South Korean shipyards are the builders of choice for the global liquefied natural gas carrier market with a share of over 80 percent of newbuilds, though executives regret that the nation has not gained acceptance for its LNG maritime storage technology and that shipowners prefer French-designed tanks.
Gaztransport & Technigaz (GTT) of France is the technology company that earns royalties from every LNG carrier built in South Korea and elsewhere in the world when its designs are used.
One South Korean shipbuilding executive estimated that GTT had earned 2.5 trillion won (US$2.1 billion) in royalties from South Korean shipbuilders over the last 10 years for the rights to use its membrane-type LNG tanks.
GTT’s average royalties are generally kept confidential, though are estimated to be around $10 million per vessel with carriers costing between $180M and $200M in the current market.
The South Korean national news agency Yonhap has carried a report citing financial analysts and unnamed shipyard executives regretting the fact that a South Korean-designed storage tank was not seen as acceptable in the market.
“With demand for LNG vessels soaring in particular, local shipyards are desperate to escape GTT's dominant grip,” said Choi Jin-myung, an analyst at NH Investment & Securities Co in Seoul.
“As of 2018, GTT had a 92 percent market share in the global LNG cargo containment sector,” added Choi.
“When South Korea's three major shipbuilders receive orders for LNG carriers, they all use GTT's technologies,” he explained.
“About 5 percent of the vessel's price is reportedly paid to GTT in royalties and this has been largely affecting the shipbuilders' profitability and cost management,” he stated.
South Korean shipbuilders have been trying to alter the landscape of the LNG tank system business for years. In fact, all three of South Korea's major players have designed their own LNG cargo containment systems for maritime transportation.
Samsung Heavy Industries Co. developed its KCS LNG cargo containment system in 2011, and Hyundai Heavy Industries Co. created its own LNG cargo containment system in 2013.
Daewoo Shipbuilding & Marine Engineering Co. for its part introduced its Solidus LNG tank in 2017.
However, none of them have yet been used in vessels in service. The reason why was summed up by Samsung Heavy Industries.
“The shipping industry is a very conservative industry,” said a spokesman at Samsung.
“Safety always comes first before looking into new technology and functions. Shipowners or shippers don't want their vessels to become a test bed for new products,” stated the South Korean company.
Against this backdrop, the local shipbuilding industry is also lamenting the failure of the KC-1 tank, the country's first LNG membrane system to be applied in LNG vessels.
The KC-1, developed by the state-run Korea Gas Corp. (Kogas) in collaboration with the three South Korean shipbuilders, made its commercial debut last year after it was installed in two LNG carriers operated by the local shipping line SK Shipping Co.
However, defects were detected later and one of the LNG carriers had to suspend operations.
“It's a pity because the KC-1 could have really benefited the entire industry with a good first impression,” the report cited a Kogas researcher as saying.
“We'll keep working to fix problems and develop a better version of the KC-1,” he added.
LNG tanks must be designed to maintain cryogenic conditions, at least minus 162 centigrade, and failing to do so could lead to the ship being endangered.
The Koreans also claim that Daewoo's Solidus system offers a daily LNG boil-off rate (BOR) of 0.049 percent, lower than the GTT’s Mark III Flex-Plus system's 0.07 BOR. Samsung's KCS tank is also listed as having a low boil-off rate.
“We believe the technology is there, but what we need is a track record,” said Kang Joong-kyoo, head of Daewoo Shipbuilding's Research and Development centre.
“We'll obviously try to gain credibility with global customers, but I think South Korean-owned LNG ships should use local LNG containment systems first and show they are safe,” stated Kang.
The South Koreans in the report acknowledged that GTT had proven systems with a first-class safety record.
“GTT has been in the LNG tank designing business for more than 50 years, so you can't ignore its relationship with shippers and ship owners,” said an official at the Korean Intellectual Property Office.
“So far, no South Korean companies have managed to sell their patents for LNG tank containment systems,” stated the official.