South Korean shipbuilders have failed to clinch new orders for offshore facilities in the first half of the year as demand dried up amid weak oil prices, the companies’ data showed.
In addition, Hyundai Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co. have order backlogs of just one offshore facility each as of June, with Samsung Heavy Industries Co. now working on three offshore facilities.
Local shipbuilders enjoyed the heyday of the lucrative offshore facility business on the back of rising oil prices in the late 2000s, but demand for such facilities has been in the doldrums since 2014 due to lower oil prices.
Offshore facilities refer to large-scale floating facilities to explore, drill, extract, store and process crude and natural gas that lies deep under the seabed.
“Despite lower oil prices and COVID-19, shipbuilders have won new orders for liquefied natural gas (LNG) carriers, but there have been nearly zero orders for commercial vessels and offshore facilities due to record low oil prices,” Choe Kwang-sik, an analyst at HI Investment Securities Co., said in his recent report.
The new coronavirus pandemic caused a sharp drop in global oil prices as well as demand for oil, further hitting the global oil market already plagued by oversupply from late 2019.
Hyundai Heavy Industries has received no orders for offshore facilities since October 2018 when it signed a $450 million deal with a U.S. oil developer LLOG Exploration to build a floating production system (FPS). It has been working on just the FPS.
Reflecting this situation, Hyundai Heavy plans to combine the shipbuilding division and offshore plant division starting July 1 as part of its efforts to reduce costs.
Things are not much different for Daewoo Shipbuilding & Marine Engineering Co.
The shipbuilder has bagged no new orders for offshore facilities since December last year, when it clinched a $200 million deal with major U.S. oil producer Chevron Corp. to build the hull of a semi-submersible floating production unit for the first time since 2014.
In an effort to ease the sluggish business conditions, Daewoo Shipbuilding has been redeploying its workers from the offshore facility business division to the shipbuilding division since last year.
Samsung Heavy also has failed to clinch any new orders since April 2019, when it signed a $963 million deal with an Asian firm to build a floating production and storage offloading (FPSO) unit designed to process and store oil or natural gas.
The shipbuilder has an order backlog of three offshore plants — one FPSO, one floating production unit (FPU) and one floating LNG system.
“We have no plan to downsize the offshore facility business division yet,” a company official said, requesting anonymity.