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Mon, January 25, 2021 | 22:25
Construction
Builders eye overseas LNG projects to improve profitability
Posted : 2021-01-07 09:32
Updated : 2021-01-10 19:25
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By Nam Hyun-woo

gettyimagesbank
gettyimagesbank

Domestic construction firms are eyeing overseas LNG projects as a new cash source, as part of efforts to lower their reliance on the domestic real estate market, which is under strict government regulations to control housing prices.

According to the International Contractors Association of Korea, 359 builders here won 567 contracts worth $35.1 billion in 98 countries in 2020, up 57 percent from the previous year, as oil prices recovered in the second half to trigger a series of large-scale orders from the Middle East.

The association expects the amount will be similar this year, but added that "orders from oil-producing firms may decline if talks over production cuts fail and oil prices plunge further." Since industrial facilities account for approximately 60 percent of domestic builders' overseas projects, a further oil price drop may slow down their profitability, according to the association.

Hana Financial Investment analyst Yoon Seung-hyun also noted that "global oil prices will show a growth trajectory of between $45 and $55 per barrel, but petrochemical plant orders from the Middle East are unlikely to grow significantly."

Korean builders have been striving to expand their overseas projects, as their main cash source of the domestic housing market is continue to slow down amid the government's efforts to control housing prices. As oil prices remained low in the first half of last year, however, their reliance on the domestic housing market increased to nearly a 60 percent average among the top five construction firms.

To stabilize their earning structure and expand overseas, builders began eyeing LNG projects.

Currently, a consortium of Hyundai E&C & JGC Corp. of Japan has placed bids on package 1 of Qatar Petroleum's North Field Expansion (NFE) LNG project. Another domestic builder Daewoo E&C is also planning to participate in package 1. The whole North Field Expansion project is valued at $20 billion.

In December, Daewoo E&C won a $456 million deal for the Mozambique LNG Area 1 project. The project is aimed at building two liquefaction trains that can produce 6.4 million tons of LNG in Mozambique's Afungi Industrial Complex.

gettyimagesbank
LNG plant on Nigeria's Bonny Island / Courtesy of Daewoo E&C

In May, Daewoo E&C also signed an engineering, procurement and construction contract on the LNG Train 7 project in Nigeria, which is worth 2 trillion won.

Recently, Saudi Aramco canceled the tender for the planned Jafurah gas project, in which Samsung Engineering and a number of other Korean builders had placed bids. Industry officials say, however, a number of large-scale gas projects such as the UAE's Hail & Ghasha are still in the pipeline this year, and Korean builders are striving to participate in them as contractors, thus LNG projects will likely be an important cash source for builders.



Emailnamhw@koreatimes.co.kr Article ListMore articles by this reporter









 
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