Report: LNG vessels could face almost USD 1 trillion in stranded value in 2030

The currently growing fleet of LNG-driven merchant ships could face an enormous loss of value ahead of 2030 compared with vessels on traditional fuel due to better economy in retrofitting the latter ships, according to a new report.
Photo: PR / Hapag-Lloyd
Photo: PR / Hapag-Lloyd

The many carriers and shipowners banking on liquefied natural gas (LNG) as a transitional fuel may face a major loss of value ahead of 2030.

Such is the conclusion in a new report from the University College London’s Energy Institute, which estimates that unprofitable investments in LNG vessels could reach USD 850bn at that time if shipping is given enough political incentives to invest in a shift away from fossil fuels towards fuels such as hydrogen and green methanol, both of which are emission-free.

LNG emits less CO2 than traditional heavy fuel oil (HFO), but it is still a fossil fuel with significant emissions of methane.

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”Whilst policy and competition would affect all ships built to use fossil fuels, the analysis suggests that more expensive LNG-capable assets (also known as LNG dual-fuel) would see reductions in their value to match the value of similar aged but lower cost conventional vessels designed to use fuel oil,” writes the UCL Energy Institute about the study.

The situation could, however, look different if LNG-driven vessels are capable of retrofitting, enabling them to sail on zero-emission fuels such as hydrogen and ammonia.

If so, the loss of value in relation to the stranded assets will be at around 15-25 percent of their value, according to the UCL Energy Institute.

”The longer we leave the LNG transition running and then switch, the more painful it will be and technology lock-in during this crucial decade will create more resistance to change later,” says Marie Fricaudet, lead author behind the report, in a statement.

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In relation to the report, the UCL Energy Institute also assesses that the order wave of LNG ships means that from 2025, around 65 percent of the delivered newbuilds will be able to sail on LNG, an increase from just around 10 percent a couple of years back.

Carriers such as German Hapag-Lloyd and French CMA CGM have acquired many LNG dual-fuel container ships able to sail on both natural gas and traditional HFO. Maersk has on the other hand chosen to bank on green methanol for its new box vessels.

Hapag-Lloyd CEO Rolf Habben Jansen admits that it is still early to make a final decision regarding which alternative fuel to bank on. At a recent press briefing, he explained that chartered ships could partake in postponing the need for newbuilds for some years until it is clear which sustainable fuels container shipping can go for in the future.

”We do believe that in three to five years’ time there will be a lot more clarity as to which direction things will go in,” said Habben Jansen, adding:

”So there is a small element [in the reason for chartering, -ed.] of taking on some modern, efficient ships, which will help us reduce our emissions anyway, but also postpone the decision as to whether we go ammonia, methanol, LNG or whatever.”

English edit: Kristoffer Grønbæk

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