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US shale gas offers hope to struggling shipyards

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LNG Industry,

According to the latest Bloomberg report, rising demand for cleaner fuels is offering a glimmer of hope for the many shipyards in Asia that have been fighting to survive a slowdown by cutting jobs and seeking bailouts.

Contracts for vessels to transport LNG are picking up amid an abundance of shale gas in the US and increasingly stringent curbs on pollution. The world may need about 180 more vessels to move LNG, benefiting shipbuilders with expertise in this area such as Hyundai Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co., and Mitsubishi Heavy Industries Ltd., according to Hana Financial Investment Co. in Seoul.

Shipments of LNG are projected to rise as much as 5% a year between 2015 and 2030 as more gas is used as fuel in power stations and the marine industry instead of dirtier coal and oil. China and India will lead that demand, generating more jobs for Asian shipyards that have struggled with a drop in orders for offshore projects as oil prices have fallen by half over the last three years.

Globally, the three biggest shipyards, all based in South Korea, have as much as 80% of the LNG tanker market.

Declining orders for other types of vessels and offshore rigs have led to losses or profit drops at shipyards including Hyundai Heavy, Samsung Heavy Industries Ltd. and Singapore’s Keppel Corp., forcing them to trim production capacity and cut more than 20 000 jobs just last year alone. Japan’s Mitsubishi Heavy is considering spinning off its shipbuilding operation, while Kawasaki Heavy Industries Ltd. has said it is reviewing whether to continue the business.

Global LNG production capacity is set to expand to 377 million tpy by 2019 from 272 million last year. The increased gas supplies have helped shipyards gain contracts to build small offshore facilities known as floating storage and regasification units, and the need for more tankers to carry the fuel from port to port.

It is still too early to predict any meaningful recovery for shipyards even though demand for new ships looked to have bottomed in the fourth quarter of last year.

What is helping vessel orders, in addition to increased gas demand, may simply be wear and tear. Some 126 ships started to cross the 20-year mark about three years ago, making them inefficient for deployment.

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