Home Energy assets UCL Energy Institute warns of $850 billion in stranded LNG assets

UCL Energy Institute warns of $850 billion in stranded LNG assets

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A safer investment strategy, according to lead author Marie Fricaudet, PhD student, and Dr. Tristan Smith, energy and maritime transport reader, would be to order conventionally fueled ships designed to be converted to carbon-free fuels when they will be available.

In a study timed to coincide with a Marine Money conference to be held in New York this week during New York Climate Week, the authors warn that the LNG-capable fleet could compete with zero-emissions vessels by the end of the decade, with asset values ​​severely compromised as a result. As a result, vessels capable of running on LNG may need to be depreciated over shorter periods.

Contracts for LNG-capable newbuilds have skyrocketed recently, with 65% of ship deliveries by 2025 capable of running on LNG, up from just 10% a few years ago. “Yet the size of the LNG-capable fleet…is currently small, so there is still time to anticipate regulatory and technological developments and manage exposure to an asset class that may be particularly exposed to value risk. failed,” the report said.

“The longer we leave the LNG transition going and then change, the more painful it will be and the lock-in of technology in this crucial decade will create more resistance to change later,” Fricaudet commented. The risk of stranded assets could increase the cost of the shipping decarbonization process and create resistance to aligning shipping performance with the goal of keeping global warming below 1.5°C.

However, the researchers identified a number of future fuel scenarios based on variables such as carbon-free fuel technology, asset development, and fuel availability. The report called on policymakers to show urgency and clarity in crafting future regulations, particularly on when and how methane emissions will be considered, to help investors in existing vessels and new builds to consider and anticipate the potential impact of regulations.

The report’s findings stand in stark contrast to some of shipping’s own analyzes which have concluded, in many cases, that doing nothing today is not an option. LNG is a much cleaner hydrocarbon fuel than conventional marine bunkers. A significant number of owners, as well as DNV, the largest classification society in the world, support LNG as a transition fuel.

Ships designed today as LNG-compatible, proponents of the transition point out, will be able to use alternative fuels and potentially switch to eLNG and bioLNG when they become widely available.