DNV Working with Korean Shipbuilders to Meet Decarbonization Challenge

Remi Eriksen, CEO of DNV, recently had an interview about the longstanding relationship between his company and Korea. DNV is the world’s largest international accredited registrar and classification society and is headquartered in Norway. It provides services to a range of industries, including the one most relevant to Korea – the maritime industry. Eriksen has been CEO since 2015. In the interview, he explains what his company does, recent trends in the maritime industry, and the company’s longstanding relationship with the Korean shipbuilding industry going back all the way to the 1970s. He also touches on the most important global issues in the current era – energy transition, carbon emissions reduction, and climate change.

Q: DNV is the world's largest international accredited registrar and classification society. Please explain your business to us.

We are the leading independent expert in assurance and risk management. Driven by our purpose, to safeguard life, property and the environment, we empower our customers and their stakeholders with facts and reliable insights so that critical decisions can be made with confidence. As a trusted voice for many of the world’s most successful organizations, we use our knowledge to advance safety and performance, set industry benchmarks, and inspire and invent solutions to tackle global transformations.

We continue to commit 5% of our annual revenues to research and innovation programs, which helps us to fulfill our purpose to safeguard life, property and the environment.

In the maritime sector, DNV is the world’s leading classification society and a recognized advisor for all industry stakeholders. At the end of 2021, DNV had the largest fleet by tonnage and solidified its position as the market leader.

We also deliver world-renowned testing, certification and technical advisory services to the energy value chain including renewables, oil and gas, and energy management. At the same time, we are one of the world’s leading certification bodies, helping businesses assure the performance of their organizations, products, people, facilities and supply chains.

Our Digital Solutions business area helps customers managing risk and improve safety and asset performance for ships, pipelines, processing plants, offshore structures, electric grids, smart cities and more. Our open industry assurance platform Veracity, cyber security and software solutions support business-critical activities across many industries, including maritime, energy and healthcare.

To further strengthen our expertise in this area, we recently acquired the leading industrial cyber security specialist Applied Risk. Industrial assets such as windfarms, oil and gas infrastructure, ships, manufacturing facilities, and medical equipment are now at higher risk of new forms of cyber-attack as their control systems become increasingly connected. Life, property and the environment are at stake. DNV is making significant investment in helping our customers build a powerful means of defence. By joining forces with Applied Risk, we aim to build an industrial cybersecurity powerhouse to support our customers in managing these emerging risks.

Q: DNV entered the Korean market in the 1970s. How has DNV’s relationship with the Korean shipbuilding industry evolved, and what kind of relationship do you have with Korean shipbuilders now?

DNV entered the Korean market due to the opening up of new shipyards building vessels for international customers in the mid-1970s. DNV was fulfilling several roles during the first years in addition to classing newbuildings. DNV was extensively used by several of the big yards as consultants for the design and lay-out of the yards themselves as well as the ships and offshore installations that were contracted to several international owners. By 1982, DNV had established site offices at all main Korean shipyards. In 1984, we also established our Approval Centre in Busan to work even closer with the booming Korean shipbuilding industry.

Since the beginning DNV has enjoyed a strong relationship with the Korean shipbuilding industry to the benefit of both parties. Today we have close relations and a good cooperation with all the major players in the Korean shipbuilding powerhouse. As our industry is facing huge challenges to manage the path towards decarbonization of shipping, close collaboration will be even more important going forward.

Korean yards have a strong reputation for building innovative ships, and we are helping to qualify the technology and verify the solutions through joint development projects and awarding Approval in Principles. Decarbonizing shipping is one of the biggest challenges the industry has ever faced, and DNV’s ambition is to work even closer with the Korean shipyards and other stakeholders to navigate these waters together. DNV strongly believes that collaboration is the fuel of the future.

Q: To what extent is Korea an important market for DNV and which of your businesses is most important in Korea?

