Page 6 - GLNG Week 02 2022

GLNG COMMENTARY GLNG

European Commission rules

against merger between South

Korean shipbuilders

The European Commission has blocked the proposed merger between South

Korean shipbuilders HHI and DSME on competition concerns relating to the
LNG carrier market

PROJECTS & THE European Commission (EC) announced result in the combined company having a mar-
COMPANIES this week that it was vetoing the proposed ket share of at least 60% in an already concen-
merger between two South Korean shipbuilders, trated market. This was cited as one of the main
WHAT: Hyundai Heavy Industries Holdings (HHI) and considerations behind the commission’s deci-
The European Daewoo Shipbuilding & Marine Engineering sion, along with the fact that “very few” alterna-
Commission has blocked (DSME). tives were identified for customers, the market
the proposed acquisition In its January 13 decision, the commission was found to have “limited capacity”, “very high”
of DSME by HHI. said it was blocking the acquisition of DSME by barriers to entry and “no buyer power”. A fur-
HHI on concerns that a merger would create a ther consideration was the fact that demand for
WHY: dominant position in the LNG carrier (LNGC) large LNGCs was not affected by the coronavi-
The commission cited construction market, resulting in reduced com- rus (COVID-19) pandemic.
concerns about reduced petition. This is the first time the European Indeed, the commission said the future
competition in the LNG Commission has vetoed a merger since 2019. demand outlook was “very positive” but given
carrier construction The move had been expected. Indeed, media that it did not find any competitor to have the
market. reported in December that the Commission was capacity to cover projected market demand,
preparing to block the proposed $2bn merger this would be expected to further reduce com-
WHAT NEXT: after the companies had declined to offer rem- petition. No competitors had contracted a large
South Korea hopes the edies to allay concerns over competition. The LNGC in recent years, the commission noted,
recovery in global ship commission confirmed this week that no rem- saying this meant they would not be able to con-
orders will help offset the edies to meet its concerns had been formally strain price increases. The global
impact of the decision. offered, and that therefore it was vetoing the HHI and DSME won new orders for 45
transaction. large LNG vessels out of the total of 75 in 2021, market for LNGC
according to Clarksons Research. construction
Competition concerns
The decision comes after an investigation of Price concerns represented up to
the proposed merger spanning two years. The A central concern for the EC is that this would
EC said that when opening the investigation in result in higher prices for EU customers and €40bn ($46bn),
December 2019, it had raised preliminary con- ultimately for energy consumers. This finding
cerns over markets for the construction of oil comes at a time when both the EU and the rest with European
tankers, liquefied petroleum gas (LPG) carriers, of the world are struggling with rising energy customers
containerships and both large and small LNGCs. prices and constraints on energy supplies, and
However, this week’s decision only related to the it is unsurprising that the Commission would be accounting for
market for large LNGCs, it added. resistant to any developments that could exacer-
The Commission noted that both HHI and bate the situation. almost 50% of
DSME are global leaders in LNGC construction, Indeed, LNG imports look increasingly
and “two of the three largest players in this very important for Europe in the face of reduced all orders.
concentrated market”. It added that the global pipeline gas flows to the EU from Russia. As of
market for LNGC construction represented up January 14, the Yamal-Europe pipeline, which
to €40bn ($46bn), with European customers normally transports gas from Russia to Ger-
accounting for almost 50% of all orders. many, was flowing in reverse for a 25th day,
The investigation found that a merger would while the start-up of the Nord Stream 2 pipeline

P6 www. NEWSBASE .com Week 02 14•January•2022