Amid the declaration of ‘force majeure’ by Qatar’s state-owned energy company, QatarEnergy (QE), on long-term supply contracts to major countries following an attack on its key liquefied natural gas (LNG) facilities, the outlook suggests that the actual business impact on domestic shipping companies with long-term charter contracts with QE will be minimal. However, it is pointed out that continuous monitoring is necessary for the risk of contract termination for some vessels isolated in the Strait of Hormuz and the financial burden from using alternative routes.
According to the ‘Industry Impact Assessment Following the US-Iran War’ report by Korea Ratings on March 25, domestic shipping companies Pan Ocean, H-Line Shipping, and SK Shipping are each leasing five LNG carriers to QE, for a total of 15 vessels, on long-term charters. The report assessed that the impact on these shipping companies would be limited despite the force majeure declaration. This is because under a long-term time charter contract, the shipping company can receive the fixed charter fee regardless of whether cargo is loaded, as long as there is no fault on the part of the shipping company or defects in the vessel.
In fact, it has been confirmed that QE is rapidly redeploying the chartered vessels, originally used for transporting Qatari LNG, to handle transport contracts for other clients in regions like the United States and Europe. With current short-term LNG carrier rates soaring to around $140,000 per day, while the charter rates with Korean companies are only at the $50,000 to $70,000 per day level, QE has a strong incentive to redeploy the chartered vessels.
However, SK Shipping’s vessel, the ‘Lebrethah’, is currently located inside the Strait of Hormuz, which is considered a major variable. Korea Ratings pointed out that if the war becomes prolonged and the ship cannot exit the strait, making alternative deployment by (QE) impossible, “the possibility of contract termination cannot be ruled out.”
The scale of direct physical damage to shipping companies from the strait blockade appears limited so far. A review by Korea Ratings of 453 vessels owned by six major domestic shipping companies—Pan Ocean, H-Line Shipping, SK Shipping, Korea Line Corporation, Polaris Shipping, and HMM—found that as of March 19, a total of 8 vessels were located inside the Strait of Hormuz. By company, Pan Ocean had 2 vessels, SK Shipping had 1, and HMM had 5, accounting for 1.7%, 1.8%, and 4.1% of their respective total fleets.
The report emphasized that it is more important to look at the contract structure than simply the number of ships trapped in the strait. This is because, unlike long-term time charters, in the case of long-term transport contracts where freight is paid after loading and delivering cargo to its destination, no freight revenue is generated at all if cargo loading in the Middle East is blocked. In particular, the impact could be greater for companies where vessels handling Middle Eastern cargo, such as crude oil and LNG, under long-term transport contracts make up a high proportion of their total fleet. This proportion is highest for SK Shipping at 50%, followed by Korea Line Corporation at 19%, H-Line Shipping at 4%, and Pan Ocean at 3%.
Meanwhile, following the blockade of the Strait of Hormuz, major vessels are continuing their operations as clients designate alternative ports. A Korea Ratings check on the location of 51 relevant vessels from five shipping companies (excluding HMM) confirmed that 45 are en route to destinations such as the United States and Australia. The remaining 6 are anchored in the vicinity of the Indian Ocean, negotiating the designation of alternative ports.
However, the increased voyage distance due to the use of alternative routes was identified as a potential financial risk. A route from the Middle East to Korea that used to take about 25 days now takes 35 to 60 days if rerouted via West Africa or the United States. As voyages lengthen, the timing of payment collection is also delayed, which can increase the working capital burden. The report stated that for shipping companies servicing their ship financing principal and interest based on high financial leverage, the impact on cash flow could be significant, making financial flexibility a crucial variable if the situation becomes prolonged.
Meanwhile, regarding Qatar’s declaration of force majeure on liquefied natural gas (LNG) supply contracts with countries including Korea due to the Middle East situation, the government explained, “We have a scenario where Qatari LNG does not enter the country at all, but for the next 3 to 5 years, there will be no major problems with supply and demand by securing trader volumes or alternative supplies.”
Yang Ki-wook, Deputy Minister for Energy Policy at the Ministry of Trade, Industry and Energy, stated at a daily briefing of the Middle East Situation Response Headquarters on the 25th, “The (Qatari force majeure declaration) was within the range of what we had anticipated, and since they had already declared force majeure until April in early March, we saw that it could be extended.”
Previously, on March 24 (local time), the state-owned QatarEnergy announced it was declaring force majeure on some long-term LNG supply contracts signed with customers in Korea, China, Italy, and Belgium. This allows QatarEnergy to temporarily suspend its LNG delivery obligations to these countries. On March 18 and 19, QatarEnergy suffered direct damage to two of its LNG production facilities and one gas-to-liquids (GTL) plant from an Iranian attack.
Deputy Minister Yang further explained, “Two of Qatar’s 14 LNG liquefaction facilities were destroyed, resulting in a 20% damage, and whether this will lead to a complete suspension of deliveries to Korea requires further discussion.” He added, “As there are many contractors, discussions are needed on how to handle the contract terms going forward.”
He then drew a line under the crisis speculation, stating, “We had already excluded Qatari import volumes from this year’s (Korean usage) volume calculations. Therefore, we do not judge the force majeure declaration itself as a factor that will further affect our supply and demand situation. Even excluding the Qatari volume, we have secured enough supply to last until the end of this year, and we are in the process of securing more.”