DNV's core competence is within maritime, energy, and the ocean space. As can be seen from DNV’s history in Korea, we have maintained a long partnership with shipyards and have supported them to develop and apply advanced technologies. The Korean shipbuilding industry will maintain its leading position and hence Korea is a very important market to DNV with regards to newbuilding of ships and offshore structures.

However, DNV’s core competence as an assurance and risk management company is also used in many other businesses like automotive, medical equipment, power generation and power distribution, to mention just a few.

With our core competence rooted in the maritime industries and ocean space DNV also has a company-wide focus on a commercial scale-up of floating offshore wind. Here we are combining our extensive expertise from offshore oil & gas and the complete energy value chain where we have had a leading position for decades. DNV has been involved with the Korean wind industry since 2009.

As the renewable energy business is now gaining momentum by moving offshore, we are also working on energy projects with Korean and international energy developers, Korean shipyards, OEMs and solution providers. DNV can provide a complete assurance service including classification, certification, verification, and technical consulting for all the phases of offshore wind projects. We can also provide innovative and cost-effective assurance schemes for the in-service phase of such projects.

Q: What is the global shipbuilding industry's outlook for this year? What are your thoughts on the future?

First of all, the pandemic has had limited effect on the shipbuilding in Korea so far. This is in stark contrast to how the pandemic has shut down yards for prolonged periods in other parts of the world. As Korean authorities have managed the pandemic in a good and transparent way, yards have been able to keep production running while fighting the pandemic. There have been some challenges on receiving components going into the vessels from other parts of the world in time, but overall the impact has been limited.

The new building contracting in 2022 started quite well. Most tonnage was signed for container ships and for gas carriers. Especially for container ships, market conditions remained exceptionally strong through December and January.

The green transition continues to grow in importance for all stakeholders in the shipbuilding industry. According to Clarksons Research, 34% of GT on order is set to be capable of using alternative fuels. In January alone, more than 80% of the newbuildings contracted, on a DWT basis, are designed to burn alternative fuels (Clarksons Research).

Looking back into 2021, order volumes increased across all major shipbuilding countries, particularly in China and South Korea, which won the majority of large containership orders. Order volumes in Japanese yards are also up from the low they experienced in 2020. European yards remain impacted by the disruption in the cruise industry.

After record ordering figures in 2021 of 87 million GT and more than 2,000 seagoing vessels, DNV expects a drop of around 20% in global newbuilding contracting in 2022 – with higher pricing, steel and cost exposure, yard slot availability limited to 2024 and beyond, as well as the impact of slower container ordering. The impact of the war in the Ukraine on the market is however very hard to predict currently.

Q: What is the recent trend in the maritime industry regarding the issue of reducing carbon emissions and what role does DNV play to tackle the problem?

Decarbonization is the grand challenge of our time. The Intergovernmental Panel on Climate Change (IPCC) declared a “code red for humanity”. We are not on track to limit the temperature rise to 1.5 degrees. COP26, the UN climate change conference, has increased the political pressure on member states to do more.

Some of the outcomes include an explicit plan to reduce coal and phase out subsidies that artificially lower the price of hydrocarbons and a scheme to cut 30% of methane emissions by 2030. Several initiatives launched for shipping, such as the Clydebank Declaration for Green Shipping Corridors, also show a lot of promise.

The outcomes and the momentum of COP26 have certainly put the IMO under significant pressure to accelerate the decarbonization targets and timelines – not only by regional regulators, but perhaps more importantly in the commercial world, by other players like financiers, charterers, and cargo owners. This means that the expectations being placed on shipping are increasing in number and complexity.

As a class society, we are well placed to connect players from all over the maritime value chain and even different industries. We work with partners across the industry to examine what is possible and what is safe and build trust in new solutions.

Because the challenge of decarbonization is bigger than one organization. That is why we formed the Maritime Technologies Forum (MTF) – to bring together Class and Flag states to work together on research and offer unbiased advice to the shipping sector. The MTF will also enable safe testing and adoption of new technologies and it will help shape world-leading regulation.

