LNG containment systems: David battles Goliath

KC-1, the South Korea-built containment system, has some way to go to erode the vast 80 per cent market share of French company GTT. But the country’s government and shipbuilders are determined to back the new technology wherever possible, to transfer expertise and to cut costs.

Speaking to LNG World Shipping at Gastech this year, KC-1 developer KC LNG Tech was waiting to secure that all-important second order for its new membrane containment technology. Two weeks later, Korea Line confirmed that it has ordered two small-scale LNG carriers from Samsung Heavy Industries (SHI) to be fitted with the KC-1 system.

One of the 7,500m³ LNG carriers will operate as a coastal carrier, delivering LNG from Tongyeong to Jeju Island in South Korea, which needs 350,000 tonnes a year for power generation and city gas. The other looks set to become the first purpose-built LNG bunker-supply ship based in Asia, supporting the drive by Seoul, Busan and other major cities to switch service and support vessels to use cleaner-burning marine fuel wherever possible.

Korea Line will take delivery of the ships in May and December 2019.

South Korean shipyards have paid a high price to use GTT containment systems. Between them, the country’s Big Three shipyards – Hyundai Heavy Industries (HHI), Samsung Heavy Industry (SHI) and Daewoo Shipbuilding & Marine Engineering (DSME) – build 20-30 LNG carriers a year.

Together, the shipbuilders have paid GTT royalties worth some US$2 billion, says KC LNG Tech chief executive officer Chul-hee Lee. National utility Kogas – the world’s largest single-company importer of LNG – has a 32 million tonne portfolio. It, too, has thrown its weight behind KC-1.

Kogas requires 70 LNG carriers to deliver these imports. It owns 22 ships and charters the remaining 48. The company is also investing heavily midstream, and has led the drive to develop and promote KC-1 as an alternative to the membrane containment systems of market-leader GTT.

It owns 50 percent of KC LNG Tech, set up in February 2016. The remaining stake is split equally between the three shipbuilders.

KC-1 finally goes live later this year. SHI will deliver the first two ships fitted with KC-1 – two 174,000m³ LNG carriers for South Korea’s SK Shipping – in November and December.

“KC-1 is finally entering the market,” Mr Lee says. “From 2019, we hope to enter the second phase of development. We plan to expand our technology to suit floating storage and regasification units (FSRUs), floating LNG (FLNG) and other offshore vessels.

“KC-2 will weigh less than our first system and we are working on standardisation and on reducing the rate of boil-off gas.”

Take-up will depend heavily on home-grown demand, Mr Lee acknowledges. On the one hand, South Korea wants to resume nuclear power production; on the other hand, it also needs to tackle pollution, reducing dependence on coal for power generation. That is prompting South Korea to invest upstream, particularly in North America, to secure future supply.

From 2022, some of the more bullish forecasts suggest that the global LNG fleet will need to add 100 carriers to meet forecast demand. At that point, Mr Lee says, European shipowners will be in the market for new containment systems, too.

Whether that ship-demand forecast plays out remains to be seen. But in the meantime, KC LNG Tech sees opportunity in South Korea’s ageing home-grown fleet.

“Kogas will grow its LNG interests,” Mr Lee predicts. “It is considering investing in new projects in Canada – and that could support new orders for LNG carriers. Seventeen of the 22 wholly owned  Kogas carriers are older, steam turbine ships that are not efficient. They are also small vessels and the trend has been towards larger tonnage.

Industry sources predict a new round of ship orders from Kogas, as it phases out its 17 vessels powered by steam turbines that are smaller than 135,000m³. These could well be redeployed as floating storage units, of course, rather than scrapped altogether. Kogas will also need to ensure that its charter fleet complies with the new IGC Code and that these ships’ containment systems are liquid and gas-tight.

Ships that fail to comply will need to be replaced. South Korea-booked replacement tonnage is well-placed to choose the home-grown containment system, Mr Lee concludes.