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Shipbuilding shares soar on Europe’s natural gas supply problem

Korean shipbuilding companies saw their stock prices soar Wednesday, on growing expectations that they will receive more liquefied natural gas (LNG) ship orders, as Germany and other European countries are likely to import more gas by sea amid the escalating Russia-Ukraine military conflict, according to company officials and industry analysts.

Natural gas prices have been increasing sharply due to a series of negative factors, such as Germany’s decision Tuesday to halt the Nord Stream 2 Baltic Sea gas pipeline project, designed to supply natural gas directly from Russia to Germany.

Concerns have also been raised that Russia could stop its natural gas pipelines supplied to Europe through Ukraine. The analysts expect that European countries will move to import more LNG via ships to reduce their dependence on natural gas from Russia, which will increase demand for LNG carriers built by Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering (DSME) and Samsung Heavy Industries.

“Russia accounts for 16.5 percent of the world’s natural gas production, but its share in the LNG export market is only 8.3 percent. This is because a significant amount of natural gas is exported through pipelines. There is a possibility that European countries will strategically increase the proportion of LNG imports in the future,” Han Young-soo, an analyst at Samsung Securities, said in a recent report.

Han said that the Russia-Ukraine conflict seems to reflect expectations that European countries could ultimately expand the proportion of LNG delivered by ships made in Korean shipyards.

Spokesmen from local shipbuilders said that the Russia-Ukraine crisis will have no immediate impact on their business, given that the shipbuilding industry is structured around a multi-stage, long-term process, taking a year and a half to two and a half years to build a ship.
However, they expect that Korea’s shipbuilding companies will be able to benefit from the current crisis, as more countries will recognize the need for LNG carriers to stabilize the supply of natural gas.

“Theoretically, orders for LNG carriers to Korean shipbuilders could increase. Due to the Russia-Ukraine issue, the gas price will go up and then more LNG carriers will be needed. If that happens, Korean firms that are capable of manufacturing the world’s highest-quality LNG carriers will have more orders,” a DSME spokesman said.

However, he added that the shipbuilding business is not short-term like car manufacturing, so it is too early to conclude whether Korean companies could benefit.

A Hyundai Heavy spokesman also agreed that Korean shipbuilders may receive a significant increase in orders for LNG carriers, but added that it is difficult to make hasty conclusions.

“It takes a year and a half to two and a half years for shipbuilders to build a ship, so the shipbuilding industry is a business that requires long-term vision,” the spokesman said.

“As environmental regulations are tightened, companies are increasing their investments in developing eco-friendly ships and working hard to get more orders for LNG carriers. Moreover, a lot of investments are also being made in the ammonia hydrogen carrier business.”

On Wednesday, Hyundai Heavy shares closed at 109,500 won, up 7.35 percent from Tuesday. DSME shares ended at 27,000 won, up 21.9 percent, while Samsung Heavy shares closed at 5,930 won, up 6.65 percent.

Source: Korea Times

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