By Adekunle Segun
Adekunle Segun, ISPS, DPA, MLC, is a maritime industry professional based in Lagos, Nigeria. He can be reached on +2348163769265 (SMS only) or adekunleolusegun450@gmail.com
As Nigeria in particular, and the world in general, struggles to stay afloat in a fiercely competitive liquefied natural gas (LNG) market, the European Union (EU) is taking stiff diplomatic measures to protect its citizens, and by extension, its customers, from some scratching trade measures by two LNG shipbuilding gladiators.
Daewoo and Hyundai, two major LNG carrier manufacturers, had earlier planned a union, but the EU, in its own diplomatic wisdom, has decided to reject this merger. According to the EU competition commissioner, Margrethe Vestager, the merger would have led to “fewer suppliers and higher prices for large LNG carrier vessels transporting LNG.”
The marine LNG market is currently valued at $45 billion and the EU customers, buyers and merchandise, account for nearly half of this market. It should be noted that a union of these two ship building giants would be quite good as this will lead to more quality vessels being built and more financing available for the market. However, the problems with this merger lies in the other end of the consumers as concentration of 60 percent of the LNG building market in the hands of one organisation may not augur well for trade blocs like the EU, amongst other custom consumers.
The ship building hemisphere of the energy supply chain is very critical in getting this highly valued commodity to the consumers and the EU seems to have made a timely move to protect her consumers. Margrethe Vestager also said that, “we prohibited the merger”, putting a strong case that the new limited company would have eliminated a major player and taken hold of a large chunk of the LNG vessel manufacturing business.
In reaction to the EU’s position, Hyundai Heavy Industries Co. said the rejection was highly unreasonable and disappointing. Hyundai is maintaining a stance that the EU position in using market share as an evaluation criteria has no probative value as the market share may not be a reliable indicator in the shipbuilding industry. Though a similar case was experienced in Singapore, China and Kazakhstan. Hyundai had also expected unconditional European clearance but the EU seems to be taking an entirely different course in the whole deal. Hyundai seems to be putting forth all the responses as Daewoo is yet to come up with any official statement on the EU position.
Hyundai also said that the existence of at least a credible alternative to the merger means there are options available to the EU. Other competitors like Samsung Heavy Industries, Hudong Zhonghua Shipbuilding Co, and Mitsubishi Heavy Industries, are credible options to this merger and as such the market is still very much wide open to various customers.
The LNG ship building market is a very complex one, hence the reason for few ship building companies controlling a major size of the lucrative business. The process of transporting gas cargoes at Sub-Zero temperatures or -162 degrees Celsius across the globe is not an easy game at all. Only a handful of shipbuilders around the world are able to come up with the complex solution of building these vessels and for two major players to strike a major deal means more part of the business will be concentrated in a particular entity.
Under EU rules, the bloc can reject mergers beyond its borders if such deals can have adverse effects on its market, especially if EU companies do business in such a place. However, to move forward, the two companies should be better prepared to shed the EU side of their market and this may be a very bitter pill to swallow. The EU’s 27 nation bloc is currently struggling with natural gas shortage and this has led to surging prices and equally put a lot of families on the edge in the height of winter.
EU is also importing more liquid bulk gases to fill the gap and shortfall in local production. This is one of the major reasons it is more keen on competitive pricing in the LNG ships arm of the business.
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