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Annual Offshore Oil & Gas Market Report 2019-2022

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Annual Offshore Oil & Gas Market Report 2019-2022 Norwegian Energy Partners Annual Offshore Oil & Gas Market Report 2019-2022 Report prepared by Rystad Energy August 2018 NORWEP Annual Offshore Oil & Gas Market Report 2018 7. Shipyards in Asia 7.3.1 Shipyards in the Republic of Korea – Market Introduction The South Korean government has been heavily involved in maintaining the South Korea has only two producing fields, Donghae and Gwangyang, operated by competitiveness of the yards through financial support and a state-backed ship Korea National Oil Corporation (KNOC) and POSCO Energy, respectively. Together financing company that was established to improve the yards’ financial health. In May the two fields produced approx. 6.6 kboepd in 2017. As one of the top ten energy 2017, South Korea elected a new president, Moon Jae-In. The new administration is consumers in the world, South Korea is thus also one of the most important energy expected to follow up these initiatives to help shipbuilders overcome the crisis. Among importers globally. Due to South Korea’s dependency on imported oil and gas, the the country’s three largest yards, DSME has reportedly been in the most challenging country has, to some extent, benefited from the low oil price the previous years. South situation. The CEO of DSME reported in June 2018, through a press briefing, that the Korea is one of the largest shipbuilding nations in the world, with a market share of company’s goal was to make DSME attractive again so other companies would be almost 30%. The industry has suffered from the oil price drop and the following interested in potentially acquiring the yard. It has been rumored that Samsung could reduced activity in the offshore and marine sector. In 2017, the country was ranked as be a potential buyer of DSME, but nothing has been publicly communicated. number 51 on Transparency International’s Corruption Perceptions Index, down from 50 in 2016. In 2015, the country ranked as number 37. From January to June 2018, the South Korean yards experienced a 23% increase in new orders compared to the same period in 2017. The three yards have received Shipbuilding is one of the most valuable export industries in South Korea and orders worth USD 10.1 billion, compared to USD 8.2 billion in 2017. SHI, HHI and contributed with almost 8% of the country’s total exports in 2016. This mainly comes DSME have received orders of USD 2.9, 4.1 and 3.14 billion, respectively. from three big yards, often referred to as “the big three”: Hyundai Heavy Industries (HHI), Samsung Heavy Industries (SHI) and Daewoo Shipbuilding & Marine 7.3.2 Major Shipyards in the Republic of Korea Engineering (DSME). Their toughest competitors are the Singaporean and Chinese In addition to the three largest yards, Hyundai Heavy Industries (HHI), Samsung yards, both in the vessel, rig and offshore segments. The South Korean yards have Heavy Industries (SHI) and Daewoo Shipbuilding & Marine Engineering (DSME), traditionally relied on more advanced technology than their competitors to gain there are also smaller yards in the country, such as STX Offshore & Shipbuilding, advantage due to the country’s higher labor cost. South Korea has been considered Hyundai Mipo Dockyard, Hyundai Samho Heavy Industries, Hanjin Heavy Industries & the number one in Asia when it comes to the construction of drillships and advanced Construction (HHIC) and Sungdong Shipbuilding & Marine Engineering. Hyundai Mipo offshore production facilities such as FPSOs and FLNGs. During the last years, Dockyard, Hyundai Samho Heavy Industries and Hyundai Heavy Industries are all however, yards in South Korea have lost market share in the offshore segment to three part of the HHI Group. their competitors in China and Singapore, which have proven capable of delivering more high-end products than earlier. Hyundai Heavy Industries (HHI) Hyundai Heavy Industries (HHI) was established in 1973 and is located in Ulsan in The past few years have been challenging in both the offshore and marine segments, South Korea. As a consequence of the decrease in the shipbuilding and offshore and the South Korean yards have also struggled. Yards have been under financial market, HHI announced a restructuring plan in 2016 with the aim to improve strain, but are seeing some recovery in terms of new orders as a result of increase in management efficiency and competitiveness. During 2017, HHI reduced its workforce oil price and market activity. On the other hand, steel prices have also increased and and spun off its non-shipbuilding and non-offshore businesses. The remaining main sales prices are low in all segments. The three yards have since 2015 announced segments are now Shipbuilding, Offshore & Engineering, Engine & Machinery, and