With the International Maritime Organization (IMO) set to implement a GHG pricing mechanism in 2028, new possibilities and opportunities in LNG core materials and gas business are coming up. We take a look at how the decision to impose this shipping carbon tax could impact POSCO Group’s business, alongside insights from Ki-Yoon Jang, Senior Researcher at POSCO Research Institute.

Senior Researcher Kee-Yoon Jang, POSCO Research Institute

I Upcoming GHG Pricing Mechanism to Drive Changes in Global Shipping

The IMO has finally gone ahead with the official introduction of a shipping carbon tax (GHG pricing mechanism). Starting in 2028, all vessels over 5,000 tons will be subject to the tax. This marks the outcome of long-standing discussions aimed at cutting down on greenhouse gas emissions from maritime transport.

▲ The 83rd Marine Environment Protection Committee (MEPC 83), held by the International Maritime Organization (IMO) from April 7 to 11. (Image source: Korea Maritime Safety Authority(KOMSA))

This decision was finalized at the 83rd session of the Marine Environment Protection Committee (MEPC 83), held recently. The IMO has set out a goal for the global shipping industry to cut back carbon emissions by up to 43% compared to 2008 levels by 2035. If this target is not met, shipping companies will have to pay out a carbon tax ranging from USD 100 to as much as USD 380 per ton of CO₂ emitted. The exact amount may vary depending on vessel size, voyage distance, and emission volume, but the industry does not take this lightly.

*IMO: A specialized agency of the United Nations responsible for protecting the marine environment and ensuring safe and efficient shipping.

The global revenue expected from the GHG pricing mechanism is projected to reach USD 10 billion annually, or approximately KRW 14.25 trillion. This poses a considerable burden on the shipping industry. However, the IMO’s decision is anticipated to go beyond simple taxation, serving as a catalyst for reducing carbon emissions across the maritime sector. Some shipping companies have already begun introducing LNG-powered vessels, which emit less greenhouse gases compared to conventional ships, and are expanding the use of low-carbon fuels in a proactive effort to respond to the new regulations.

I Background of the GHG Pricing Mechanism

According to data published by the International Energy Agency (IEA) in 2022, the transportation sector accounts for 16% of global greenhouse gas emissions. Of this, maritime shipping is responsible for approximately 2%. In other words, the shipping industry accounts for approximately 2% of total global greenhouse gas emissions. This figure is by no means insignificant, especially when compared to road transport (12%) and aviation (1%). Accordingly, the role of the maritime sector in achieving global decarbonization goals has become increasingly critical.

The issue of GHG emissions from international shipping began to receive serious attention in the early 2000s. In 2003, the International Maritime Organization (IMO) initiated its first studies on GHG emissions in the maritime sector. Although the Kyoto Protocol*, which entered into force in 2005, assigned legally binding reduction targets to developed countries, the shipping sector was not directly included. Instead, responsibility for regulating maritime emissions was delegated to the IMO, leading to growing expectations for its role. Since then, the IMO has introduced energy efficiency standards for ships, implemented mandatory fuel consumption reporting systems, and actively advanced discussions on market-based measures such as carbon pricing and emissions trading schemes to address maritime carbon emissions.

In 2023, talks on introducing a GHG pricing mechanism in international shipping really picked up speed. The IMO drew up a new greenhouse gas (GHG) strategy and officially adopted the goal of achieving carbon neutrality in international shipping by 2050, thereby setting in motion the full-scale introduction of a GHG pricing mechanism. As a result, at the 83rd session of the Marine Environment Protection Committee (MEPC 83) held in April this year, it was decided that the GHG pricing mechanism would take effect in 2028. Once IMO member states agree on specific rates and application standards through further discussions, the mechanism is expected to be implemented as planned.

*Kyoto Protocol: An international agreement adopted at the 3rd Conference of the Parties (COP3) to the United Nations Framework Convention on Climate Change (UNFCCC), held in Kyoto, Japan, in 1997. It was the first legally binding treaty to set greenhouse gas (GHG) emission reduction targets for developed countries, covering gases such as carbon dioxide (CO₂), methane (CH₄), and nitrous oxide (N₂O). The protocol entered into force in 2005. While developed countries were subject to reduction obligations, developing countries were exempt.

I Anticipated Increase in Demand for LNG-Related Core Materials Following Implementation of the GHG Pricing Mechanism

How is the implementation of the GHG pricing mechanism expected to affect the shipping industry? In particular, vessels operating on conventional marine fuels such as marine gas oil (MGO) and heavy fuel oil (HFO) are likely to experience a significant rise in operating costs. By contrast, LNG (liquefied natural gas)-powered vessels emit 20-30 percent less CO₂, making them subject to a considerably lower tax burden. As a result, demand for LNG fuel is expected to increase*, prompting shipping companies to increasingly consider LNG-fueled vessels when placing new ship orders. This shift is expected to be especially evident in long-haul routes and large vessel segments, such as container ships and oil tankers.