The DNV Foundation is also a founding partner of the Global Centre for Maritime Decarbonization (GCMD) which was formed in August 2021. Based in Singapore, the GCMD was set up as a non-profit organization to support decarbonization of the maritime industry to meet or exceed the International Maritime Organization's (IMO) goals for 2030 and 2050.

Put simply, class thrives in offering clarity amid complexity, in tackling global transformations, and in helping turn strategic uncertainty into confident decision-making. It is central to our 158-year-old purpose of safeguarding life, property and the environment.

Q: It would be important to expand the introduction of new types of fuel to cope with the climate change issue. What is the current status in the maritime industry? What kinds of ESG movements are taking place in the global maritime industry?

Fuel is the most important key to unlocking a decarbonized future for shipping. And the fuel transition is gaining momentum. A striking new development is the number of vessels ordered with alternative fuel systems. DNV’s Alternative Fuel Insight (AFI) portal closely monitored this trend throughout the year, and at the year-end 2021 approximately one third (based on GT) of all new-build tonnage was ordered with alternative fuels. This included over 240 ships fueled by LNG, 48 with LPG, 22 with methanol, and 4 with hydrogen.

According to DNV’s AFI portal, nearly 200 vessels were ordered with an LNG fuel system in 2021, making last year a record-breaking one for LNG. More and more people are recognizing that LNG is the most suitable transitional alternative fuel. The emergence of bio- and synthetic LNG would allow owners to switch to a low carbon fuel without having to make any additional adjustments on board.

Looking ahead, the research – including our own Energy Transition Outlook (ETO) report – shows that there will be several zero carbon options for shipping. Today, there is a growing industry interest in green methanol and ammonia, particularly from deep sea shipping. But even these top candidates come with many unknowns, especially regarding availability, pricing and infrastructure, technical challenges as well as safety and commercial risks.

In the absence of a regulatory framework for all these new fuels and technologies, the role of class in developing new standards has never been more important. DNV is working to close the knowledge gaps in this space. For example: The Global Centre for Maritime Decarbonization (GCMD) in Singapore just recently initiated a study that aims to define a robust set of safety guidelines and operational envelopes that will establish the basis of a regulatory sandbox for ammonia bunkering trials at two local sites. DNV will take the lead in that safety study and support with ammonia demand forecasting, bunkering site recommendations, the development of conceptual designs of bunkering modes like truck to ship or ship to ship, HAZID/HAZOP/QRA studies, as well as drafting of technical and operational guidelines.

The shipping industry is experiencing an increased attention towards ESG and decarbonization from multiple stakeholders like regulators, financiers and cargo owners. There is a demand for a fact-based scientific disclosure of companies’ sustainability story. Business as usual is not an option anymore.

In the maritime world, similar to other industries, ESG reporting covers topics such as recycling, greenhouse gas emissions, other pollutants to air, ecological impacts, business ethics, employee health and safety, as well as accident and safety management. It’s all about understanding the ESG related risks and setting the right ESG goals. This will help companies demonstrate performance to customers, investors, banks and important stakeholders and reach long-term business goals.

DNV supports customers with a broad range of services related to Environmental, Social and Governance (ESG). These include ESG due diligence, ESG framework development, the establishment of relevant ESG KPIs and ESG strategies, as well as roadmaps for ways to improve ESG performance and ESG rating and reporting.

The consulting company Deloitte examined 36 randomly selected shipping companies listed in New York, Oslo, Tokyo and Shanghai, and found that 24 — or 66% — produced an ESG report, according to analysis published late last year. Based on the dialogues DNV has had with shipping companies globally there are clear signs that this number will increase significantly in 2022.

This comes amid a variety of standards that shipping face: the Poseidon Principles for both finance and insurance, accounting standards, the Science-Based Targets initiative for decarbonization targets, United Nations sustainability programs, ratings agencies and charterers, to name a few.

Q: As an international accredited registrar and classification society, DNV is deeply involved in major global issues such as energy transition, carbon emissions reduction, and climate change, in addition to its own business activities. What role does DNV play in relation to these issues in the international community? How did DNV get involved in these issues so deeply and come to play a significant role globally?

