According to Hanwha Ocean’s quarterly report on May 15, the company established Hanwha Ocean Offshore Holdings Pte. Ltd. and Hanwha Ocean Global Project Execution Center Pte. Ltd. (GPEC) in Singapore during the first quarter of this year.

Hanwha Ocean Offshore Holdings will serve as a local holding company, while GPEC is expected to function as a global project execution base under the Energy Plant Unit (EPU). At the end of last year, Hanwha Ocean reorganized its existing Offshore Business Unit (OBU) by integrating the Energy & Infrastructure (E&I) business division into the EPU in order to strengthen its competitiveness in global offshore wind and onshore and offshore plant Engineering, Procurement and Construction (EPC). Although GPEC was originally established to strengthen offshore business capabilities, following the organizational integration it has evolved into an execution organization covering not only offshore business but also onshore plant business under the EPU framework.

A Hanwha Ocean official explained, “The two subsidiaries were established to carry out the execution required for project performance in preparation for the expansion of the global offshore business market.”

Singapore, where the new subsidiaries are located, is geographically positioned at the center of the Asia-Pacific region and serves as a supply chain hub for the energy market. It functions as an Asian logistics hub and a base for global oil trading, with LNG trade volumes also on an expanding trend.

Marine plant operations are capital-intensive, requiring enormous upfront facility investment that makes market entry and exit difficult. The industry also carries characteristics of a labor-intensive sector, as meticulous work is required across all processes, from design and construction technology and R&D on new hull forms and next-generation marine transportation vehicles, to sales and after-sales service.

Due to these characteristics, the marine plant industry was in the past regarded as a symbol of the long-term downturn in the shipbuilding industry. With unit prices per vessel reaching hundreds of millions to billions of dollars, problematic inventory can arise depending on market conditions. Daewoo Shipbuilding & Marine Engineering, the predecessor of Hanwha Ocean, also had past experience struggling with drillship inventory clearance.

Recently, as a prolonged high oil price environment driven by factors such as the US-Iran conflict has continued, offshore wind and marine plant businesses are emerging as new revenue sources. Demand for Floating Production Storage and Offloading (FPSO) units is expected to center on Brazil and West Africa amid the high oil price environment. For Floating LNG (FLNG), export infrastructure is expanding in North America in line with growing LNG demand, and large-scale gas field development is being pursued in areas such as Mozambique in Africa.

Jo Yong-seok, Executive Director of Offshore Sales at Hanwha Ocean, stated during the first-quarter earnings conference call, “Volatility in the global crude oil market is increasing due to growing maritime logistics disruptions caused by tensions in the Middle East region, and geopolitical risks appear likely to compel consideration of diversifying crude oil import sources from an energy security standpoint,” adding that “Hanwha Ocean plans to selectively participate in bids, taking into account the scale of projects and the company’s workload and competitive situation at the time of bidding.”

However, Hanwha Ocean’s EPU division posted sluggish results in the first quarter, recording revenue of 178.9 billion won (approximately $120.06 million) and an operating loss of 73.9 billion won. The scale of losses expanded due to the burden of fixed costs stemming from delays in new project licensing schedules and a decrease in volume as major production facility construction entered its final stage.

Hanwha Ocean appears likely to secure stable and profitable work rather than pursue immediate revenue expansion, thereby driving cost improvements. The company plans to actively secure order opportunities based on its FPSO, FLNG, Wind Turbine Installation Vessel (WTIV), and power generation facility businesses, in which it has built up competitiveness over time, while enhancing cost competitiveness and strengthening credibility in project execution. The company also stated its intention to respond flexibly to changes in both conventional energy and renewable energy markets in order to achieve sustainable growth and secure a stable revenue base.

Lee Han-gyeol, an analyst at Kiwoom Securities, noted that “the current phase represents a period of increasing fixed cost burden relative to revenue scale, and cost pressure is expected to ease as capacity utilization improves through appropriate order acquisition going forward,” adding that “this year, the offshore division plans to participate in up to three FPSO projects in Africa and Latin America.”

Source: BusinessKorea