"High Oil Prices Spark Interest in Offshore Plants?" Shipbuilders Wave It Off

Record LNG Carrier Orders but No Remarkable Performance Like Dala
Oil Price Volatility Persists... Carbon Neutral Transition in Oil Development Also a Burden

Samsung Heavy Industries' Prelude, the world's first floating liquefied natural gas production storage and offloading facility (FLNG), was launched in December last year. The Prelude FLNG, floating off the coast of Geoje, measures 488 meters in length, 74 meters in width, and 110 meters in height, making it the largest offshore facility in the world. (Photo by Samsung Heavy Industries)

[Asia Economy Reporter Oh Hyung-gil] ‘Can offshore plants revive amid prolonged high oil prices?’

Although oil prices have recently soared to unprecedented levels, the prospects for offshore plants to regain attention seem slim.

Offshore plants once emerged as a high value-added sector in the shipbuilding industry during past periods of high oil prices, but the current situation is entirely different. Despite the ongoing winning streak of shipbuilding orders since last year, offshore plants are barely visible.

According to the industry on the 20th, domestic shipbuilders are securing record-breaking orders mainly for LNG (liquefied natural gas) carriers, while there are no notable orders related to offshore plants.

The only order was in January when Daewoo Shipbuilding & Marine Engineering secured one gas field control system (FCS) from Chevron, the world’s largest oil company based in the U.S. It functions to supply power to currently operating deep-sea facilities and control gas, with the order size reported to be worth about 650 billion KRW.

Last year, Hyundai Heavy Industries and Daewoo Shipbuilding each secured one floating production storage and offloading unit (FPSO) worth 5 trillion KRW, ordered by Petrobras, the Brazilian state-owned energy company.

While the market expects investment in offshore plants to increase as international oil prices remain above $100 following the Russia-Ukraine war, the mood in the shipbuilding industry remains cold.

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Recent oil price fluctuations are largely due to geopolitical factors, and oil prices could plummet again once the Ukraine crisis ends. Additionally, concerns about inflation are growing, and there is downward pressure on oil prices due to a potential long-term economic recession.

The transition to carbon neutrality is also a burden. Global oil majors such as Total, Shell, and ExxonMobil are currently focusing on reducing carbon emissions, switching to renewable energy sources, and developing low-carbon and carbon-neutral products. In a situation where large-scale refinery investments like in the past are difficult, orders for offshore plants naturally decrease.

Above all, the aftereffects of excessive order competition among domestic shipbuilders in the past are significant. Shipbuilders, including Daewoo Shipbuilding, are still recovering from losses caused by low-price orders for offshore plants after the global financial crisis.

A shipbuilding industry official said, "The capacity or willingness to jump into the offshore plant business is not as strong as before," adding, "We plan to participate in bids by prioritizing profitability and carefully reviewing the scale of the business and contract terms."