South Korea's Joseon Gains Tailwind Amid 'LNG Ship Crisis'

Europe's Worst Heatwave and Drought
Boost Natural Gas Demand Surge Benefits

A 174,000 cubic meter-class LNG carrier built by Hyundai Heavy Industries and delivered in 2020. Photo by Hyundai Heavy Industries

[Asia Economy Reporter Jeong Dong-hoon] The heatwaves and droughts in Europe are providing a tailwind to the eco-friendly ship market, including LNG (liquefied natural gas) carriers and propulsion vessels. As abnormal weather becomes more frequent worldwide, a chain reaction of revival and advancement in the green industry is accelerating.

On the 29th, the price of U.S. natural gas Henry Hub futures reached $9.482 per million BTU (British Thermal Units), the highest since August 2008. The worst drought in 500 years in Europe has disrupted the transportation of diesel and coal via canals such as the Rhine in Germany, leading to a significant increase in gas-fired power generation and causing natural gas prices to soar. Geopolitical risks, such as Russia cutting or sharply reducing natural gas supplies amid tensions with the European Union (EU) over the invasion of Ukraine, are also fueling price increases.

Korean shipbuilding is one of the industries benefiting from Europe’s energy crisis. As of 2020, the EU imports 41.1% of its natural gas from Russia. However, due to the current war, imports of Russian natural gas have effectively been blocked, prompting Europe to turn to other countries. A representative alternative is the United States, and to import natural gas from the U.S. to Europe, LNG carriers that transport the gas across the sea are essential. Korean shipbuilding is attracting global shipbuilding orders with its unrivaled LNG carrier construction capabilities.

According to Clarkson Research, a British shipbuilding and shipping market analysis firm, Korea recorded 11.13 million CGT (204 vessels, 47%) in cumulative orders from January to July this year, surpassing China’s 10.07 million CGT (383 vessels, 42%), effectively dividing the global shipbuilding market between the two countries. The gap widened further last month. Of the global ship orders totaling 2.1 million CGT (standard tonnage, 70 vessels) last month, Korea secured 1.16 million CGT (19 vessels), capturing a 55% market share. China, which shares the global shipbuilding market with Korea, only secured 620,000 CGT (35 vessels, 30%). Korea has held the top spot, surpassing China for three consecutive months. Ship prices have also risen, with the Clarkson Newbuilding Price Index recording 161.57 last month. Since hitting a low of 125.06 in November 2020 due to the COVID-19 impact, it has been rising for 20 consecutive months. This is the highest level in 162 months since January 2009 (167.11).

Europe’s energy crisis, which began in the summer without heating, is unlikely to end soon. Demand for LNG carriers is expected to increase further. Europe’s worst drought on record has made it difficult to operate nuclear power plants that require cooling water. France is concerned about the efficiency of its nuclear power plants as river water temperatures used for reactor cooling rise. The lowered water levels of rivers such as the Rhine are also affecting the frequency and cost of transporting minerals like coal.

An industry official said, "Europe’s natural gas shortage has triggered global competition surrounding LNG vessels," adding, "As European countries import LNG from the U.S., Qatar, and others due to Russia’s gas supply cuts, demand for LNG carriers is also surging accordingly."

This content was produced with the assistance of AI translation services.