field in April 2017 after revoking its 12-year self-imposed ban on field development.
The expansion will increase Qatar’s liquefied natural gas (LNG) production capacity from 77 million tonnes per annum (Mtpa) to 110Mtpa, which accounts for a production capacity increase of approximately 43%.
This expansion project has been planned in two phases with Phase -1 consisting of four liquefaction trains (33 mtpa) and Phase-2 with two liquefaction trains (16 mtpa). The first train of NFE Phase-1 is expected to commence operations in 2025.
Qatar ignores Korean giants like Hyundai and Samsung?
The Qatar order, as mentioned above, is the largest of its kind in LNG shipbuilding history and is expected to take up 50-60% (based on expected 60-80 vessel order) of the Global LNG shipyard capacity. South Korea’s three major LNG shipyards – Hyundai Heavy Industries (HHI), Samsung Heavy Industries (SHI), Daewoo Shipbuilding and Marine Engineering (DSME) – along with China’s Hudong-Zhonghua were shortlisted by Qatar Petroleum in February 2020.
In terms of LNG shipbuilding, South Korean shipyards have more experience and higher technical expertise than shipyards in other countries – including China. In the present order book of LNG carriers above 150,000 cbm, the three major South Korean LNG shipyards have 91 LNG carriers on order while Hudong-Zhonghua has just two on its books.
China will need 80% more natural gas by 2030 to meet its growing demand which can now be sourced from Qatar. It is expected that China’s LNG demand will grow at a CAGR of 7% during 2020-25 to 96 million tonnes
Therefore, the first order in the series being awarded to the Chinese shipyard was surprising, to say the least. However, it is expected that ultimately a major part of the 60-80 vessel orders will be bagged by South Korean shipyards. Doha’s decision to award the principal contract to a Chinese firm – despite lesser expertise available in China – can be considered “strategic”
Qatar: strategic relationship with China
Doha, in this deal, not only benefits from competitive pricing but is attempting to open doors to higher Chinese investment
Analysts believe Qatar Petroleum (QP) was able to strike the deal at a competitive price of USD180 million per vessel given its strong bargaining position. This price is about 5% lower than the newbuilding price of similar vessels ordered in December 2019.
Shipbuilding analysts believe Qatar Petroleum’s massive order for LNG ships at China’s shipyards may translate into investment by China-based companies in Qatar’s North Field expansion project. China will need 80% more natural gas by 2030 to meet its growing demand which can now be sourced from Qatar. It is expected that China’s LNG demand will grow at a CAGR of 7% during 2020-25 to 96 million tonnes.
Such is the quantum of China’s energy needs and gas imports that even with current lower LNG spot prices, China still imports around 82% of its LNG through long-term contracts with the balance met through spot or short-term contracts. Therefore, in order to meet the growing LNG demand in the country, China will look to secure more long-term cargoes in the coming years.
Qatar China Energy Trade: Adverse effects for US Exports
Analysts believe strengthening relations between Qatar and China will adversely affect US LNG export projects. These projects would have benefitted from supply deals with China given that the latter removed the previously imposed 25% tariff on US LNG. But given the ongoing trade tensions between US and China this looks unlikely.
In terms of vessel supply, Qatar’s order at China’s shipyard is expected to break the dull market of new orders for shipbuilding. In 2020 speculative ordering is drying up and project-linked ordering is now expected to be delayed to 2023-24.