Even the half-hearted emissions reduction target recently adopted by the International Maritime Organization (IMO) will be enough to make the most modern liquefied natural gas (LNG) carriers obsolete, prompting Greek shipping magnate Peter Livanos to recommend the industry use older vessels rather than investing in new ones.
“The IMO’s 2050 decarbonization targets are already causing headaches for the LNG sector, where assets have a lifespan that will outlive the mid-century mark,” when the IMO’s 50% reduction target will take effect, Lloyd’s List reports. With the target making the new ships obsolete before their time, it will be “difficult for owners to calculate their depreciation trajectory. This, along with the environmental cost of building new ships, should prompt owners to offer existing LNG ships to service new facilities.”
“If the LNG ships of today do not meet the 2050 aspirations of the IMO, one could safely assume that it would be financially foolish to assume that the ship is of much residual value beyond 2050,” Livanos said. While he claimed emissions improvements to date will position the ships to meet the IMO’s 2030 target of cutting emissions 40% below 2008 levels, it will take “fundamental change in propulsion technology” to hit the 50% threshold by 2050, making it difficult for owners to calculate their finances for ships that are expected to go into service in 2025 to serve LNG projects in Mozambique and Qatar.
Lloyd’s List says there are currently 116 new LNG carriers on order or under construction world-wide.
Livanos estimated that 45% of the current LNG fleet relies on earlier technologies and propulsion systems that increase their carbon footprint and make them more expensive to operate. But he also suggested factoring in the environmental footprint of building a new ship, compared to using one that is already in the water.
“It is a lot more than the $190 million the yard makes you pay for it,” he said. “And no one is talking about that.”
Livanos questioned the notion that LNG is in for a period of unbridled growth, but still cast the industry as a “key and long-term investment in shipping,” and a “significant global energy source for years to come,” Lloyd’s writes.
“I suspect over the next few years we will see the compression of margins by the industry as it looks to continue to attract new players into the sector with somewhat irrational financial expectations,” he said. But “it seems unlikely to me, even with all the best will in the world, that a commodity like LNG will not have a valuable part to play in a carbon neutral transition in this world.”