Of a confirmed total of 147 LNG carrier repairs that the nine top players carried out last year, just 29 took place in yards west of Suez – 20 at the Navantia shipyards in Spain, six at Damen Shiprepair’s site at Brest in France and three in Italy, at the San Giorgio del Porto (SGdP) shipyard near Genoa.
Asia imports more LNG than any other world region, accounting for 72 per cent of global demand, according to the most recent industry report from the International Group of LNG Importers (GIIGNL). That eastbound focus will continue, but two events this year may shift the LNG trades’ centre of gravity a little further west, which could boost demand around the Atlantic Basin for ship repairs and maintenance.
In February, Sabine Pass LNG dispatched its first cargo, heralding a new era of US exports from the Lower 48 states. The US export projects so far confirmed that had reached a final investment decision as of June will deliver more than 65 million tonnes a year (mta) of LNG.
Secondly, at the end of June, the enlarged Panama Canal will handle its first very large gas carrier, opening a new trade route for LNG between the Atlantic and the Pacific.
So will these developments create new demand for LNG carrier ship repairs and maintenance in the western hemisphere – and, if so, how will the shipbuilding industry respond to that demand?
Spanish shipyard Navantia dominates ship repairs and maintenance west of Suez from its two yards inside the Ferrol port complex in northwest Spain and a third at Cadiz in the south. Last year, it consolidated its position as the leading player repairing and maintaining LNG carriers in the Atlantic Basin, handling 20 LNG carriers and one LPG carrier.
Navantia customers include some of the biggest names in LNG shipping – Teekay LNG, NYK, BW Gas, Golar LNG, Exmar, Engie and Nigeria LNG – and it has a strategic alliance with UK shipping giant BP.
“Most projects undertaken last year at our Ferrol shiprepair centre were reasonably standard but some of them could easily qualify as major LNG projects,” a Navantia spokesman told LNG World Shipping.
“Repair and maintenance work last year involved not just standard LNGCs but also floating storage and regasification units (FSRUs), shuttle regasification vessels (SRVs) and LNG regasification vessels (LNGRVs), and medium and large-sized LPG carriers.”
Those projects included converting an SRV to increase and optimise its LNG supply and regasification capacity and another – that lasted nearly a year – to carry out structural renewal on an LNG carrier membrane cargo containment system.
Navantia has completed a specialised and certified berth for under-gas repairs that should make it quicker and cheaper to deliver such contracts. The company and its contractors have also invested in staff and equipment specialising in LNG cargo containment systems, cryogenic equipment and other specialist technology, enabling its yards to offer more specialist services to LNG and LPG carriers.
“We continue to focus on LNG business development and – although we repair all types of vessels and offshore units – we keep our specialisation in everything LNG to maintain our position as the main LNG reference in the Atlantic,” the spokesman says.
“[We will continue] to cater for the growing need by LNG majors to have a proven and guaranteed one-stop centre for all their LNG and LPG maintenance, repair, refit and conversion work in Europe,” he added.
Navantia has made the most of its yards’ strategic location to position itself as the go-to shipyard for LNG carriers deployed in the Atlantic Basin trades. Its closest competitors are France-based Damen Shiprepair, which handled six LNGC repair contracts last year, Damen’s Mediterranean coast compatriot Chantier Naval de Marseille and SGdP, based near Genoa in Italy.
However, they face new competition from three challengers based outside Europe that also hope to tap LNG carrier demand – two of them wholly new ventures.
Grand Bahama Shipyard (GBSL), a veteran in cruiseship repairs and refurbishment, sees an opportunity in LNG ship repairs – and particularly in LNG-fuelled vessels that are not LNG carriers. By 2025, predicts GBSL senior vice-president Graham Couser, 80 per cent of the world cruiseship fleet will employ dual-fuel engines.
“GBSL will be ready to support this revolution in the cruise industry,” Mr Couser says. “Our intention is to be the leader in the region for all repairs and maintenance of vessels using dual-fuel engines.”
Demand for such shiprepairs and maintenance will shift west, Mr Couser predicts, mirroring growth in the world cruiseship fleet, for which the Caribbean is a top destination, especially for holidaymakers from the US. That growth presents an opportunity to The Bahamas to specialise in repairing and maintaining LNG-powered ships.
“By 2019, the cruise industry is expected to grow approximately 13 per cent [compared with] 2015,” Mr Couser says, “which is approximately 25 million passengers worldwide. To meet this future expectation, GBSL is ready to perform maintenance on highly sophisticated LNG dual-fuel systems.”
GBSL already holds a GTT licence to repair membrane containment systems and has invested in an LNG clean room. Wärtsilä, BW and MAN Diesel will also train the shipyard’s engineers to operate and maintain dual-fuel engines and to work with makers of cryogenic valves and pumps to secure LNG carrier and LNG-fuel business.
However, GBSL will also target LNG carriers as they start to pick up cargoes in the US Gulf for delivery to Atlantic Basin destinations in northern Europe, the Mediterranean, North Africa and West Africa, and as the expanded Panama Canal opens to larger gas carriers. Both will increase Atlantic Basin demand for repairs to containment systems and on-board transfer systems, Mr Couser believes.
A Caribbean Singapore
Across the Caribbean Sea, Trinidad and Tobago-based Shipbuilding and Repair Development Co (SRDC) plans to invest in LNG carrier repairs and lifecycle maintenance.
Trinidad and Tobago, the world’s sixth-largest LNG producer and the Caribbean’s wealthiest country, wants to expand its maritime sector to diversify away from oil and gas. The islands’ Atlantic LNG exported 13 mta of LNG last year, most of it to Europe and the Americas.
SRDC will invest US$500 million in a graving dock, workshops and deepwater repair berths at La Brea in southwestern Trinidad, having secured a government loan and project finance from China Exim Bank.
