With Democrats securing victories in the U.S. midterm elections, analysts have raised concerns that the order outlook for liquefied natural gas  carriers — a key revenue source for South Korea’s shipbuilding industry — could weaken. Stricter licensing and permitting procedures for LNG export terminals in the United States could delay new projects and, in turn, vessel orders.

Kang Kyung-tae, a researcher at Korea Investment & Securities, assessed the potential impact of the U.S. midterm election results on South Korea’s shipbuilding industry in a report on Nov. 6. He identified three key factors: delays in LNG carrier orders, changes in opportunities to secure U.S. naval shipbuilding contracts, and growing demand for on-site power generation at data centers.

The biggest concern is a potential contraction in the LNG carrier order pipeline. As of the end of September, LNG projects worldwide targeting operations by 2032 represented a combined annual capacity of 478 million metric tons. U.S. projects accounted for 255 million metric tons, or 53.2% of the total. The United States represents the largest share of the LNG carrier order pipeline for South Korean shipbuilders, making vessel orders particularly sensitive to changes in project schedules there.

If greater Democratic influence leads to stricter environmental impact assessments and permitting requirements, project construction could be pushed back. In particular, delays in permitting and commercialization schedules for LNG export terminal projects along the U.S. Gulf Coast could also defer related vessel orders.

Such changes could directly weaken the sales outlook for LNG carriers scheduled for delivery from 2029 onward. Shipbuilders may face pressure to lower newbuild prices to maintain adequate order backlogs. Market concerns over potential weakness in vessel prices are also seen as a key factor behind the recent correction in South Korean shipbuilding stocks.

The impact on U.S. naval shipbuilding opportunities is expected to be broadly neutral. A Democratic victory has reduced the likelihood of legislative changes that would allow U.S. naval vessels to be built overseas. However, opportunities for South Korean shipbuilders through their investments in U.S.-based shipyards remain. Kang noted that contracts for U.S. naval vessels awarded to Korean-owned shipyards could serve as a form of compensation for investments made under MASGA, or Making American Shipbuilding Great Again. The process is already underway, as illustrated by Hanwha Philly Shipyard’s selection to build a Medium Landing Ship for the U.S. Navy and Marine Corps.

The value of South Korea’s maritime defense business could be reassessed as new contract opportunities emerge. Key developments include overseas design evaluations for next-generation frigates, additional orders for Medium Landing Ships, and the selection of a design concept for next-generation combat support ships.

Meanwhile, growing demand for on-site power generation at U.S. data centers is seen as a positive factor for South Korean shipbuilders. This is partly due to bills introduced in the U.S. Congress that seek to make large electricity consumers bear the costs of expanding the power grid.

A bill introduced in the House of Representatives in June recommended that large consumers with peak demand of at least 100 megawatts bear the full cost of grid expansion. A separate bill introduced in the Senate in September proposed lowering the threshold to 20 megawatts and making cost-sharing mandatory.

As grid connection costs rise, data center operators may find it more attractive to install their own power generation facilities rather than wait for grid connections. Kang said the incentive could grow further if operators are also required to provide financial guarantees for grid expansion costs. This could benefit companies with relevant equipment manufacturing capabilities, including HD Hyundai Heavy Industries. In particular, Kang expects orders that could help support utilization at the company’s new facilities from 2029 onward. Floating data centers powered by on-site generation were also cited as a potential new business opportunity for the shipbuilding industry.

Kang said the uncertainty surrounding the midterm elections had been resolved and that the recent share price correction had improved the sector’s valuation appeal. He maintained his Overweight rating on the shipbuilding sector and reiterated HD Hyundai Heavy Industries as his top pick.

Source:Business Korea