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Livanos calls on LNG owners to cut back on newbuilds

The IMO’s 2050 decarbonisation targets are already causing headaches for the LNG sector, where assets have a lifespan that will outlive the mid-century mark. Major Greek shipowner Peter Livanos warned that LNG newbuilds will be obsolete by 2050. This makes it 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

Mr Livanos warned that new LNG carriers will be obsolete by 2050 without new technologies owing to the imposition of decarbonisation targets

OWNERS and charterers of liquefied natural gas carriers should consider using older vessels rather than ordering new ones that will become obsolete due to decarbonisation targets, according to Peter G Livanos, chairman of GasLog and owner of Ceres Shipping.

He said modern LNG ships are unable to cut emissions to meet the International Maritime Organization’s target of at least 50% by 2050.

While that is true for the vast majority of vessels today, it is an immediate problem for LNG vessels and potential newbuilds because they have longer lifespans than typical commodity carriers.

“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,” Mr Livanos said in London.

The IMO has committed to reducing greenhouse gas emissions from ships by at least 50% by 2050 compared with 2008, and try to cut their carbon intensity by 70%, compared with 2008.

Mr Livanos hailed the emissions improvements LNG ships have already made over the past few years and claimed today’s vessels can meet the 2030 targets of reducing carbon intensity by 40% by 2030 compared with 2008.

But he acknowledged the 2050 targets for LNG carriers are not attainable without “fundamental change in propulsion technology”. This reality for LNG ships also means that the industry’s business model will likely have to shift.

With 2050 rules defining asset values and considering the upcoming liquefaction projects in Mozambique and Qatar that will likely come online around 2025, Mr Livanos said that it is challenging for owners to calculate the deprecating capacity of their new LNG ships.

“We need to be very prudent about how we look at the economics of ordering ships for 2025 delivery to go into rather modest seven-year charters in which our charterers take every opportunity to minimise the returns,” he said at an event marking the 35th anniversary of the Costas Grammenos Centre for Shipping, Trade and Finance.

Lloyd’s List Intelligence data shows there are currently 116 LNG carriers on order, in build or under construction. 

Mr Livanos questioned why LNG facility operators insist on the construction of new vessels to service newly built projects, while at times taking these newbuilds in on relatively short time charters.

Owners should instead be pushing back and offering charterers their older vessels at good rates.

“The minute you start to see people actually think that way, you are going to start to see the corrective balance for how the fleet is going to deal with the transition and how it is going to pay for it,” he said.

Mr Livanos claimed that around 45% of the LNG fleet today consists of vessels still fitted with earlier technology and propulsion systems that are not competitive compared with the newer dual fuel engines in terms of operating cost and environmental footprint. 

While he recognised their shortcomings, he questioned what the actual environmental cost of building a new ship is compared with simply using one already on the water.

“It is a lot more than the $190m the yard makes you pay for it. And no one is talking about that,” he said.

Despite the challenges he spelled out, Mr Livanos said he still considers LNG a key and long-term investment in shipping, but he said he was extremely cautious about the idea there might be unbridled growth.

“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.

Mr Livanos made the argument that there would be a role for LNG as a potential transitional marine fuel to help decarbonise the industry. He argued the LNG segment will play a significant role in this development.

“We are indeed the laboratory animal that will allow the entire shipping industry to look at LNG as a transition fuel,” he said.

He further argued that LNG will have a significant role to play as a global energy source in the years to come.

“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,” he said.

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