The project comprises two 400m wet berths that can handle Q-max carriers, a dedicated 195m wet berth and a 300m graving dock, enabling La Brea to repair up to four LNG carriers at a time. China Harbour Engineering Co (CHEC) is expected to complete construction by 2018.
SRDC chairman and chief executive Wilfred de Gannes says that a recent joint feasibility study by SRDC and the University of the West Indies Arthur Lok Jack Graduate School of Business has made a “clear” case for growth in demand for regional LNG shiprepair and maintenance – and for this new capacity to emerge outside the US.
“Existing US shipyard infrastructure, catering for building and – by extension – repairing and maintenance activities on LNG carriers is extremely limited,” Mr de Gannes says. “Only two [US] shipyards possess dry docks long enough to accommodate LNG carriers and both are currently booked well into 2018.
“It will be some time before substantial capital improvements are made to shipyards to construct docks long enough for these LNG carriers. This will put a severe constraint on their ability to carry out repairs and maintenance work, as this will have to be confined primarily to harbour work.”
La Brea has yet to name its customers but its targets include Shell LNG (T&T), which became a shareholder in Atlantic LNG two years ago after taking over Repsol’s stake, and BP, which also has an interest in the project. Shell now has a fleet of 69 LNG carriers, following its takeover of BG, while BP Shipping owns seven LNG carriers and manages another.
However, Atlantic LNG production is dwindling.
Trinidad & Tobago’s gas reserves shrank by 40 per cent from 2005 to 2015. In its latest statistical review, BP estimated that the country’s reserves will support current levels of production for just eight more years.
And Shell’s recent pledge to divest from its maturing oil and gas markets raises questions about the company’s future commitment to Trinidad and Tobago.
Undaunted, Mr de Gannes draws inspiration from Singapore, another island state whose location and strategic thinking enables it to punch above its weight in shipping and marine services. La Brea even plans to import cheap labour to ensure that it also competes on costs.
“The focus on LNG carriers being one of the main sources of shipyard revenue for the SRDC seems realistic and attainable for the next few years,” Mr de Gannes says. “We will continue to find ways to maintain competitive shipyard costs and pricing strategy… attracting qualified, skilled labour from Venezuela… [where the] average monthly wage is among the lowest in the world, at US$30.”
Out of Africa
The final would-be player is based across the Atlantic, at Badagry in Nigeria. Badagry Ship Repair Marine Engineering Consortium (BSMEC) plans to develop a US$1.5 billion yard in Lagos State to repair and maintain LNG carriers, very large crude carriers, drilling rigs and support vessels.
The country is a regional LNG powerhouse. Nigeria LNG (NLNG) last year exported 19.5 mta, most of it to Japan, India and South Korea, a figure that includes 12.7 million tonnes of spot and short-term cargoes.
Nigeria LNG, which owns a fleet of 23 vessels, has pledged to support the project in Lagos State. Its subsidiary, Bonny Gas Transport, also has a dozen LNG carriers of its own.
Badagry, a small town dissected by the Benin-Lagos Expressway, is to become a world-class marine hub. Container giant APM Terminals has a 21-year port-development concession to design and build deepwater container berths and plans for the multipurpose port include offshore supply operations, the handling and storage of refined products, and general cargo berths.
Nigeria also sees shiprepair as a way to anchor related industries in the country, creating jobs and transferring technical knowhow to its citizens. So far, NLNG says, some 600 Nigerians have trained at the Hyundai Heavy Industries (HHI) and Samsung Heavy Industries (SHI) shipyards in South Korea and with Shell, while, closer to home, Bonny Vocational Centre runs courses in welding and other engineering techniques.
BSMEC is a consortium of five Nigerian companies, led by the Sifax Group – itself led by prominent Lagos businessman Taiwo Afolabi. Pinning down the consortium’s plans is not easy but the project has been mooted for some time and is said to be scheduled for a 2020 launch date – although Sifax has declined to provide any details.
A spokesman says it is too early in the project’s evolution to clarify its scale, facilities and timeline. He said: “We have just appointed Damen as project manager and African Finance Corp as financial advisors and are currently integrating them into the project.”
Just as LNG World Shipping was about to go to press, a spokesman for Netherlands-based Damen confirmed the company’s involvement with Badagry Drydock.
“Damen has signed an MOU with BSMEC for developing/designing a shipyard for NLNG vessels,” he said.
As the LNG carrier numbers edge towards 500 – and as the LNG-fuelled fleet approaches 200 vessels on the water and on order – demand for LNG carrier repairs and maintenance will only rise. What is less certain is whether the Atlantic Basin’s established yards can absorb that demand or whether the industry will need additional capacity.
Speaking at the LNG World Shipping ship-shore interface conference in May, shipbroker SSY’s senior LNG advisor Debbie Turner questioned whether the canal will offer more than one slot per day for LNG carriers. Handling only a single laden ship slot a day will add up to more than 25 million tonnes of LNG a year, she pointed out, which is almost half the US LNG exports approved so far.
Last year, Atlantic Basin LNG supply fell by 1.1 mta, according to GIIGNL’s latest report. New volumes are coming ex-US but it will take until the end of the decade, at the very least, to gauge the impact on Atlantic Basin trade volumes of the expanded Panama Canal and of US export cargoes.
And although the Panama Canal Authority (ACP) hints that it may reserve a second daily slot for large gas carriers, this is not yet confirmed – and it is too early to predict what the take-up may be.
Despite all these unresolved questions, Mr de Gannes remains bullish about the prospects for regional shiprepair demand. “The near-term future for new shipyard development in the western hemisphere is bright,” he concludes, “especially for those that have the required design, spare capacity and capability to handle larger LNG carriers.”