- Tool Reveals Climate-Related Financial Risks in Shipping.
- Oil and LPG Tankers Show Lower Stranded Asset Exposure.
- New Interactive Tool Guides Financiers on Investment Risks.
A staggering USD 48 billion invested in LNG carriers could be at risk of being written off by 2035, as these vessels face an oversupply in a climate scenario aiming for a 1.5°C increase, which comes with a decline in fossil energy use. This insight comes from new research conducted by the UCL Energy Institute and the Kuehne Climate Centre (KCC). The study underscores a rising risk of stranded assets for both investors and shipowners, especially as LNG demand forecasts sharply contrast with the rapid expansion of the industry’s fleet. Even in scenarios where fossil fuel consumption remains high, leading to a 4°C rise in global temperatures, the LNG fleet is still projected to be oversupplied over the next ten years, reports UCL.
Unlocking Climate-Related Financial Risks
Dr Vishnu Prakash, Managing Director of Alethiarc, who led the work said, “The tool and our analysis identify and unlock ways to understand climate-related risks that is often overlooked, and, importantly, shows how shipping assets are likely to face significant financial risk from the global energy transition even under more modest climate change scenarios.”
Oil and LPG Tankers Show Lower Risk
Besides LNG carriers, the research also covers oil and LPG tankers, which display a lower risk profile thanks to their greater flexibility in carrying other cargoes. Dr Marie Fricaudet, Senior Research Fellow at UCL Energy Institute, said: “For the first time, when estimating the overall fleet value at risk, we have included the possibility for certain ship types to be repurposed to carry alternative cargoes. This allows the users to measure the advantage of cargo optionality when it comes to stranded assets.”
Interactive Tool for Investors
These findings are detailed in the Investment Risk Monitor for Fossil Fuel Carrying Ships, an interactive tool created by UCL and KCC. It offers insightful estimates of future supply and demand dynamics for various types of fossil fuel ships under different climate and energy scenarios.
Maarten Biermans, Partner at Prow Capital, said: “Anyone active or contemplating becoming active in the financing of these types of vessels is well advised to study and use this tool to the max. It will help financiers to map and avoid stranded assets while also improving their conversation with regulators.”
Financial Risk Concentrated in Top Nations
The tool also pinpoints where the financial risks are most concentrated. Approximately 75% of the fossil fuel-carrying fleet is held by the top 10 ship-owning countries, with Japan, South Korea, Greece, Norway, Singapore, and P.R. China being particularly vulnerable. Companies based in the U.S. are also facing significant risks, as the New York Stock Exchange accounts for about 12.5% or USD 42 billion of the total fleet value.
Profound Transformation Ahead
Stefanie Sohm from Kuehne Climate Centre said: “The shipping sector has a profound transformation ahead of itself. With the Investment Risk Monitor, we want to give owners and investors access to information that can help them making good decisions for their current and future investments.”
While demand for coal, crude oil, oil products, and LPG transport is also expected to decline, these fleets face lower risk due to natural retirement cycles and cargo-switching flexibility. In contrast, LNG carriers are younger, purpose-built, and costly to repurpose, making them more vulnerable.
Highlight at New York Climate Week
The tool will be showcased at New York Climate Week in a session co-organised by Solutions for Our Climate (SFOC). Rachel Eunbi Shin from SFOC said, “The Investment Risk Monitor provides important data. Korea dominates over 70% of the global LNG shipbuilding market with significant public funding support. With LNG shipping freight falling below break-even levels, we’ve been working with policymakers to help them factor in these risks when making investment decisions.”
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Source: UCL
