- Korean and Chinese Banks Most Exposed to Stranded Asset Risks.
- European Lenders Hold Over One-Third of Shipping Portfolios in Oil and Gas.
- LNG Carriers Face the Highest Risk of Becoming Stranded Assets.
A significant new study from researchers at University College London (UCL) raises an important alarm: a substantial portion of global ship financing is linked to oil and gas carriers, putting financiers at risk as the world shifts towards low-carbon energy solutions, reports UCL.
UCL Study Maps USD 378 Billion in Maritime Financing
This research has mapped out the financial arrangements behind a whopping USD 378 billion in maritime assets, which accounts for roughly 30% of the total value of the global vessel fleet. By analysing data from over 3,000 transactions, including loans, bonds, leases, and equity investments, the study paints the first detailed picture of which institutions are most vulnerable to fossil fuel shipping.
Asian Financiers Lead in Fossil Fuel Exposure
The results show that five major financiers, including China Merchants Group and Korea Eximbank (KEXIM), have more than half of their shipping portfolios tied up in fossil fuel carriers. European banks like Standard Chartered, ABN AMRO, ING Bank, SEB, Nordea, and SMBC also have over a third of their portfolios invested in this area. Notably, BNP Paribas, which boasts the largest portfolio at USD 9 billion, has around USD 2 billion (or one-quarter) allocated to fossil fuel shipping.
LNG and Oil Tankers Face High Stranded Asset Risks
As the demand for oil and gas dwindles in line with the goals of the Paris Agreement, vessels built to transport these resources could end up as stranded assets. LNG carriers are particularly at risk due to their high construction costs and specialised designs, making it costly and impractical to repurpose them. On the other hand, bulk carriers are less exposed since they can easily switch to transporting other goods like grains without needing significant modifications.
Breakdown of Financing Instruments
The study found that financing for LNG carriers totals USD 36 billion, with loans making up USD 21 billion, followed by leases and ownership at USD 11 billion, and equity at USD 7 billion. For oil tankers, the total identified financing reached USD 35 billion, where equity and bank loans each accounted for 40%. This suggests that financial risks extend beyond just banks and into the broader global capital markets.
Experts Call for Greater Transparency
Dr Tristan Smith, Professor of Energy and Transport at UCL Shipping and Oceans Research Group, said: “These risks exist regardless of the IMO’s adoption of the NZF. However, reflecting on the NZF being delayed, this subject has now increased in salience – regulation has not gone away but is now more uncertain. Understanding and managing that risk will now be of greater importance than ever.”
Dr Nishatabbas Rehmatulla, Principal Research Fellow at UCL Shipping and Oceans Research Group, said: “The gaps in data highlight an urgent need for much greater transparency in shipping finance. Building this dataset from various sources, whilst complex and novel, underscores the current failure of disclosure in the sector. Whilst initiatives such as the Poseidon Principles have made an attempt at this, the climate alignment scores are aggregated at the portfolio level, meaning that data cannot be traced back to individual vessels. Furthermore they provide only an annual snapshot on GHG emissions intensity, but to really assess exposure to stranded asset risks, more forward-looking understanding is needed.”
Call for Data Transparency and New Risk Tools
A recent dataset, which represents about 25–40% of the global fleet’s value, reveals some serious gaps in public data, especially when it comes to Asian financiers. To tackle this issue, UCL’s Shipping & Oceans Research Group, in collaboration with the Kuehne Climate Centre, has rolled out an interactive tool called the Investment Risk Monitor for Fossil Fuel Carrying Ships (shipping-transition.org). This tool is designed to help users evaluate future supply and demand dynamics for fossil fuel carriers.
The research indicates that LNG carriers might be looking at an oversupply situation in the next decade, which could increase the chances of financial write-offs.
Did you subscribe to our daily Newsletter?
It’s Free Click here to Subscribe!
Source: UCL
