State of play – South Korea

Mark Williams focuses on South Korea’s energy transition – and finds that the country is firmly in the vanguard of shipping’s decarbonisation process.

Hydrocarbon Giant

South Korea is dependent on imports for its oil and is the fifth largest oil importing nation. Overseas suppliers ship between 2.5 and 3.0 million barrels per day to the Asian industrial powerhouse which has 3.3 million bpd refinery capacity. Saudi Arabia is Korea’s main supplier with around 25% of the market. The US has become South Korea’s second largest supplier, shipping nearly 400,000 bpd in Q2 this year, and replacing Iran since May 2019.

South Korea also imports around seven million tonnes of thermal coal a month, with a seasonal peak in the wintry first quarter – though imports have been falling due to stricter air pollution legislation brought into effect to cover December-March, in time to coincide with the outbreak of Coronavirus. Coal typically provides 40 per cent of South Korea’s total electricity feedstock, followed by nuclear and gas. In September 2020, President Moon Jae-In announced the closure of 30 coal fired generators by 2034 and the tripling of wind and solar generating capacity by 2025.

LNG imports have been growing rapidly to reach over four million tonnes a month and, with gas competitively priced against coal this year, may continue to grow at coal’s expense even as electricity consumption is down 2.0% in 1H20 due to the pandemic, which has also cut petroleum products consumption by 2.4% and coal consumption by 8.2%. The draft plan for the nation’s ninth basic energy policy for the years 2020-2034 includes increasing the share of renewable energy in power generation to 40 per cent by 2034 from the current 15 per cent.

Strategic Advantage

Like other significant net oil importers, South Korea sees a strategic advantage in weaning itself off imported hydrocarbons and relying more on renewables for electricity generation and transport. A number of policy initiatives have been introduced over the last decade to create a roadmap to decarbonisation by mid-century. Hydrogen is envisioned as a partial replacement for hydrocarbons. A three-year project headed by the Ministry of Land, Infrastructure and Transport plans to build three hydrogen-power ‘pilot cities’ near Ulsan, Ansan and Wanju-Jeonju by 2022, using fuel cells for electricity generation, passenger vehicles and public transport. A further seven projects are planned for the years to 2030.

South Korea faces common challenges in harnessing hydrogen. Perhaps the hardest to overcome is that making ‘clean and green’ hydrogen requires electricity which has to come from renewables. Most of South Korea’s hydrogen currently comes from steam reformation of methane. South Korea’s current hydrogen road map does not currently include obligations for zero-carbon production of hydrogen, though a number of such projects are underway.

After winning the April 2020 election, the Democratic Party government has pushed ahead with its ‘green new deal’ which includes a 2050 net-zero carbon target, an end to coal financing and a carbon tax

Secondly, Fuel cells currently have less than 20 per cent efficiency which is less than the latest generation of batteries and much lower than refined petroleum products and natural gas.  Thirdly, perhaps the weakest disadvantage, is the lack of infrastructure which requires government assistance to overcome not just in South Korea but everywhere.

South Korea has advantages in its favour. It is highly industrialised and urbanised. There are close links between government, manufacturing, finance, and commerce. The population is around 52 million but the country is a global exporter, being the second largest shipbuilder after China and the sixth-largest producer and seventh-largest exporter of road vehicles.

After winning the April 2020 election, the Democratic Party government has pushed ahead with its ‘green new deal’ which includes a 2050 net-zero carbon target, an end to coal financing and a carbon tax.

Road Vehicle Focus

The focus, as in other countries with a hydrogen policy, is on road transport. Hyundai built the first commercial fuel cell electric vehicle in 2001, the Santa Fe FCEV. Hyundai’s FCEV Vision 2030 includes plans to sell 700,000 FCEVs by 2030 including 550,000 passenger vehicles. Today, buyers of FCEVs are offered subsidies equal to about USD 5,000 in the form of registration tax exemption. Owners also benefit from annual vehicle tax reductions worth around USD 100 a year.

A network of hydrogen filling stations is being built with 24 installed by the end of 2019 and 40 more by the end of 2020. 1,200 are planned by 2040 to service a projected 2.0 million FCEVs on the roads by that date (another 3.3. million FCEVs are planned to be manufactured for export by 2040).  Currently there are 24.09 million motor vehicles registered in South Korea with sales reaching 1.54 million in 2019. H2 Korea, also known as the Hydrogen Convergence Alliance Promotion Team, supports the convergence of policy, infrastructure, education, and commercialisation of hydrogen technology for road vehicles.

Hydrogen Investment

South Korea is a global leader in fuel cell technology and commercialisation. Hyundai’s fuel cell plant output is expected to reach 40,000 units by 2022, up from 3,000 in 2019.  POSCO Energy, South Korea’s largest generator, built the world’s then largest fuel cell manufacturing plant in 2015. Korea Fuel Cell, which began operations in 2007, runs another of the world’s biggest fuel cell factories in Pohang, with output of 50 Megawatts a year.