*Although the expansion of LNG usage may lead to increased methane (CH₄) emissions in the long term, and competition with zero-carbon fuels such as ammonia and hydrogen is inevitable, LNG is expected to maintain its position as a transitional fuel in the maritime sector through 2040.

▲ The photo above shows Gwangyang Terminal 1, completed by POSCO International in July. POSCO International is currently developing dedicated LNG bunkering infrastructure at the Gwangyang LNG terminal as part of its related business initiatives. A 12,500㎥ LNG bunkering vessel is under construction and is scheduled to begin full-scale operation in the second quarter of 2027, upon delivery. (Image Source: POSCO International)

As the number of LNG-powered vessels increases, the demand for LNG bunkering is also expected to rise. Rather than building LNG storage and refueling facilities at every port, constructing bunkering vessels that can supply LNG at sea is considered more cost-effective. Accordingly, the increase in LNG-fueled ships is likely to lead to a corresponding expansion in LNG bunkering infrastructure at ports. Major ports are expected to invest in LNG bunkering terminals or bunkering vessels, with demand projected to grow rapidly in global hub ports such as Singapore, Rotterdam, and Busan.

In addition, the demand for materials used in LNG storage and transportation is also expected to be affected. Since LNG must be stored and transported at an ultra-low temperature of -162°C, demand for cryogenic insulation materials such as vacuum insulation panels and aluminum alloys, as well as highly corrosion-resistant and heat-resistant materials, is projected to increase. Key materials used in LNG-powered vessels and bunkering applications include high-nickel steel (9% Ni steel) for cryogenic service, Invar alloy, high-manganese steel, and vacuum insulation panels.

For a standard LNG carrier with a capacity of 174,000㎥, it is estimated that approximately 1,500 to 2,000 tons of high-nickel steel, 500 to 700 tons of Invar alloy, and 10,000 to 12,000㎡ of vacuum insulation are required. A bunkering vessel with a capacity of 7,500㎥ typically uses 600 to 800 tons of high-nickel steel, 200 to 300 tons of Invar alloy, and 4,000 to 5,000㎡ of vacuum insulation panels. These core materials are essential for ensuring stability and efficiency under cryogenic conditions, and are therefore expected to contribute to the continued growth of the materials industry.

▲ POSCO’s independently developed high-manganese steel for cryogenic applications was officially listed in 2022 as a material standard under the IGC Code by the MSC of the IMO. It is now approved for use in cryogenic cargo tanks and fuel tanks for LNG, LPG, and other liquefied gases. The photo shows high-manganese steel being transported by a vacuum suction crane.

I POSCO Group’s Strategic Direction in the Era of Expanding LNG Propulsion

▲ POSCO Group’s first LNG-dedicated carrier ‘HL FORTUNA’.

Starting with the implementation of the GHG pricing mechanism in 2028, the IMO is expected to strengthen taxation standards and raise the per-ton charge over time. As a result, the number of LNG-powered vessels is projected to increase further.

Currently, LNG-fueled ships account for less than 10 percent of the global fleet, with a total of 1,308 vessels. By 2028, the number is expected to exceed 2,300, and the number of bunkering vessels will need to increase from the current 23 to at least 50.

In line with this trend, POSCO Group is introducing LNG-dedicated carriers to respond to the GHG pricing mechanism and other international environmental regulations, while actively expanding its energy business. On May 23, POSCO Group unveiled its first proprietary LNG carrier, HL FORTUNA, at HD Hyundai Samho in Mokpo, Jeollanam-do.

HL FORTUNA is an LNG carrier with a length of 299 meters, a beam of 46.4 meters, and a cargo capacity of 174,000㎥. It is built for transporting North American LNG. The vessel can carry out a single shipment that supplies Korea’s entire population with natural gas for 12 hours. It is fitted with a dual-fuel system that uses LNG as its main fuel, along with a high-efficiency reliquefaction system that cools down boil-off gas and turns it back into liquid fuel, enabling compliance with international environmental regulations.

After completing sea trials, the vessel will go into global LNG trading in the second half of the year. Starting in 2026, it will load cargo at the Cheniere terminal in Louisiana, United States, and will be used for domestic supply and overseas trading. It is expected to make over five round trips annually based on the Gwangyang LNG Terminal, transporting POSCO International’s long-term LNG volumes from North America.

