The energy transition and the Ukraine crisis have led to a huge increase in demand for large LNG carriers that the traditional yards cannot satisfy alone. Chinese yards are entering this demanding market, and as a trusted partner DNV is supporting the newbuilding processes.The Chinese shipbuilding industry has grown its market share steadily over the past two decades, gradually moving into more sophisticated ship types while acquiring the necessary know-how. The highly challenging large LNG segment, mostly built in South Korea, did not play a major role in the local shipbuilding industry until recently, and Chinese yards primarily served domestic clients.

But global shifts are changing the picture: decarbonization efforts and changing supply patterns in the wake of the Ukraine crisis have prompted a steep increase in demand for LNG and large LNG carriers. As newbuilding slots continue to be available in China for the foreseeable future, shipyards are refining their expertise and extending collaborations to cater to that expanding segment.

Opportunities in a young market segment

DNV has maintained a strong presence in China for many years, working with domestic and international owners to provide a full range of class-related and independent non-class services at Chinese yards. A series of large LNG carrier projects being built to DNV class now adds a new dimension to this cooperation. As of end of August 2023, DNV’s order book for large LNG carriers in China stood at twenty-two ships at three shipyards, representing a market share in GT of roughly 30 per cent.

“In the smaller gas carrier segment, we have traditionally been quite strong, leading the market over the last 20 years,” says Norbert Kray, Regional Manager for Maritime Greater China at DNV. “We have given vigorous support to the Chinese shipyards; it was a very international market, with owners often coming from Germany and Nordic countries. Now we have entered the new large LNG carrier segment in the 175,000-cubic-metre range as well.”

DNV’s strategic initiatives in China: advancing alternative fuels and digitalization

Building LNG carriers is much more challenging than constructing other ship types, Kray points out. “As a classification society we have an obligation here: we need to make sure the ships are designed according to the rules, standards and regulations, and that the construction process adheres to applicable rules. Working together with the owner and the yard, we ensure quality and efficient operations, and confirm that the ships are consistent with specifications.”

To help Chinese yards test the waters in the emerging alternative fuels segment, DNV established a Gas Carrier and Alternative Fuels Expert Team at the technical centre in Shanghai in 2022 that provides a full range of know-how and services. “These efforts demonstrate our commitment to the Chinese market and its role in the transformation of the shipping industry.” Also in 2022 DNV launched its DNV SMART Center, which focuses entirely on digitalization and decarbonization technologies. “This focus has given DNV a unique position in China,” adds Kray.

Strong demand for LNG drives newbuilding projects

The soaring demand for natural gas has driven the global order book for LNG carriers to unprecedented levels, giving China a chance to build a track record for this ship type as well. “Another reason for more Chinese shipyards to build large LNG carriers is increased domestic demand,” explains Jin James Huang, Regional Strategic Business Development Director at DNV. “A significant number of long-term Chinese LNG contracts, based on a free on board (FOB) delivery arrangement, with various Chinese national oil companies, traders, and shipping firms, have stimulated LNG ship orders in China, especially due to the demand for US FOB cargoes”

Chinese shipping firms like COSCO Shipping and China Merchants, Chinese national oil and gas companies including the state-owned CNOOC, Sinopec and CNPC, and the privately owned ENN and China Gas etc. are expected to grow their LNG portfolio to realize the energy security strategy. In this context, China has signed about 40 LNG term contracts, equivalent to around 54 million ton/year of LNG, since 2021. Nearly half of these were FOB deliveries from the US, according to data from S&P Global Commodity Insights.

Yards building a track record for large LNG carriers

2021 saw a breakthrough for Chinese yards, with foreign owners sufficiently confident to secure LNG newbuilding slots with new entrants in the field. The position of Chinese yards was further strengthened by domestic orders, says Huang. The Shanghai-based yard Hudong–Zhonghua already started building large LNG carriers for domestic owners in 2008, specializing in the GTT NO96 cargo containment system, and received its first foreign order in 2021. The leading shipbuilding group dominating China’s LNG newbuild orders is China State Shipbuilding Corp., or CSSC, whose order book stood at around 60 ships at the end of August 2023.

