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South Korean Samsung Heavy Industries to build world's first very large ethane carriers for Reliance

Highlights

South Korea's Samsung Heavy Industries is blazing the trail in shipbuilding having won a $723 million contract in July to build six very large ethane carriers for India's Reliance Industries Ltd., several industry sources said Friday, August 15.

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The vessels of 87,000 cubic meters each, will be the world's first very large carriers of ethane. RIL was targeting the long-haul US-produced ethane to feed its cracker at the Jamnagar refining and petrochemical complex in Gujarat on the west coast of India, sources said.

The cracker will be commissioned in the second half of fiscal 2016-2017, running from April to March, the company had said. It will nearly double RIL's ethylene production capacity to 3.3 million mt/year.

A Samsung Heavy Industries spokeswoman said it had won a contract to build gas tankers, but declined to confirm the vessel type, or the company that placed the order.

The RIL spokesman did not respond to queries.


In its July 17 filing to the Korean Stock Exchange, Samsung Heavy said it had signed a contract on July 16 to build six gas carriers worth a total of Won 740.7 billion ($723.55 million) working out to $120.6 million per vessel. The orders account for 5% of Samsung Heavy Industries' overall recent sales of $14.49 billion, it added.

The order was placed by an Asian ship operator, Samsung said in its filing, without revealing the name. Vessel construction will start in October 2015 and deliveries will be made by January 31, 2017, it added.

Shipbrokers said the deciding factor in Samsung's favor was the ample slot availability to deliver four vessels by end-2016.

The orders come as US NGL exporter Enterprise Products Partners recently said it was building a 240,000-b/d ethane export terminal at Morgan's Point on the Houston Ship Channel, targeting the third quarter of 2016 for startup. But Enterprise had also said that 85% of the terminal was subscribed with exports estimated at 200,000 b/d.

The ethane export facility, touted as the world's biggest, will gain from operational proximity to the Mont Belvieu natural gas liquid processing hub and can handle vessels with 45 feet (14 meters) draft, overall ship length of 900 feet (274 meters) and does not have any air draft limitation, the distance from the water surface to a ship's highest point, Enterprise said.

It was not immediately known if RIL is working on a purchase contract with Enterprise. Bentek, a unit of Platts, has suggested some ethane exports may head to India.

WAVE OF NEW ETHANE CARRIERS EXPECTED

Traders and analysts have said that transporting ethane to Asia would require huge investments in infrastructure, as there are hardly any large carriers available to move cargoes to Asia.

The market in Asia for ethane is virtually non-existent at the moment as the bulk of crackers had been designed to crack naphtha, though analysts said there are crackers that can use LPG as feedstock.

Asian petrochemical makers are concerned about their ability to recoup their investment costs on ethane crackers, analysts said, though the wave of larger ethane carriers might encourage them to consider a switch.

The challenges in building and designing ethane carriers, according to the Lloyds Register of Ships, is the vessel's cargo containment system and use of ethane as fuel to fire the engines for propulsion of ships, which have a capacity of between 84,000 cu m and 90,000 cu m. A ship-designing expert said that the choice of the type of tanks needed to be carefully evaluated since ethane is a heavier liquefied gas whose specific gravity is higher than that of LNG.

Analysts have said 25 large ethane vessels would be needed to service the Enterprise project, and that the current fleet, or on order, was not enough.

Enterprise's ethane terminal shows that US producers are seeking export outlets as selling at prevailing prices in the domestic market was not attractive, Kumar Shantanu Bhushan, Drewry's lead research analyst, said.

"Seaborne trade in ethane is still marginal, or non-existent," he added.

The industry may combine three approaches: building ethane export terminals and then selling volumes later; consumers showing positive intent to buy ethane from the US leading to project-bound new orders; or build specialized ethane carriers first and then shipowners could seek charterers, or think of operating it in the spot market, he said.

Ineos and RIL may be going for project-bound orders, while Navigator Holdings is opting for speculative orders, he added.

In Europe, two firms have contracted to buy US shale gas for cracking to boost flagging petrochemical margins: Austria's Borealis has a 10-year deal with Antero Resources and Switzerland-based Ineos has a contract to buy ethane to crack at its Rafnes and Grangemouth petrochemical plants.

Borealis has signed a shipping agreement with Navigator to move ethane from Marcus Hook in the US to Sweden. To fulfill the deal, Navigator is building an ethane vessel.

Altogether, Navigator is building four 35,000 cu m ethylene/ethane capable gas carriers at Jiangnan Shipyard in China for $78.4 million each.

Ineos has expanded to six vessels the fleet it is contracting from Danish shipping firm Evergas for transporting US ethane to its European crackers. The vessels of 27,500 cu m each are also being built in China.

Petrochemical firms have announced more than 30 projects to expand, debottleneck and build greenfield crackers in the US. As a result, Bentek estimates domestic ethane demand will rise by 655,000 b/d in the next five years to 1.615 million b/d in 2019 from 960,000 b/d in 2013.

Although the projects are significant, they are not enough to keep pace with the supply growth, which Bentek expects to increase to 2.017 million b/d in 2019 from 1.155 million b/d in 2013.

"US ethane prices have traded at a discount to natural gas on an MMbtu-equivalent basis since mid-2012, and they will continue to do so as long as production continues to outpace demand," it said, adding that US producers have an incentive to export ethane. Canada became the first country to take US ethane last December.

US primary feedstock ethane is trading around 22.5 cents/gal ($166/mt) Mont Belvieu, according to Platts data. Europe's main feedstock naphtha, CIF NWE basis and CFR Japan naphtha cargo swaps, are more than five times that value.

--Ramthan Hussain, ramthan.hussain@platts.com
--Pradeep Rajan, pradeep.rajan@platts.com
--Philip Vahn, philip.vahn@platts.com
--Edited by E Shailaja Nair, shailaja.nair@platts.com