2050 Decarbonization Threatens LNG Carrier Prospects!

• Shippers need to think beyond 2030 and concentrate on new LNG technology
• LNG carriers will become outdated in 2050 as the world moves to biofuels, hygrogen and ammonia fuels.
• Future propulsion technology will change heavily making LNG carriers a liability
• LNG ships sizes have also reached a stability phase.
• The race to 2050 decarbonization will effect LNG prospects

With 2020 working in full force, the path towards further emission controlling regulations have started. A series of approaches including scrubbers, LNG, ammonia fuel, hydrogen fuels, biofuels, etc. are making way for a zero-carbon future of shipping. However, the ride isn’t smooth and some of it can grossly affect carrier prospects like those of LNG carriers, writes Paul Gunton for an article published in Ship Insight.

Negative Effect To LNG Carriers?

The comment came from the horse’s mouth itself. Gaslog, Executive ChairmanPeter Livanos have said that IMO’s 2050 decarbonisation target could have a negative effect on LNG carrier construction and operation.

Having said during presentation of the company’s latest finance figures that LNG would see growing use as a marine fuel through to 2030, Livanos was asked during a conference call session what the prospects would be after that and looking at ways to meet 2050 targets as opposed to looking at 2030.

Livanos’ reply was “Well, it’s interesting that you mentioned that because the LNG shipping space is somewhat unique. And let me come back to that. We can meet the 2030 IMO targets as a shipping industry along all types, from container to bulk carrier to tanker, by shifting to LNG fuel and making some modest adjustments to the way we run these ships in terms of speed. There is no way that we will achieve the 2050 targets without a major change in propulsion systems”.

New Lines of Fuels

So if you then say, “Okay, what’s the average asset life of a tanker or a Capesize bulk carrier or potentially containership?”  “15, 18 years is probably the commercial life of that ship. So I can order one of those today and still see my way clear to meeting the 2030 targets with LNG fuel on the ship, which, by the way, is significantly cheaper today than diesel. But let’s not go there. And so — and then I get to sort of 2030. By then, I’ll have a clearer line of sight on what the new technology will be. Is it going to be hydrogen? Is it going to be ammonia? Is it going to be biofuels? And I’ll be able to order my next set of ships”.

Technologically Challenged in 2050

The LNG fleet, on the other hand, has a 30- or 35-year asset life, and everybody who’s running the economics of buying these ships is running them on a 30-, 35-year level. So we’re at 2020 today. For 35 years, we’re past 2050. That means that every LNG ship today gets to 2050 and probably is technologically challenged in terms of residual value. And that’s pretty unique. And I don’t think that the industry has picked up on that. And when we start seeing ships being ordered in ’24 and ’25 for the projects that are coming out there, Mozambique, Qatar expansion, et cetera, the people who order those ships are going to have to run the math on a 25-year life and not a 35-year life. And that’s going to make those ships somewhat less economically efficient compared to the ships that are out there today.

LNG Sizes

Livanos also commented on future LNG ship sizes and technologies saying that “We’ve seen the sizes go from 138,000m3 cubic meter steams all the way up to Q-Maxes and then back again. We’ll sort of hit on the 174,000, 180,000 size as the long-haul ship and the 155,000, 160,000 size as the short-haul ship. And the same thing happened in tankers where we went from small ships to ULCCs, and then the ULCC fell out of favour. So I think the size of the ships have sort of reached a stability level”.

Propulsion Technology Change

“Propulsion systems went from steam turbines to tri-fuel diesel electric to medium-speed diesels. The next propulsion system is going to be something completely different, and it’s going to use a completely different fuel, and it’s not there yet. So the technology curve is — you’re right to say it’s a kink. It’s not flattened in perpetuity. But certainly, one would be well advised to watch it very carefully as one looks at 2025, 2026 deliveries around new projects and the potential useful life of those assets in the changing environment”.

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