CSSC currently has three shipyards to build large LNG carriers – Hudong–Zhonghua Shipbuilding Co., Jiangnan Shipyard (Group) Co. and Dalian Shipbuilding Industry Co. (DSIC). Jiangnan Shipyard and DSIC both received their first LNG orders with GTT’s Mark III system in March 2022. In addition to CSSC, Yangzijiang Shipbuilding and China Merchants Heavy Industry reportedly also received their first LNG ship newbuild orders in 2022.

Numerous newbuilding orders with DNV class

DNV is the only class so far to have LNG ship orders in all three CSSC yards, and a leading share of the orders under DNV class are with Chinese national oil companies, traders and shipowners.

The first was from Chinese gas cargo owner and charterer CNOOC and a consortium of shipowners ordering three 174,000-cubic-metre LNG carriers from Hudong–Zhonghua. ENN, one of the largest clean energy distributors in China, later ordered three LNG ships together with joint owners MOL and COSCO, and K Line together with China Merchants Energy Shipping (CMES) ordered four large vessels of the same type, which amounts to ten ships at Hudong–Zhonghua.

DSIC will build a 175,000-cubic-metre LNG carrier for CMES, and just recently on 31 August 2023, COSCO Shipping and Sinopec contracted three 175,000-cubic-metre LNG carriers at DSIC, all to DNV class.

DNV has taken great pride in successfully supporting Jiangnan with all their LNG vessels to date, including two 175,000-cubic-metre LNG carriers ordered by Shandong Shipping with Sinopec as charterer and cargo owner, in addition to the six ships of the same type by the foreign owner Abu Dhabi National Oil Company.

DNV’s strategic partnerships: elevating trust and collaboration in the LNG carrier industry

The LNG carrier industry stands out because achieving success with all stakeholders, including cargo owners, charterers, ship owners, and shipyards, is essential and plays a pivotal role in selecting the class. “This is particularly the case with cargo owners, so DNV has made tremendous efforts in building trust and confidence with them. Examples are the strategic partnership agreements signed with CNOOC and ENN in 2022 aimed at realizing DNV’s differentiation strategy, with a stronger focus on customer relations. This includes future cooperation to cover the whole LNG value chain,”explains Huang.

The most advanced ship type on the water today

All these vessels are similar in dimensions and cargo capacity and take advantage of the most advanced efficiency-enhancing, fuel-saving and carbon abatement technologies available, such as optimized hull forms and twin skegs. WinGD’s X-DF dual-fuel engines are to be equipped with the engine manufacturer’s iCER system to reduce methane slip and NOx emissions and achieve Tier III compliance. Some of the ships feature energy-saving shaft generators and air lubricated hulls to reduce drag in water, and consequently, lower fuel consumption and carbon emissions. High-efficiency propellers contribute to additional benefits with regards to energy savings

Enhancing efficiency and safety of LNG vessels

“Both of GTT’s most advanced containment systems, NO96 Super+ and Mark III Flex, are utilized in the designs of Chinese shipyards’ large LNG ships, reducing boil-off gas. A partial reliquefaction system on board routes unused gas back into the cargo tanks. “Taken together, all these features result in additional energy savings when compared to the standard designs for this ship type,” says Øyvind Pettersen, Head of DNV China Technology Center. Furthermore, several DNV class notations will ensure the best fire protection available, as well as increased safety and reliability, low vibration for crew comfort, and cyber security. “These ships are as future-proof as they can be built today,” adds Pettersen.

Strong legacy in the gas carrier market builds trust

Acknowledging the growing importance of China’s shipbuilding sector in the field of LNG transport, DNV has taken extensive measures to build up competence in China and make it available to the local industry. “As technology leaders in this segment, we offer customers comprehensive service and support, including technical advisory, solutions, research and development capabilities and support with new design development,” says Pettersen. “We also work closely with our experts from our established Gas Carrier Excellence Center in Norway and Greece to incorporate all of our know-how. This has given us high credibility, both on-site and in approvals.”

DNV also maintains strategic cooperation relationships on decarbonization with major state-owned shipowners in China. “This is another contribution to building trust in the market,” says Pettersen. “We see a bright future for Chinese-built LNG carriers, and DNV is well-positioned to support this market.”

Source: DNV