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Fossil Fuel Carrying Ships Risk A Substantial 30% Of Profits And Capital Value Being Wiped Out Amid The Global Shift Towards Decarbonisation

According to a pioneering analysis by the University College London (UCL) Energy Institute and Kühne Climate Center, ships that carry oil and gas face significant challenges if the decline in global fossil fuel consumption matches the goal of limiting global warming to 1.5°C by 2050. Results indicate that a significant portion of the world’s oil and gas tanker fleet worth a combined USD 539 billion, faces the risk of being stranded.

The potential losses could amount to USD 214 billion or 32% of the fleet’s expected profits, before accounting for depreciation and cost of financing. By around 2030, the value of the inactive fleet could peak at USD 108 billion, representing 30% of its total value. The fleet’s capacity to mitigate these risks by transporting alternative cargo remains severely restricted. Approximately 18,000 vessels currently transport fossil fuels, constituting over a third of global shipping activity.

“In this study we show what would happen to fossil fuel carrying ships if, as a society, we choose to meet the commonly agreed goals of the Paris Agreement and avoid the catastrophic effects of climate change. The results are quite chilling for oil and gas tankers: in a scenario where newbuilding of ships continues until 2030, about 37% of their expected profits would fail to materialise”, explains Marie Fricaudet who led the research at UCL.

The transition towards a low-carbon society presents both challenges and opportunities. Investments in fossil fuel-dependent ventures face increasing risks, while avenues for sustainable alternatives emerge. The International Energy Agency forecasts a drastic reduction in demand for coal, oil, and natural gas by 2050, necessitating a shift in investment focus.

Repurposing ships for alternative cargo presents challenges, particularly for LNG tankers due to their specialized nature. LPG tankers have, from a technical perspective, relatively good chances to transport ammonia; some oil tankers may find biofuels or chemicals to transport. However, many uncertainties persist over market and transport demand for new energy products as well as over the economic viability of retrofitting fossil fuels carrying ships.

In contrast, bulk carriers transporting coal possess greater flexibility in transitioning to other dry bulk cargos. Overall, investments aligned with the climate transition are encouraged, including the expansion of transport capacity for dry bulk cargo and the development of low-carbon fuels.

Stefanie Sohm from the Kühne Climate Center emphasizes, “Our forecast, even if only indicative, should prompt investors and shipping actors to evaluate their climate risks and redirect investments. The transport sector must play a role in transitioning to a low-carbon society, with capital shifting to sectors aiding this transformation.”

The study’s findings, methodology, and limitations are summarized in “Fossil Fuel Carrying Ships and the Risk of Stranded Assets – Key Findings and Implications for Financiers and Industry Actors”. The full research report presents these in more depth and additionally provides a characterisation of the fossil fuel carrying fleet and the main stakeholders. The documents can be found on both institutions‘ websites.

Overall, the work suggests the urgent need for stakeholders to assess climate-related risks and redirect investments. While uncertainties exist regarding future demand and energy transition trajectories, proactive measures are essential for sustainable development.
The Kühne Climate Center works on logistics solutions to cut emissions, remove CO2 , and boost climate resilience. With its research on ‘Transport and Logistics for the Low-Carbon Society of 2050’, it maps out structural changes for the industry to adapt, identifies new required sector capabilities, and highlights opportunities for global and local sustainable development.

The UCL Energy Institute hosts a world-leading research group focused on the decarbonization of the shipping sector. It uses big data to understand drivers of shipping emissions, models to explore shipping’s transition to a zero emissions future and it provides interpretation to key decision makers in the policy and industry stakeholder space.
Source: University College London (UCL) Energy Institute

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