Climate Analytics and South Korean climate advocacy group Solutions for Our Climate have raised concerns about the increasing risk of “stranded assets” in the liquid natural gas (LNG) shipping industry, in a report released recently. The warning comes as the global energy transition is beginning to impact LNG shipping expansion and demand, with the report calling for public finances to be redirected from fossil fuel subsidies to clean energy to address this emerging risk to the global economy. The report notes that shipbuilding of oil tankers and LNG carriers were responsible for 27% and 10% of global shipbuilding between 2016 and 2020.
Researchers state that the expansion of ship capacity leads to increased risks of stranded assets, citing that the backlog of LNG tankers rose to a record high in 2022, with the oil and gas industry switching to LNG following the Russian invasion of Ukraine, pushing up demand and capacity expansion. The report notes that Qatar is in the process of a long-term expansion project that’s expected to double the nation’s exports and points out that there were around 700 LNG ships at the end of 2021.
Researchers also note that South Korea’s shipbuilding industry is heavily dependent on LNG carriers with these ships being among South Korea’s top 10 exports by value, highlighting the industry’s reliance on this sector. This comes as shipowners continue to evaluate further orders for LNG carriers, with some analysts predicting the start of a prolonged oil market upswing.
The report concludes that if the decline in the market continues, it will have far-reaching implications for shipbuilding nations, and vulnerable institutions are those providing credit and underwriting to the industry. The researchers have urged shipbuilders and shipbuilding nations to prepare for the changes, pointing out the risk of stranded assets due to the traditional economic lifespan of carriers versus the timelines for reducing and eliminating fossil fuel consumption.
The report highlights the need for public finances to be redirected from fossil fuel subsidies to clean energy to avoid the risk of lost assets and address emerging vulnerabilities that can impact the global economy.
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