China charts a new course with LNG
carriers By Michael Mackey
SHANGHAI - China's recent launch of its
first domestically built liquefied natural gas
(LNG) carrier ship marked a significant upgrade of
the country's shipbuilding industry.
The
ship, launched on December 29 by the China State
Shipbuilding Corp's (CSSC) Shanghai-based
Hudong-Zhonghua Shipbuilding (Group) Co Ltd, is
292 meters long and 43.35 meters wide with a
capacity of 147,200 cubic meters.
Double-hulled, the vessel is of the
prismatic, membrane type of LNG-carrier, which
means the storage tanks conform to the ship's hull
and the vessel therefore lacks the spherical tanks
that give
Moss-type LNG-carriers (named
after the Norwegian company Moss Maritime, which
originated the design in 1971) their distinctive
profile.
Building LNG carriers
is "highly sophisticated stuff. Chinese yards
have done easy-peasy stuff" until now, said
one shipping-industry source who asked not to be
named. "LNG [carriers bring in] a lot of money."
Indeed, Hudong-Zhonghua has five further LNG
vessels on order. A second is due to be delivered
in early 2008, with the first two ships priced at
US$400 million each.
Chinese
officials also have no doubt that the specialized
natural-gas carriers mark a significant departure for
Chinese shipbuilding. "The construction of China's
first LNG carrier implies that China's
shipbuilding industry has entered a new phase, and
it will make the industry more competitive in the
world market," was the view of Zhang Xiangung, a
senior official of the Commission of Science,
Technology and Industry for National Defense.
There are said to be "very sensitive"
negotiations for another 12 carriers ongoing.
However, two problems will need to be addressed to
ensure the ships don't turn into white elephants,
both of them on the supply side. One is the issue
of terminals; the second is the equally vexing
issue of LNG sources and their cost.
Terminal plans LNG terminals are
as important to the process of moving the products
as the ship. Because LNG is kept very cold (around
-160 degrees Celsius) to maintain it in liquid
state, it requires special handling at every
stage, from initial recovery to end-user delivery.
Chinese companies have proposed building 16 LNG
terminals, of which 10 will be operational by
2010. However, so far only two terminals have
secured gas supplies for the long term.
These are Guangdong Dapeng LNG and
a second facility in Fujian, which are due to
start operations in June and the end of 2007,
respectively. More is known about the Dapeng
facility, which is jointly owned by the China
National Offshore Oil Corp (CNOOC) and
various local investors.
The facility
is reported to have cost about 7 billion yuan
(US$868 million) and, when it goes online, will import 3
million tons of LNG annually from Australia. The
Fujian terminal is a joint venture between CNOOC
Gas and Power and Fujian Investment and
Development. CNOOC, a natural for this field, is
known to be building a string of terminals to
receive imported LNG along China's affluent
southwest coast.
Not all the terminals
will be in one region. PetroChina has detailed
plans to build throughout the central and northern
provinces. It has named Yangkou Port near Rudong
in Jiangsu province,
Caofeidian Port near Tangshan in Hebei and Dalian in Liaoning province as the
sites of its terminals. There has also been talk
of similar facilities in the provinces of Zhejiang and Shandong.
All
these proposed facilities face one common problem,
which could well trim the number of terminals
proposed - will there actually be enough LNG for
all of them? One of the drivers of China's foreign
policy at the moment is its need for commodities,
especially energy.
As other big economies, such
as India, start to join the melee, the competition
will drive prices up and the results of this
process are already pushing China financially.
"China will have a very difficult time
buying LNG at the prices it's willing to pay,"
Mark Pilcher, vice president of BP's global LNG
division, said recently. "Right now, there is a
shortage of LNG in Asia and that's why prices are
so high. [The same is] also definitely true in the
world."
Foreign investment
welcome That future issue aside, the recent
launch holds out the prospect, tantalizing for
some and extremely challenging for others, of an
expanded and invigorated Chinese shipbuilding
industry on an almost epic scale - but one that
is open to the rest of the world to an
unprecedented degree, in terms of technology,
exchanges and capital.
For
shipbuilders, the specialized technology in LNG
carriers, including Invar or Triplex membranes for
the tanks, Perlite insulation layers to keep the
gas cold, and all the associated plumbing, makes
LNG vessels the highest class of civilian cargo
ship. Well aware of this, the Chinese have put
their hours in to make sure their country joins
the elite club of shipbuilders.
"The technology required is very
demanding and complicated. We have studied the
building of LNG carrier[s] since 1997 and workers
underwent about 8,400 programs of special
training," said Wang Hengyuan, chief technology
inspector of CSSC.
CSSC's
progress transcends expanding the product line into
LNG carriers, and is another emblem of how
China's shipbuilding trade will shake the world in
the coming years. Vice president Tan Zuojan
said openly in a recent speech that CSSC's goal was
to try to make itself the world's largest
shipbuilder. Tan outlined a detailed, five-pronged
vision for CSSC in the coming half-decade. The
five prongs include redoubled efforts to construct
a new shipbuilding base; adjusting the product
mix; greater use of science and technology;
enhancing overall competitiveness; and pursuing
additional foreign linkages.
To
many observers, the real surprise lay in the last
point. Tan advocated moving from the existing
approach of a reclusive shipbuilding industry, one
virgin to overseas involvement, and offered not
one but two modes of international linkage. The
first is foreign exchanges and cooperation; the
second, less standard, was an invitation for
overseas investment.
"We sincerely welcome
overseas capital actively to take part in the
construction of CSSC's new shipbuilding bases and
marine-related equipment production bases," the
text of his speech said.
Shipbuilding
Island As for the actual building of ships,
the focal point is building what is in
effect the Shipbuilding Island of Changxing, just
outside Shanghai. Changxing may eventually become
the largest shipyard in the world. By 2015
its shipyards are projected to have a capacity of
8 million deadweight tons (dwt).
Other
shipyards in the vicinity will have a total
capacity of 12 million dwt - and that is to be
just half of China's production.
"We will step up
the new shipbuilding base project in Changxing
Island," said Tan. The real impact of Changxing
may actually not be the expansion of capacity that
it will allow, impressive though this is, but in
the across-the-board product mix strategy for
which it appears to be a catalyst.
This reflects a major internal
change within the Chinese industry as the old
statist corporations run by Beijing give way to
more market-based enterprises.
"A [new] structure
pattern [in the] shipbuilding industry is taking
shape gradually, with enterprises of multiple
ownership, such as state-owned, privately
owned, exclusively foreign, China-foreign joint
ventures or cooperative ones to be developed
together," noted Jin Caikuan, president of the
Chinese Society of Naval Architecture and
Marine Engineering, as he spoke credibly of
"advancing towards the target of being the world's No 1
[shipbuilder]."
Michael Mackey
is a Shanghai-based freelance writer.
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