Projects to convert aging liquefied natural gas (LNG) carriers into floating storage and regasification units (FSRUs) are drawing attention as a new market for shipbuilders, according to Korean shipbuilding industry sources. An FSRU serves as an offshore LNG terminal that stores LNG on board and regasifies it for onshore supply.
What Happened
HD Hyundai Marine Solution, which first won an FSRU conversion project in September last year, has completed the main design and is carrying out follow-up work. The company handles the overall conversion work needed to turn an LNG carrier into an FSRU.
Hanwha Power, part of Hanwha Group, began its FSRU conversion business in 2023 and is converting a 145,000-cubic-meter-class LNG carrier. The work is in its final stage and is expected to be completed within the year.
However, Korean shipbuilders have not yet accumulated many orders in the FSRU conversion market. With strong order backlogs, it is difficult for them to take on conversion volumes, and they have fewer FSRU order records than overseas offshore infrastructure specialists. All FSRU conversion contracts ordered this year were won by overseas firms, according to the report.
Background
The FSRU conversion business is gaining momentum because of shorter construction timelines. According to the International Gas Union (IGU), an FSRU has a shorter construction period and a smaller initial investment burden than an onshore LNG terminal. The number of LNG-importing countries in Asia is increasing, and many do not import large volumes, so there is no need to build large-scale terminals. The IGU said that of eight new LNG importers over the next three years, six plan to introduce FSRUs, and the number of countries importing LNG via FSRU will expand to 20 by 2030.
Another factor is the growing number of aging LNG carriers nearing scrapping. LNG carriers are typically scrapped after about 35 to 40 years of operation, and ships built in the 1990s to early 2000s have about 5 to 10 years left until scrapping. Those vessels have high fuel consumption by today's standards and low energy efficiency, driving demand for FSRU conversions. An analyst said converting to an FSRU is more viable as a business than scrapping the vessel, so demand for conversions is increasing.
Impact on Shippers
The trend mainly affects the LNG and energy shipping sector and has limited direct impact on Chinese exporters shipping containerized goods to the United States. In terms of transit times, if some aging LNG carriers are diverted to conversion rather than transport, short-term LNG shipping capacity could tighten, potentially disrupting the pace of energy commodity shipments.
On costs, rising FSRU conversion demand could occupy shipyard slots, indirectly affecting construction and repair schedules for other vessel types and marginally influencing the overall capacity supply structure in the long run. Regarding customs clearance, FSRU projects do not involve China-US import and export clearance procedures, so shippers need no additional document adjustments.
Recommendations
Chinese exporters shipping containerized goods to the US are advised to continue monitoring capacity and rate changes on mainline routes and need not adjust shipping plans because of this news. Customers involved in energy or specialized cargo transport should confirm sailing schedules and space arrangements with their service providers and secure transport resources in advance.