restructuring plans which have led to a massive reduction in the workforce. According Green Energy. Electric & Electronic Systems and Construction Equipment were to the Korea Offshore and Shipbuilding Association, the workforce will be halved at business units under HHI before the restructuring. Hyundai Samho Heavy Industries the end of 2018 compared to 2015, from over 200,000 to about 100,000 employees. (HSHI) and Hyundai Mipo Dockyard (HMD), two other shipbuilding companies, are also part of the HHI group. Source: Rystad Energy research and analysis 220 NORWEP Annual Offshore Oil & Gas Market Report 2018 7. Shipyards in Asia In 2017, HHI ranked as the world’s largest shipbuilding company in terms of number Samsung Heavy Industries (SHI) of vessels delivered (market share of 8%). When including HSHI and HMD, the HHI Samsung Heavy Industries (SHI) is one of the largest shipbuilding yards in the world Group achieved a combined market share of 15% in terms of number of vessels in terms of revenue. It was founded in 1974 and is a subsidiary of South Korea’s delivered. largest conglomerate, Samsung Group. The company’s main shipyard is located at Geoje Island outside of Busan. SHI divides its operations into three main divisions: In June 2018, it was announced that the offshore yard would temporarily shut down in Shipbuilding & Offshore, Machinery & Electric System and Technology Development. August 2018 due to lack of work, for the first time since the division began operations The original focus of the Shipbuilding and Offshore division was construction of in 1983. HHI ran out of offshore work when it completed its last order, acquired in tankers, container ships, LNG carriers, bulk carriers and passenger ships. Gradually, November 2014, an oil and gas platform for the Nasr oilfield in UAE. The platform the focus shifted towards offshore structures and facilities and the yard has for several sailed out from the yard in August 2018. HHI reports that it will be difficult to win new years taken on more offshore related projects such as drilling rigs, FLNGs, FPSOs, offshore orders at the current operating cost and that it is vital for the company to cut floating offshore structures, fixed platforms, offshore construction vessels and wind costs. According to the company, 5,600 offshore workforce and 3,000 supplier turbine installation vessels. Before the downturn, SHI captured a significant market workforce will become redundant. The company has not reported an exact duration of share in several segments, especially within drillships and FLNGs. the shutdown, but said that it will not re-open the yard until new offshore orders are secured. SHI has been through downsizing and restructuring during the last years due to the challenging market situation in both the offshore and marine sectors. In a restructuring The annual revenue from shipbuilding has declined since 2013, following the plan from 2016, the yard reported it would cut its workforce with 30-40% by the end of stagnation in the industry. In 2017, the company’s revenue from the shipbuilding 2018. By the first quarter of 2018, the yard had reduced its workforce by 26% (from segment reached KRW 4,800 billion, compared to KRW 7,500 billion in 2016. In Q4 14,000 to 10,300). 2017, shipbuilding contributed 59% of the company’s total revenue. HHI has earlier communicated that it expects a further decline in 2018. New orders increased from SHI has experienced an overall decline of almost 50% in total revenues from 2013 to USD 3.9 billion in 2016 to USD 4.7 billion in 2017, i.e. a growth of 20%. Before the 2017, with the total revenues in 2017 ending at KRW 7,900 billion. For 2018, the shut-down plans were announced, the target for 2018 was communicated to USD 6.8 company targets revenue of KRW 5,100 billion, down 35% compared to 2017. During billion, and as of June 2018, 30% of this had been secured. The main contributor to 2017, the company has decreased its debt-to-equity ratio from 170% to 140%, which new orders during 2018 (up to June) have been gas carriers and tankers (8 of each). is a continued trend from 2015. During 2017, the yard delivered 54 vessels and expects to deliver 46 in 2018. New orders increased from a low of USD 0.5 billion in 2016 to USD 6.9 billion in 2017, The offshore industry and engineering business of HHI is located in a separate yard primarily driven by the offshore sector. The most important high-impact deal was the (the one that will shut down in August 2018) 5 km away from the main shipyard for USD 2.5 billion contract for the Eni-operated Coral FLNG. During H1 2018, new commercial vessels. The main products in the business are floating units, fixed orders were approx. USD 2.9 billion, while the reported 2018 target has been platforms, pipelines & subsea facilities as well as onshore modules. In Q4 2017, the communicated to USD 8.2 billion.
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