Introduction: Understanding Natural Gas and LNG Carriers
Natural gas is a vital global energy resource. The cheapest supply method is pipelines, most cost-effective when production and consumption countries are close with no obstacles. Russia exported to the EU, and the U.S. used shale gas domestically via pipelines. However, the Ukraine war stopped Russian gas to the EU, distancing producers (Qatar, U.S., Israel) from consumers (Korea, China, Japan, Taiwan, EU). Qatar and the U.S. can’t build pipelines due to distance, and Israel faces U.S. opposition to an EU pipeline, making LNG carriers the only viable option.
Natural gas, in its gaseous form, is too bulky to store or transport in large quantities. Cooling it to minus 162°C turns it into liquefied natural gas (LNG), reducing its volume by 700 times. LNG requires extensive infrastructure: exporters need pipelines to ports and liquefaction plants, while importers need LNG carriers, storage facilities, and regasification setups. The U.S., once an LNG importer, is converting 13 import terminals into export hubs. Its key markets—EU, Japan, China, Korea, Taiwan—are too far for pipelines, increasing reliance on LNG carriers.
Natural Gas Pipeline
Global LNG Market Shifts and Qatar’s Strategy
Qatar, the world’s top LNG exporter, is geographically isolated like an island due to blocked land routes with Saudi Arabia, exporting all gas as LNG. As the U.S. ramps up LNG exports, Qatar is signing long-term contracts to increase supply with existing clients. It launched a project to boost annual LNG production from 77 million tons to 126 million tons by 2027, ordering over 100 LNG carriers to transport the additional 49 million tons.
Israel discovered gas fields sufficient for 100 years. Planning a 30-year domestic use limit, it aims to export the remaining 70 years’ worth. Though adjacent to the EU by sea, Israel wanted a pipeline like Russia’s Nord Stream to Germany, but the U.S. opposed it, citing environmental concerns. The U.S. sees the EU as a key market for its LNG, and an Israeli pipeline would harm its interests. After negotiations, the U.S. and Israel agreed to halt pipeline plans, opting for LNG carriers. Except for China’s pipeline from Russia, LNG carriers have become the global standard.
LNG Carrier Market Competition: Korea vs. China
With LNG trade booming, LNG carrier demand has surged, but only Korea and China can build them. China nearly dominated with low prices. In 2017, its Hudong-Zhonghua shipyard swept four LNG carrier orders for Russia’s Yamal project, outbidding Samsung Heavy Industries with prices over 30% lower. But in June 2018, Hudong-Zhonghua’s Gladstone vessel suffered an engine failure off Australia—less than two years after construction.
LNG carriers lose 0.1% of LNG daily to evaporation, which dual-fuel engines use as fuel. Korea commercialized this in December 2001, while China managed it by 2015. The Gladstone was the first of six dual-fuel ships; its unresolved failure amplified concerns. The issue spread to all Chinese-built ships. A European marine insurance report showed 89% of insurance claims from 2007–2015 came from Chinese vessels, confirming widespread distrust.
Safety is critical for LNG carriers. A full load of 700-times-compressed LNG exploding could rival a tactical nuclear bomb, leveling ports or cities. For shipowners and crews, such risks are unbearable—explosions could sink even major operators, and crews wouldn’t survive. Overseas orders for Chinese LNG carriers halted, shrinking China’s market to domestic LNG imports.
LNG Carrier
Japan’s Exit and Korea’s Dominance
Japan once built LNG carriers using the Moss-type design (independent spherical tanks), while Korea and China used membrane-type (hull as tank). Moss-type offers safety—tanks stay intact in collisions and float if the ship sinks—but its spherical cargo holds limit capacity and scalability. Japan tried switching to membrane-type, securing four orders from a gas company, but failed on the first ship. Shipbuilding relies on seasoned field workers, which Japan lacked, pushing it out of the market.
Thus, LNG carriers became Korea’s near-monopoly. Media claims China’s mass orders threaten Korea, but a closer look shows most are for Chinese LNG imports, mainly by state-owned firms. Construction capacity differs vastly: Korea’s big three shipyards can build 60 carriers yearly, while Hudong-Zhonghua manages 6, aiming for 10. Hudong-Zhonghua’s 18-ship order sparked headlines about K-shipbuilding’s “last bastion” falling, but these were for Qatar’s state firm (10 ships), Shandong Shipping, and China Shipping (5 ships)—all China-linked. Other Chinese yards build 1–2 ships, mostly for domestic use, needing years of validation.
Ships last 20–30 years, but shipyard warranties (1–3 years) shift post-warranty risks to owners. Beyond Hudong-Zhonghua, Chinese yards need more than 1–2 years to gain trust, cementing Korea’s edge in LNG carrier orders.
Korean Shipbuilding’s Success and Limits
In 2024, global LNG carrier orders hit 554 million CGT, with Korea’s big three securing 441 million CGT. Excluding China’s self-use orders, Korea dominates global demand. The trio holds a $130.5 billion backlog—three years’ work—with HD affiliates (Hyundai Heavy, Mipo, Samho) at $68 billion, Samsung Heavy at $31.5 billion, and Hanwha Ocean at $31 billion. LNG carriers, now $260 million each, dominate this backlog: HD Korea Shipbuilding with 100, Samsung Heavy with 85, and Hanwha Ocean with 72.
LNG carriers are high-value, in-demand assets, but their long quay occupancy—up to 10 months versus 2–3 for container ships—poses challenges. Ships aren’t fully built in docks; they’re floated out and finished at the quay. Samsung Heavy has eight docks (three onshore, five offshore) and an 8km quay handling 24 ships at once. LNG carrier cargo holds, compressing gas 700 times for cryogenic storage, require extensive manual welding, slowing production. A quay producing 100 regular ships yearly drops to 30 with only LNG carriers. Double-parking ships increases costs by complicating workflows. Mixing in container ships and tankers optimizes efficiency.
Shipyard Quay
USTR Report and Shipbuilding’s Future
On February 21, 2025, the U.S. Trade Representative (USTR) issued a Section 301 report targeting China’s shipbuilding and shipping dominance via unfair tactics. China’s market share rose from 5% in 2000 to over 50% by 2023, fueled by subsidies. The USTR proposed up to $1 million or $1,000-per-ton fees for Chinese ships entering U.S. ports, with $1.5 million for firms mixing Chinese and other ships. It also mandates raising U.S. vessel export share from 1% to 15% in seven years. Set for finalization after a March 24 International Trade Commission hearing, this stems from a March 12, 2024, petition by five U.S. unions, likely culminating in a Trump executive order.
The report notes China rejected negotiations, hinting at further steps: tariffs, import bans, countervailing duties (CVD), and adding state firms like COSCO and CSSC to the SDN list, barring U.S. transactions and penalizing third-country dealings. Global shipowners, lured by China’s 15% cheaper ships, face dilemmas—U.S. entry penalties could erode competitiveness. While existing fleets won’t change soon, new orders may shun Chinese ships.
Conclusion
Korea’s LNG carrier expertise outpaces China. Shipyards need container ships and tankers alongside LNG carriers for peak efficiency. The USTR’s China restrictions, possibly starting April 2025, could boost Korean shipbuilding orders, heralding a bright future.