With the introduction of this LNG carrier, POSCO Group has further built up its LNG value chain, covering production, storage, and power generation. Moving forward, the Group plans to keep up with rapidly changing international environmental regulations and seek out new opportunities across its LNG business and other key areas by leveraging group-wide synergies and capabilities.

Korea’s self-developed new material ‘cryogenic high manganese steel’ is going global – the cryogenic high manganese steel (HMS) has been specifically developed with the storage and transport of LNG (Liquefied Natural Gas) in mind.

In its 100th session on December last year, International Maritime Organization’s (IMO) Maritime Safety Committee approved interim guidelines on applying HMS in cryogenic LNG storage and fuel tanks setting forth requirements for designing and manufacturing HMS for LNG cargo and fuel tanks so ensure compliance with the agency’s safety codes.

IMO is a specialized agency of the United Nations responsible for the safety and security of shipping and the prevention of marine and atmospheric pollution by ships. IMO currently has 174 Member States and three Associate Members.

The approval of the Maritime Safety Committee (MSC) allows cryogenic HMS to be applied to LNG carriers and LNG-fueled vessels, which is unprecedented. Korea’s self-developed technology earned global validation, opening the way for sales of the material to IMO’s 170-plus member countries.

Not only POSCO developed the world’s first cryogenic HMS, but the material is also part of the company’s World Top Premium Product (WTP) – a line of high-end products the company is relying on as its future growth engine.

What is the cryogenic high manganese steel and what does POSCO stand to benefit from the IMO approval? POSCO Newsroom got down to the basics of this innovative material and looked into the details of the approval process.

l What is Cryogenic High Manganese Steel?

The cryogenic high manganese steel is a new material POSCO developed with the storage and transport of LNG specifically in mind. POSCO undertook the project back in 2010 finalizing the development in 2013.

The material contains 22.5% to 25.5% of manganese and can withstand temperatures as low as -196 °C. It has also shown superiority over existing cryogenic materials in terms of elongation and ultimate tensile strength.

On the ground, HMS can be used for LNG terminal storage tank. On the sea, the material can be used for LNG transportation as well as for storage and fuel tank for a marine propulsion system.

l A Challenging Journey towards the IMO Approval

Thus far, IMO has allowed only four kinds of materials for LNG tanks: nickel alloy steel, stainless steel, 9% nickel steel, and aluminum alloy. The prerequisite for the cryogenic HMS to be used as LGN tank material was to be recognized and officially registered as a standard technology. Since the IMO approval takes place every four years, so not only was it a lengthy process, but it also had another hurdle: support from other member states.

POSCO has been striving to list the cryogenic high manganese-steel on IMO standard material together with the following stakeholders: Ministry of Oceans and Fisheries, Korean Register of Shipping, Daewoo Shipbuilding & Marine Engineering Co., LTD, as well as with Professor Kyu-Baek Ahn of Chosun University. Countless experiments and studies on the suitability and safety of cryogenic high manganese steels helped rally support from many member countries. As a result, the IMO approved the material, and the member states could use the cryogenic HMS for LNG tanks as early as this year.

This is the first case ever where a new material like HMS received IMO approval. It was a bumpy ride for POSCO of course – one of the biggest challenges being persuading the member countries who were on the fence.

l POSCO’s Technology to the Global Market

Over the next three years, experts predict cryogenic HMS products will generate annual sales of 100 billion KRW (approx. 88.4 million USD).

Currently, the most widely used material for LNG tanks is nickel allow steel – which is produced only in a limited number of countries, so the supply was unreliable. Accordingly, the price fluctuation was a major issue depending on the supply and demand.

The POSCO-developed cryogenic HMS has high production rates across the globe and is relatively inexpensive. It is superior in toughness and tensile strength compared to conventional materials and is 30% cheaper than 9% nickel steel. This makes HMS a competitive enough to replace existing materials.

POSCO’s HMS maintains excellent strength and withstands impact even in a cryogenic environment of -196 °C. Expected to boost the competitiveness of Korea’s several industries, from steel, shipbuilding, to small-medium enterprises manufacturing LNG tanks, it’s indeed a ground-breaking innovative material that can further encourage industry’s ongoing effort to develop alternative material for cryogenic service.

Why is the Shipbuilding Industry Behind in Technology?

The advent of container ships dates back to 1956. About a decade later in the 1970s, there was a boom in demand for container ships along with the industrial revolution. Then, demand boomed again during the dot-com bubble. The bubble burst in 2001, and the world faced yet another recession in 2008. From this slowdown in overall trade and economic activity, the world now has an oversupply of container ships, and economists project it will last up to 2025.

