- The combined LNG-burning fleet that will be operational in 2030 is at risk of financial losses of US$850Bn, according to UCL researchers.
- For policy makers, clarity on forthcoming regulations is urgently needed.
- LNG could be available in 2030 if shipowners, operators, and charterers are willing to pay up to €216/GJ.
With multiple market forces fuelling an orderbook run that is increasingly made up of LNG-fuelled ships, the combined LNG-burning fleet that will be operational in 2030 is at risk of financial losses of US$850Bn, according to a new study by UCL Energy Institute researchers. The UCL study, in line with many others, shows a boom in ordering of LNG vessels over recent years, with 65% of the newbuilding deliveries by 2025 being capable of running on LNG as a marine fuel, up from only 10% a couple of years ago.
Findings of the Study
The study’s analysis suggests the additional cost of building LNG-capable assets, identified as vessels equipped with LNG dual-fuel or LNG multi-fuel engines. The study finds the total asset value at risk can be limited by 75-85% – decreasing from US$850Bn to between US$129Bn-US$210Bn. The key to limiting the stranded asset value risk would, however, require changes. One measure to limit the risk would be for LNG-capable vessels to be retrofitted to run on “scalable zero-emissions fuels” such as hydrogen. The study also suggests that governments should not use public funding in a way that would exacerbate the creation of stranded value on vessel assets. “Shipowners and financiers should consider not ordering LNG-capable ships and investing in conventionally fuelled ships which are designed for retrofit to zero-emissions fuels…” the study said.
The ICCT report
Another recent report critical of the environmental credentials of LNG comes from the non-profit transport decarbonisation policy think tank ICCT. The ICCT report takes issue with ’assumptions’ underlying policy-based support of LNG as a fuel and the shipping industry’s rapid uptake of LNG-fuelled engines. ICCT said there must be adequate supply of renewable LNG for future demand and enough use of renewable LNG to result in a substantial reduction in life cycle GHG emissions. Using renewable LNG could cut well-to-wake CO2 emissions by 38% based on 100-year global warming potentials (GWP) but raise emissions 6%, the report showed. “Even using 100% renewable LNG doubles methane emissions compared with 2019; this is primarily because of methane slip from marine engines,” the ICCT said.
The ICCT report modeled three scenarios showing outcomes if the EU offered different levels of subsidies for use of renewable LNG. According to the ICC’s projections, a scenario in which the market set rates and the EU offered no subsidy for renewable LNG, LNG demand would be met using 100% fossil-based LNG. Maritime LNG fuel lobby SEA-LNG took issue with the ICCT report, saying the report makes flawed assumptions based on outdated data. While SEA-LNG agreed with ICCT’s assertion that renewable LNG will be expensive, the lobby group said the ICCT report did not include information showing that production of renewable hydrogen feedstock – necessary for all e-fuels – would be expensive.
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