Page 4 - EurOil Week 03 2022

EurOil COMMENTARY EurOil

Brussels 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

EUROPE THE European Commission announced this result in the combined company having a market
week that it was vetoing the proposed merger share of at least 60% in an already concentrated
WHAT: between two South Korean shipbuilders, Hyun- market. This was cited as one of the main con-
The European dai Heavy Industries Holdings (HHI) and siderations behind the Commission’s decision,
Commission has blocked Daewoo Shipbuilding & Marine Engineering along with the fact that “very few” alternatives
the proposed acquisition (DSME). were identified for customers, the market was
of DSME by HHI. In its January 13 decision, the Commission found to have “limited capacity”, “very high”
said it was blocking the acquisition of DSME by barriers to entry and “no buyer power”. A fur-
WHY: HHI on concerns that a merger would create a ther consideration was the fact that demand for
The commission cited dominant position in the LNG carrier (LNGC) large LNGCs was not affected by the coronavirus
concerns about reduced construction market, resulting in reduced com- (COVID-19) pandemic.
competition in the LNG petition. This is the first time the European Indeed, the Commission said the future
carrier construction Commission has vetoed a merger since 2019. demand outlook was “very positive” but given
market. The move had been expected. Indeed, media that it did not find any competitor to have the
reported in December that the Commission was capacity to cover projected market demand,
WHAT NEXT: preparing to block the proposed $2bn merger this would be expected to further reduce com-
South Korea hopes the after the companies had declined to offer rem- petition. No competitors had contracted a large
recovery in global ship edies to allay concerns over competition. The LNGC in recent years, the Commission noted,
orders will help offset the Commission confirmed this week that no rem- saying this meant they would not be able to con-
impact of the decision. edies to meet its concerns had been formally strain price increases.
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,
according to Clarksons Research.
Competition concerns
The decision comes after an investigation of Price concerns
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
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
tankers, liquefied petroleum gas (LPG) carriers, of the world are struggling with rising energy
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
market for large LNGCs, it added. resistant to any developments that could exacer-
The Commission noted that both HHI and bate the situation.
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
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

P4 www. NEWSBASE .com Week 03 20•January•2022