Given its heavy reliance on exports, South Korea has been hard hit by the slump in worldwide trade resulting from the Covid-19 pandemic. There are, however, reasons for optimism in the project market – for those who can survive the wait.

Chung Yang Shipping’s CY Interocean I moving four monopiles from Nordenham (Germany) to Anping (Taiwan) for the Yunlin offshore wind energy project

The full impact of the coronavirus on South Korea’s export-led economy unfolded in step with the spread of the pandemic to those countries that import South Korean products.

Exports dropped by more than 20 percent in both April and May, according to the Ministry of Trade, Industry and Energy.

In June, exports fell 10.9 percent year on year to USD39.2 billion – a positive sign, relatively speaking. A senior manager of breakbulk sales at Eukor – a global shipping company headquartered in Seoul that specialises in port-to-port deepsea transportation of cars, trucks, rolling equipment and breakbulk – remarked: “Of course, all the ro-ro players are affected as the global volume of cargo plummeted drastically in March. In such an unprecedented situation, no one expects a V-shaped recovery.”

Indeed, many in the market believe that businesses will not return to normal until next year, given the global supply chain disruption caused by Covid-19 and the uncertainty over when – or if – this will end.

Response to downturn

As a response to the drop in demand, Eukor took several steps to reduce its capacity, including the recycling of ships, redelivery of chartered vessels and cold lay up. A Wallenius Wilhelmsen company, it is also working with other brands in the group, pooling resources in order to manage the substantial drop in volumes.

A large portion of breakbulk cargo out of South Korea used to rely on overseas construction businesses in the Middle East, the Eukor spokesman said. However, these days, construction-related shipments are moving only to Southeast Asia, and the total volume is low compared with three or four years ago.

But he predicted: “Together with this intra-Asia volume, we expect some project volumes relating to LCD factory movements from South Korea to China in the second half of this year.”

Eukor completed a year-long project to deliver wind turbine parts from China to South America in 2019

It is not just ro-ro operators that have been struggling. Container shipping has been worst hit according to HG Jung, chairman of marine heavy lift and offshore transport company Chung Yang Shipping. Nor is Covid-19 the only challenge the country’s shipping industry has faced in recent years.

“The South Korean government has encouraged merging and restructuring of national carriers who were struggling because of the global recessions before the pandemic, and there has been a remarkable case of merging in the intra-Asia container sector.

There have also been a couple of bankruptcies and more cases will follow – accelerated by the pandemic crisis,” Jung said.

State support

The South Korean government has set aside USD35 billion to help the country’s airlines and shipping companies. Several major shipping companies (who may have been heavily reliant on credit or loans from the government already) are receiving this additional state support.

On the other hand, some formerly healthy small or medium-sized shipowners have been left feeling somewhat abandoned, Jung observed. He said: “Amid severe freight competition due to the oversupply of capacity and the lack of cargo movement due to the pandemic, the shipping market in South Korea has now become a battlefield.” Both shipping/logistics companies and the logistics departments within large corporations such as Samsung SDI, Hyundai Motors or the LG Group of companies are fighting to reduce costs – or even to survive at all.

One development that will have a significant impact on the sector is that Pohang Iron and Steel Company (Posco) is establishing a new logistics set-up this year, in order to consolidate all of its logistics activities.

This means that some USD3 billion worth of annual work will be taken away from the existing players in the market. The decision affects bulk carriers previously involved in importing coal and ore for Posco, as well as project forwarders looking to renew leases on cargo handling facilities located in Posco-related premises, Jung pointed out.

Amid severe freight competition due to the oversupply of capacity and the lack of cargo movement due to the pandemic, the shipping market in South Korea has now become a battlefield. – HG Jung, Chung Yang Shipping

Contract delays

In other sectors, contracts for large oil and gas projects around the world have been subject to delays of up to 12 months owing to Covid-19. As such, it is expected that there will be a concentration of this type of project after 2021, resulting in a potential shortage of both deck carriers and heavy lift vessels. South Korean shipbuilding companies that work with the EPCs may well find themselves busier from then onwards.

Among orders already on the books is Qatar Petroleum’s commitment to buy more than 100 LNG carriers for various LNG projects, including ongoing expansion projects in the North Field off Qatar as well as in the USA.

The Middle Eastern oil company has entered into USD20 billion worth of agreements with Daewoo Shipbuilding & Marine Engineering, Hyundai Heavy Industries and Samsung Heavy Industries to reserve LNG ship construction capacity in South Korea between now and 2027.