Stakeholders in the energy transition – whether it is governments or the private sector – look to DNV for our independent technical expertise. Our Energy Transition Outlook (ETO) report has become an integral resource for anyone trying to understand how the energy transition will unfold in the coming decades.

DNV is a founding member of the UN Global Compact Action Platform for Sustainable Ocean Business. In 2020, we produced the report “Ocean Stewardship 2030.” The report provides a road map for addressing five critical areas for healthy and productive oceans, including sustainable seafood, decarbonized shipping, ocean electricity, ending waste entering the ocean, and ocean data collection.

Even if DNV was founded in 1864, we have been global in our outreach for almost just as long – for example having opened up our first office in Busan in 1977, when Korean shipbuilding started to take off. This is a reflection of the global nature of shipping and over time our services have broadened, especially into the energy sector. Because many of the industries we work with can be regarded as vital, our technical expertise and independent view has enabled DNV to become a trusted partner to government institutions around the globe.

Q: Currently, a new technological revolution seems to be required to reduce carbon emissions, one of the most important challenges facing the shipbuilding and maritime industries, such as the rapid development of alternative fuels and ship energy efficiency optimization technology. Is there any advice DNV would like to provide to Korean shipbuilding yards or ship owners?

With the increased requirements from regulators and the expectations from charterers, financial institutions and society at large, it is very important to future proof any newbuilding project from the very beginning.

Choosing the right fuel strategy is one of the most important decisions an owner will have to make for a current newbuilding to satisfy regulations and stakeholder demands related to GHG emissions. The key will be to optimize the fuel storage and propulsion system of the ship to accommodate current and future fuel requirements.

In 2021, DNV introduced the 'decarbonization stairway' in its ‘Maritime Forecast to 2050 report’, to show how individual owners can adapt to stay below the required GHG emission trajectories. Owners must identify their own decarbonization stairway to manage carbon risk.

While gas is available now, ammonia and methanol are emerging as viable future fuels. Incorporating basic measures at the newbuilding stage is key to accommodating fuel flexibility. Offering attractive designs ensuring fuel flexibility and related safety to the market should be on top of Korean builders’ agenda.

All maritime stakeholders across the world have to work together to achieve maritime decarbonization. This isn’t a race. It’s about collaboration.

Q: As global competition intensifies due to overseas latecomers, Korean shipbuilding yards are securing competitiveness in the global shipbuilding market through a selective order strategy centered on value-added ships such as LNG carriers and LNG propulsion ships. However, there are also concerns in terms of order volume. What strategies will the Korean shipbuilding industry need to adopt in order to maintain its competitiveness if overall orders from ship owners become low? How can DNV help Korea in this situation?

The maritime industry will go through a period of rapid energy and technology transition with decarbonization and digitalization that will have a more significant impact on costs, asset values, and earning capacity than many earlier transitions.

Korean yards’ focus on value-added ships like LNG/LPG carriers and low carbon fueled ships seems to be the most relevant strategic way today and in the future, which will enable Korean yards to stay at the front edge.

They shall continue to invest in decarbonization and digitalization technologies for both high value and conventional ships to allow ship owners to be in a leading position in the charter market with attractive ship designs and future-proof vessels.

DNV has been working over last years to provide an outlook on ship technologies and fuels that helps shipping respond to the decarbonization drive, introducing an updated timeline for the technical availability of selected alternative fuel technologies.

Based on accumulated knowledge and experience, our intention is to work together with Korean yards to navigate the technologies and fuels by developing a 'decarbonization stairway' taking into account the yard’s newbuilding design proposal and decarbonization performance. This will support Korean yards in proposing the most attractive designs to ship owners for their operational demands and chartering processes. Importantly, this joint work is to be specifically designed to allow detailed assessments of fuel flexibility and Fuel Ready solutions considering the large uncertainties involved over the lifetime of a ship.