Hanwha Marine (formerly Daewoo Shipbuilding&Marine Engineering，DSME) is looking for new owners for three 172,500 m³ Arc7 ice-breaking liquefied natural gas (LNG) carriers. The order was placed by Sovcomflot, a Russian State-owned shipping company, but was forced to be canceled due to Western sanctions.
The fact that the icebreaker LNG carriers were built for the polar region, where the weather conditions are extremely harsh, and are less suitable for deployment on other shipping routes, as well as the higher cost of a single unit, make it difficult for Hanwha Ocean to find a suitable buyer for them.
In October 2020, Sovcomflot signed an order for 3 icebreaking LNG carriers with Hanwha Ocean through Russian shipowners (Elixon, Azoria, Glorina), which was originally planned to be fully completed and delivered by July 31, 2023. However, latest news shows that Hanwha Ocean finished all the construction work in March this year.
It is worth noting that the market price of a 174,000 m3 LNG carrier in 2020 is US$186 million. However, the icebreaking LNG carriers mentioned above are said to cost more than US$300 million each, which is about 60% or more higher in comparison.
Initially, receiving such a high value-added order was a great joy for the shipyard. However, with the intensification of the Russia-Ukraine conflict and the imposition of severe economic sanctions on Russia by Western countries, the supply of major equipment and materials for the project was delayed or interrupted, and the Russian shipowner was unable to make progress payments to the shipyard on time.
Under these situations, DSME made announcements to cancel the shipbuilding contracts for three icebreaking LNG carriers in May, July and November 2022, respectively. And Hanwha Ocean is currently actively seeking a new shipowner.
South Korean industry insiders said, “If these heavy ships, which are made of ultra-high-strength special steel and equipped with freeze proof technology, are put on the normal LNG carrier route, they will seriously exceed the standard. And demand is extremely limited due to the high cost for ship construction.”
Regarding the resale direction of the three icebreaking LNG carriers, it has been suggested that Hanwha Ocean should consider converting them into FSRUs or FSUs. Mehdy Touil, an LNG market expert who worked on the Yamal project, said in a recent webinar, “These high-priced vessels cannot be used for any Russian Arctic projects. The only way is to convert them into FSUs or FSRUs.”
However, Hanwha Ocean dismissed the conversion as impractical and made it clear that iefforts to find a new owner. While there are precedents of converting LNG carriers to FSRUs, it is also clear that converting an icebreaking LNG carrier would require a completely new construction from the design level, and the cost is difficult to estimate.
In March this year, HD Hyundai Heavy Industries undertook an FSRU for about $364 million, which is about $100 million more than the price of a regular 174,000 m3 LNG carrier. Converting an ice-breaking LNG carrier to an FSRU is expected to be more expensive and take at least a year for construction.
Hanwha Ocean stated, “We do not consider and have never considered converting icebreaking LNG carriers into FSRUs or FSUs. it is technically feasible without considering the cost and construction period, but Hanwha Ocean is not a shipyard that specializes in conversion, and we do not believe that there will be any shipowners who would be willing to do so.”
In addition, the Russian shipowner is filing an arbitration lawsuit with the Singapore International Arbitration Center (SIAC) on the grounds that Hanwha Ocean has canceled the construction contract for three icebreaking LNG carriers and is claiming damages of KRW 1.159 trillion. The relevant arbitration proceedings are still in progress.
