- Economic Viability of Steam Carriers in Question.
- Lay-Ups and Scrapping on the Rise for Aging Steam Carriers.
- Regulatory Pressures Accelerate the Decline of Steam Carriers.
Growing environmental regulations and market volatility are putting steam turbine carriers at high risk. Most carriers will be scrapped sooner than before. Demolitions rose in 2024 as charter rates fell sharply, especially for steam carriers, questioning their economic viability. With bearish market conditions continuing, the demolition age of LNG carriers is decreasing, and regulatory risks are rendering steam carriers more obsolete, reports Drewry.
Historic Low Rates for Steam Carriers in 2024
In 2024, spot rates for steam carriers averaged $23,000 per day but dropped sharply to $5,000 per day by the end of the year—a historic low. This decline was driven by:
- Weak LNG demand in Europe
- Limited competition between European and Asian markets
- An oversupply of vessels
- Minimal benefit from longer voyages due to LNG carriers rerouting via the Cape of Good Hope (COGH)
This downward trend is expected to continue through 2025-26, with steam carriers struggling to secure employment.
Reluctance to Charter Steam Carriers
Charterers are increasingly reluctant to send out steam carriers because of the high cost of operations. Although some shipowners hold out hopes for an improvement in the market, increasing lay-up expenses and continuing uncertainty can compel them to junk their ships rather than hold on for improved market conditions.
Steam Carriers Becoming Financially Unviable
Declining rates rendered steam carriers unviable commercially, with a large number being unable to support minimum operating costs. This resulted in:
- Idle vessels are on the rise as the expiry of charters occurs
- An expanding difference in cost for 10- and 15-year-old steam carriers (16-17%)
- Shipowners speculating about laying up to sit back and see if demand booms by the decade’s end
Even if liquefaction capacity increases in the future, steam carrier demand is not going to come back, and owners will find it difficult to find long-term employment opportunities after maintaining their vessels in layup for a few years.
Limited Conversion Options
A few of the older steam carriers can be converted into Floating Storage and Regasification Units (FSRUs) or Floating Storage Units (FSUs) because of increasing energy security issues. Yet, only a limited number of ships will be eligible for conversion because of technical limitations. Therefore, the majority of old steam carriers will end up being scrapped.
Demolitions to Pick Up Pace in 2025
Steam carriers account for 25% of the world’s LNG fleet today, leading to oversupply in the market. Demolitions will pick up pace in 2025 and onwards, slowly balancing supply-demand levels. Scrapping, however, could be hampered by Perlite disposal concerns and declining steel prices impacting scrap valuation.
Speed Reduction to Meet Emission Standards
LNG carriers are slowing down to meet maritime regulations such as CII and EEXI. Steam carriers are especially exposed, though, since slower speeds result in greater boil-off gas losses, making them even less competitive.
Latest Carriers Forcing Steam Carriers into Oblivion
Growing regulation is pushing shipowners into ordering more environmentally friendly, modern LNG carriers that have reduced emissions, with 95% of new contracts utilizing XDF/MEGA engines, which are much more fuel-efficient compared to traditional steam carriers. The next-generation carriers are a sound means of mitigating increased regulatory challenges, with continually developing technology directed towards decreasing methane slip—a fundamental aspect under EU-FEM guidelines. Although there are challenges, future carriers are set to fly smoothly until at least 2035, after which time their existence will be up to further improvements in engine technology.
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Source: Drewry
