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SembMarine's pursuit of green projects faces hurdle

The Business Times by TAN HWEE HWEE

Singapore

AS the world transitions to a lower carbon future, so must the industries powering the economy.

For years now, offshore and marine (O&M) group Sembcorp Marine has been pursuing liquefied natural gas (LNG) projects for a very good reason.

LNG, with its cleaner burning attributes, is considered the fossil fuel that can replace crude oil. But SembMarine's efforts on this front may have hit at least one roadblock - project financing.

President and CEO Wong Weng Sun said that the group has sought to overcome this hurdle by offering solutions that can help its clients raise financing. But he qualified that it hasn't been in the group's core business to own equity in such projects.

He has also called on the government of Singapore to look into possible ways to back projects seeking financing. This call would have taken into account co-financing such projects either through equity or debt, which can be too hefty a burden to carry on the balance sheets of SembMarine as well as its Singapore-based rival, Keppel O&M.

Take the billion-dollar floating liquefied natural gas project in Djibouti on offer from China-based Poly GCL - it has been almost three years since the project owner first disclosed talks with SembMarine for a potential contract.

Yet, just months ago, trade media reports had noted that Poly GCL had opened up a tender and invited SembMarine and yards in China to bid for the contract. This situation is not unique to SembMarine. Golar LNG, the client behind two FLNG projects that were meant to be built by Keppel O&M, had also indicated it would explore options with Chinese yards with the clout to source for debt funding.

The involvement of Chinese yards would not be a positive development for their rivals here though this is hardly unexpected.

Ang Dingli, IHS Markit's APAC research head for yards and fabrication, noted that with the high capex involved, project owners would want to cap their exposure by controlling costs; this inevitably opens up a window for top-tier Chinese yards to potentially enter the FLNG space.

Concurring with Mr Wong's observation, Mr Ang remarked: "Financing support will certainly boost local yards' ability to win more and bigger projects, given that their rivals in South Korea and China are directly or indirectly receiving government support."

But he also qualified that such support should go to "credible projects", not "money-losers from day one". The harsh reality, however, is if yards fail to break into the LNG space, they may lose out in the rat race for the bulk of high capex projects being dished out in the upstream oil and gas industry.

Despite these challenges, Mr Wong remained, at the time of the BT interview, cautiously optimistic on the prospect of SembMarine landing its first Gravifloat-based LNG project next year.

He did not elaborate further on the other projects on the table though his optimism is likely built on the fact that FLNG is just one potential application for SembMarine's proprietary Gravifloat technology.

The value proposition of the LNG-focused Gravifloat technology builds on the promise it holds in overcoming among others, logistical constraints setting back execution of projects sited in remote areas.

LNG is just one among several possibly greener alternatives in the lower carbon future. SembMarine is fully aware of what opportunities the growth in renewables sub-sector may hold. The group has already unveiled in October two contracts valued over S$200 million that would mark its first breakthroughs with the offshore wind and battery-operated shipbuilding segments.

Mr Wong also flagged two initiatives aligning SembMarine's operations with the global green movement. The yard group is investing in up to a dozen LNG-battery hybrid tugs and installing solar panels at its Tuas Boulevard Yard.

Large corporates are prioritising sustainability of late, so beyond improving SembMarine's green credentials, these initiatives may well lift its standing when tendering projects with its clients.