The Ideal X leaving Newark, New Jersey in 1956 (Source: Wired)

This is bad news for the shipbuilding industry as well as their supplies. In fact, during the first half of 2016,  a reported 20,000 people from the shipbuilding industry lost their jobs in Korea, the third largest shipbuilder in the world. Steel suppliers were also hit hard with China’s oversupply of steel crowding out the market.

Not All Signs Point South

First of all, the global export to GDP ratio is projected to increase from 30 percent in 2015 to 33 percent in 2035. According to the World Trade Organization (WTO), in 2017, there has been an estimated 2.4 percent growth in the overall volume of trade, and an additional 2 to 4 percent projected for 2018. Export orders and container shipping have increased in 2017 as well. With 90 percent of the world’s trade goods transported via ships, things are looking up for the stagnant shipbuilding industry.

Another piece of good news for the shipbuilding industry and environmentalists came at the end of 2016 when the International Maritime Organization (IMO) announced the new global cap on the amount of sulfur for marine fuels at 0.5 percent by 2020. With full compliance, it will result in an 85 percent decrease in global S02 emissions.

The IMO announce the 2020 emissions cap (Source: Interfax Energy)

The outlook of global trade and the new IMO emissions cap will mean new business for shipbuilders as well as their suppliers. Operators working with ships and fuel that meet current emissions requirements will have to either modify their vessels, opt for low-sulfur fuel or turn to alternative solutions such as Liquified Natural Gas (LNG).

Scrubber Solutions  

Remember the overproduction problem mentioned earlier? Not every company has the financial resources to build brand new, eco-friendly ships or switch to low-sulfur fuel. At the moment, low-sulfur fuel is about 50 percent more expensive than low-grade bunker fuel. Nearing 2020, those prices are projected to increase a lot, due to skyrocketing demand.

An alternative way for ship owners to meet the IMO emissions cap by 2020 is installing scrubbers. Scrubbers are exhaust gas treatment plants that use water to clean the gas exhaust produced by ships before it is expelled into the air. They typically require 1 to 2 percent of total main engine power to operate and cost an estimated USD 5 million to install.   

A scrubber for a HFO-fueled ship (Source: Wartsila)

UBS Limited reported that about 19 percent of ship owners will embrace scrubbers as solutions while about 74 percent will turn to low-sulfur fuels.

Already, companies are jumping aboard. Technology company Wärtsilä will install their scrubber system to two 56,000 DWT Handymax bulk carriers for NYK Bulk & Projects Carriers Ltd. in Japan. The vessels are scheduled to be completed by 2018 and 2019, and will meet the new IMO sulfur emissions cap. Dutch company Spliethoff will also install scrubbers on six of their multipurpose vessels to be built in 2019 and continue burning HFO.

A Zero-S02 Emission Solution

Many of the carriers in operation today can run on several different types of fuel, including LNG. Even among concerns about the lack of facilities accompanying LNG, it is favored by suppliers, manufactures and environmentalists alike. Burning LNG emits zero S02 and particulate matter, and up to 25 percent less C02 and up to 90 percent less nitrogen oxides (N0x).

An LNG carrier heading to Brazil (Source: LNG World News)

An increasing number of companies are investing in the LNG solution.

Energy company Shell acquired LNG producer BG Group in 2016 for USD 50 billion; Volkswagen will employ two LNG carriers to ship their products between Europe and North America; and as of August 2017, three new shipbuilders joined SEA/LNG, a non-profit coalition that advocates the use of LNG for ships. Mitsui, Novatek and Sumitomo are the latest of the 29 members.

Although LNG is by far the most environmentally friendly solution for the shipping industry, it requires more space and adds weight to a vessel, using up more fuel. Shipbuilders need thinner and lighter material solutions to cope with this issue.

Eco-Friendly Material Solutions

All of this is why Hyundai Mipo Dockyard chose to build the world’s largest LNG-powered bulk carrier using POSCO’s High Manganese Steel. The vessel will yield up to 50,000 tons of cargo, seven times more than existing LNG carriers. The high manganese component allows the LNG to be kept at the freezing temperatures of -162℃. It out performs other traditional materials in strength, toughness and cost effectiveness. The carrier will be in operation in Korea beginning in 2018.

Workers building a ship at Hyundai’s shipyard (Source: AQT Solutions)

POSCO also supplies stainless steel for Korea Gas Corporation’s membrane-type LNG carriers starting from 2016 and is the world’s only supplier of stainless steel for membrane material.

The projected overall increase of worldwide trade and new environmental regulations will place a financial burden on ship owners. However, it is an opportunity to generate business in different sectors of the shipbuilding industry such as in parts manufacturing, energy and steel supplies. Such parties need to continue to find solutions to modernize vessels and comply with global standards to meet the demands of world trade in the very near future.   

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