Risks of Stranded Assets in LNG Carrier Shipbuilding Resulting from Climate Policies

The increasing demand for gas transport and subsequent growth in LNG shipbuilding could result in the creation of stranded assets, warns Climate Analytics, along with South Korean climate and energy advocacy group Solutions for Our Climate, in a report titled “High and Dry: The global energy transition’s looming impact on the LNG and oil shipbuilding industry”. The report indicates that Korea and other shipbuilding countries should redirect public finance subsidies currently supporting fossil fuels and shipbuilding activities towards clean energy to reduce stranded asset risk.

The demand for LNG carriers grew to record levels in 2022, with estimates suggesting that 335 LNG carriers will be delivered between 2023 and 2028. The South Korean shipbuilding industry depends heavily on LNG carriers and tankers, with these ships ranking among its top ten exports in terms of value. Korean shipbuilders won over 70% of the orders for LNG carriers in 2022, representing 65% of the tonnage order from the country’s shipbuilders.

The report highlights that shipowners are continuing to explore further LNG carrier orders, with reports suggesting QatarEnergy and TotalEnergies are both planning large orders for LNG carriers. This further growth in LNG shipping capacity exceeds IEA’s forecast of LNG trade which poses a risk for financial institutions that provide loans and underwriting to the capital-intensive shipbuilding industry.

The report suggests that the traditional economic lifespan for ships versus the timelines for cutting and eliminating fossil fuel use signifies the potential for creating stranded assets among the current class of newbuilds. Any decline in the market for these ships will have a significant impact on the sector and broader implications for shipbuilding nations. The authors called for shipbuilders and their nations to prepare for these changes given the potential for a fundamental crisis due to heavy dependence on oil tanker and gas carrier construction.

Tags: LNG, tanker, shipbuilding, stranded, assets, demand, climate, South Korea,

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