Elsewhere, a consortium of South Korea’s Daewoo Engineering & Construction, Italy’s Saipem and Japanese firm Chiyoda won contracts in May for work on the Nigeria LNG Train 7 Project on Bonny Island. The overall value of the contracts – which cover construction of a complete LNG train and an additional liquefaction unit, plus associated utilities and infrastructure – is over USD4 billion.

With countries around the world continuing to develop green alternatives to traditional fuel sources, the Eukor spokesman said: “Our group has focused especially on the wind power segment and has been playing an important role in the movement of this type of cargo from Asia to the USA and Brazil.”

However, he added: “The wind power segment is an uncompetitive industry for South Korean companies so we cannot expect any big volume in this segment out of South Korea – but we will keep focusing on volumes out of China and India.”

In 2019, for instance, Eukor completed a year-long project to deliver wind turbine components from China to South America using its fleet of ro-ro vessels.

Sung-Won Choi, head of breakbulk sales at Eukor, observed: “We believe countries with an eye on introducing wind power as one of their renewable energy sources will likely increase in the coming years.”

The first shipment of pin piles for the Changhua Phase 1 project, under development offshore Taiwan, being loaded at a South Korean yard. See panel on page 100.

Demand for South Korean products seems to be picking up in other sectors. According to the country’s Ministry of Trade, Industry and Energy, exports of items that had shown significant downturns earlier in the year (such as automobiles, auto parts, petroleum products, textiles and petrochemicals) are “slowly showing signs of rebound.”

In addition: “Exports to the largest export destination, China, turned to positive growth for the first time in six months. Exports to other major regions such as the USA, Europe, and ASEAN are also gradually improving.”

We believe countries with an eye on introducing wind power as one of their renewable energy sources will likely increase in the coming years. – Sung-Won Choi, Eukor

There are also energy projects afoot in South Korea itself, among them Saudi Aramco’s plan to build a USD6 billion steam cracker and olefin downstream project in collaboration with South Korean refiner S-OIL, in which Saudi Aramco is a major shareholder.

According to Fahad A Al-Sahali, representative director of Aramco Asia Korea: “Over the past few decades, South Korea has played an important role in the development and growth of Saudi Arabia and Saudi Aramco. Considering the importance of South Korea, it is natural that we stand by the country as a reliable source of energy to fuel its rapid growth.”

Hydrogen power plans

South Korea is also pushing the development of hydrogen power. Media reports indicate that the Ministry of Trade, Industry and Energy is aiming to help create at least 500 new businesses in this sector by 2030 and will make USD28.3 million available to encourage the adoption of hydrogen as a new engine of growth, whether in terms of vehicles, power generation or industrial applications.

Plus, plans are in place to ramp up the share of solar and wind power in South Korea’s energy mix to 20 percent by 2030, with a government working group proposing to increase this proportion to 40 percent by 2034 as it moves away from coal and nuclear power.

There are various projects under way or coming up to support these targets. For instance, Vestas is providing ten V136-4.2 MW wind turbines for the Cheongsong Myeonbong Mt wind power project, with installation scheduled for completion in late 2021.

Offshore wind power could also contribute to South Korea’s greener energy future. WindPower Korea said: “South Korea does not have any natural resources of fossil fuel and is a trade-driven country [whose economy] requires huge energy consumption (currently, it is the ninthlargest energy consumer globally).

“The development of offshore wind farms in South Korea, which as a peninsula has extensive wind resources, is… essential, and thus the wind farm development industry is anticipated to become one of the biggest and fast-growing industries in South Korea,” the firm believes.

Floating wind power

For instance, a consortium comprising WindPower Korea, EDP Renewables and Aker Solutions is developing a floating wind power project to install two phases of 500 MW each off the coast of Ulsan City by 2025.

The development of offshore wind farms in South Korea is essential and it is anticipated to become one of the biggest and fastest-growing industries in the country. – WindPower Korea

Another consortium is looking to develop a 200 MW floating wind project, close to the Donghae natural gasfield that is operated by Korea National Oil Corporation – one of the members of the venture. The other partners in the consortium are Equinor and Korea East-West Power.

Pending the results of a feasibility study, construction of the Donghae wind farm would begin in 2022, with possible power production start-up in 2024, according to Equinor.

This article has been taken from the August/September 2020 edition of HLPFI.