POSCO Energy, South Korea’s largest generator, built the world’s then largest fuel cell manufacturing plant in 2015

Large capacity fuel cells are being used to generate municipal electricity. Doosan Fuel Cell announced in August 2019 that together with other partners, it began work on a 50 Megawatt fuel cell power plant in Seosan. Korea Southern Power Company completed a 20 Megawatt fuel cell Combined Heat and Power plant in Incheon in 2019.  The country’s gas network operator KOGAS published plans in 2019 to build 25 hydrogen production plants and 700 km of pipelines by 2030.

The government’s hydrogen road map includes plans to produce 15 Gigawatts of fuel cell power by 2040 including 7.0 Gigawatts for export and 2.1 Gigawatts for use in commercial buildings.  Although fuel cell technology applications for marine transport are not explicit in the government’s hydrogen strategy, the country’s experience of large capacity fuel cell technology should find applications in shipping, given Korea’s position as the world’s second-largest shipbuilder by gross tonnage output.

Focus on Shipping and Shipbuilding

In August 2020, the Korean Competition authority approved the merger of Korea Shipbuilding and Marine Engineering (itself hewn from Hyundai Heavy Industries in mid-2019) and Daewoo Shipbuilding and Marine Engineering. This most recent restructuring of the South Korean shipbuilding industry puts it in prime position to build the next generation of cargo ships.  Korea already leads China and Japan in LNG carriers, with 60 per cent of the global market. This primacy has given the EU pause for thought, with the European Commission reviewing the merger, though Covid-19 has suspended the completion of the review three times in 2020.

LNG does not fully decarbonise shipping of course, being a hydrocarbon, but it does cut CO2 emissions by about a quarter, and it does minimise SOx and NOx emissions.  Research in Japan has shown that LNG combined with carbon capture can meet the IMO’s 2030 goals.  Every new technology needs scale to succeed, and the merged shipyards of China (CSSC and CSIC) and Japan (Imabari and JMU) demonstrate the need for scale in shipbuilding to develop and deploy the new technologies needed to meet the IMO’s ambitions.

South Korea’s Ministry of Trade, Industry and Energy has developed a policy to encourage truck-to-ship LNG bunkering standards for operations and safety while the Ministry of Oceans and Fisheries has progressed a ‘green ship strategy’ including the development of technical standards for LNG fuelled ships. The revised Urban Gas Business Act took effect in August 2020, separating LNG bunkering from municipal gas use. LNG bunker fuel suppliers are no longer required to seek government approval for the price and volume of their LNG imports, though the government will still collect import data. LNG bunker companies must own a storage tank, a vehicle or vessel to supply LNG and a minimal KRW 100 million (around USD 85,000) in capital. 

LNG bunker fuel suppliers are no longer required to seek government approval for the price and volume of their LNG imports, though the government will still collect import data.

KOGAS had earlier in 2018 announced plans to invest nearly USD 900 million in LNG bunkering infrastructure including an LNG bunker station in the south of the country.  This year, KOGAS,  shipowner Hyundai Glovis, S-Oil, Busan Port Corporation and Daewoo Logistics have subsequently signed a deal to build and operate three LNG bunker tankers in Korean national waters along with an LNG bunker station at Dangjin on the northwest coast.  Korea Line Corporation has ordered an 18,000 cubic metre LNG bunkering vessel for delivery in 2022, with a long term charter to Shell attached.

South Korea’s shipyards have experience in building methanol-powered ships, the first of which, the Lindanger, was launched in April 2016 at Hyundai Mipo’s Ulsan shipyard. Its MAN B&W ME-LGI two-stroke engine can run on fuel oil, marine diesel, gasoil, or methanol. It was the first in a series of seven sister 50,000 Dwt bulkers built for Westfal-Larsen and MOL of Japan and Marinvest, and all chartered to Waterfront Shipping Co. of Canada.  Around 20 ships using methanol as fuel are in service or on order as of September 2020. An IMO Code of Safety for methanol fuelled ships is in process but has been delayed by Coronavirus, while class societies are working on best practice guides for methanol bunkering.

In July 2020, Hyundai Mipo secured approval in principle for its design for a dual-fuel gasoil / ammonia-powered 50,000 Dwt oil products tanker, including an engine designed by MAN Energy Solutions. The engine is similar to previous engine concepts for LPG and LNG dual-fuel engines.

In 2019, Hyundai Heavy Industries commenced operations of its demonstration centre for a 200 kilowatt hybrid electric ships. In the same year the holding company KSOE obtained a type approval from DNV-GL for a hybrid electric propulsion system for a 114,000-ton crude oil carrier.

Focusing further ahead, South Korea’s ‘Hydrogen Integrated Mobility Cluster Establishment Project’ aims to establish ‘hydrogen-based mobility clusters’ in selected regions, integrating local major industries such as automobile, shipbuilding and chemistry.  A preliminary feasibility study is scheduled for completion by mid-2021.

In sum, South Korea’s approach to decarbonising shipping focuses on the full range of alternative liquid fuels, from LNG to methanol, ammonia and hydrogen, with research ongoing into hybrid electric propulsion.  As South Korea is a leader in high-capacity fuel cells it may be only a matter of time before one of its shipyards has class approval for a fuel-cell cargoship.  The country, it can safely be said, is in the vanguard of shipping’s decarbonisation process.

Mark Williams

Mark Williams