As the Fair Trade Commission imposed a fine on French GTT, which has the proprietary technology of a’membrane’-type liquefied natural gas (LNG) cargo hold, interest is focused on whether Korean shipbuilders can end the practice they had been’bad’.
The FTC decided on the 25th that “GTT will impose a correction order and a penalty of 1,528 billion won for the act of compelling them to purchase engineering services while providing LNG cargo hold technology licenses to domestic shipbuilders that build LNG ships.” .
First sanction for’French Gapjil’
The LNG cargo hold (storage tank) technology license is a technology for transporting natural gas in a liquid state by compressing and cooling natural gas at cryogenic temperatures (-163℃). When the gaseous natural gas is liquefied, its volume is reduced to one-600th, making it convenient for storage and transportation.
The problem is that in order to store liquefied LNG in a ship, it is necessary to prevent vaporization by blocking heat transfer inside and outside the storage tank, and to prevent damage by exposure of the hull outside the tank to cryogenic temperatures. LNG ships are divided into independent support type (moss) and membrane type, where the cargo hold is separated from the hull, and Korean shipbuilders have adopted a membrane type that can load more cargo.
GTT is the overwhelming number 1 operator with 95% market share in the membrane cargo hold. Shipbuilders were dissatisfied with not only technical licenses, but also engineering services including design, various tests, and production site supervision must be purchased all at once.
An official of a domestic shipbuilder said, “Before GAZTrenspor and Teknigaz merged in 1994 and became GTT, we were able to purchase engineering services separately.” “It is reasonable to sign an engineering service contract if necessary.”
Localization is difficult right now
GTT earned a royalty of 10 billion won per LNG ship, and the word’French Gapjil’ came out among domestic shipbuilders. The FTC has imposed a fine, but the terms of the contract will not change immediately. GTT made an official position on the day of the FTC decision, insisting that “the LNG cargo hold technology license and engineering service must be integrated and provided to maintain quality.” He added, “It should be considered that Korean shipbuilders have grown together through GTT’s technology,” he said. “We plan to appeal through appropriate procedures, and the decision (imposition of a penalty) should be postponed until the final judgment of the court.”
As the LNG carrier royalty issue was regarded as a’national outflow’, the government developed’KC-1′, a domestic storage tank technology, with domestic shipbuilders and Korea Gas Corporation for 10 years from 2004. In 2018, SK Shipping took over the LNG carrier that Samsung Heavy Industries built in this way and operated it, but there was a defect such as freezing on the outer wall of the storage tank.
Although it is developing the second-generation LNG storage tank technology, the industry forecast that it will be difficult for domestic shipbuilders to introduce it right away. An official of a shipbuilding company who requested anonymity said, “LNG ships rarely require other technology that lacks’track record (operation history)’ to put in the terms of the contract to determine which technology to apply with the shipping company.” This means that shipping companies ordering ships want proven technology even if the price is high.
Expert “an opportunity to increase bargaining power”
However, experts believe that the FTC will put a brake on the GTT’s ‘gap-jil’ practices, which in the short term can be an opportunity to increase bargaining power. Jeong Seok-joo, executive director of the Korea Shipbuilding & Offshore Plant Association, predicted, “With this decision, GTT will not be able to ignore the demands of Korean shipbuilders. It will be a turning point for contracts with favorable terms by increasing negotiation power.”
As of the end of October, the world’s LNG carrier order backlog is 119. Among them, 103 ships are built by Korean shipbuilders, and there is an expectation that they will be able to preemptively preempt the negotiations with GTT after the FTC decision. In particular, it is predicted that a different phase will unfold in the negotiations for the Qatar LNG project, which is in full swing after next year.
Kim Hyun-soo, president of the Korean Society of Shipbuilding (Professor of Inha Technical College) also evaluated that “In the short term, we can acquire favorable conditions in negotiations with GTT, and in the medium to long term, we have an opportunity to focus on the development of the second-generation domestic LNG storage tank technology.” Chairman Kim said, “If the government and the industry work together to accumulate track records of ships with domestic LNG storage tank technology, GTT will lower royalties immediately.” “Why the FTC decision makes sense even if it is not a’valid hit’ right now.” Explained.
Reporter Lee Dong-hyun [email protected]