LR: LNG fleet exposed to CII impact

Namely, Mr. Mitrou noted that the world fleet of LNG carriers is expanding fast, as a record 85 newbuilding contracts agreed at substantially higher prices in 2021 will boost today’s 610 deep sea trade LNG ships, and there are expectations of another year of record contracting in 2022.

Ten more LNG carriers were ordered in the first few days of January, taking the orderbook up to more than 130 ships, close to 20% of existing fleet capacity. With projects lined up however this number could easily triple soon.

In these conditions, concerns are raised about regulatory compliance. We are likely to have a shortage of ships that comply with the IMO’s carbon intensity indicator (CII) from 2025 onwards. This could limit charterers’ options, propel rates for compliant ships to new highs, and ultimately put a brake on the world’s decarbonisation process to the extent that this is driven from the coal to gas shift

Mr. Mitrou stated, adding that the supply squeeze is inevitable despite the arrival of several newcomers in LNG construction. “Despite the newcomers, LNG builders are full until 2025 for a sector which historically presented a capacity of approximately 30 units a year.”

In the meantime, LNG trade is predicted to grow by 250 million tonnes per annum, until 2030, according to MSI and IGU forecasts putting even more pressure on the shipbuilding sector.

As for the challenges today’s existing fleet face, Mr. Mitrou says that there are about 250 elderly steam turbine vessels which typically have a daily boil-off rate (BOR) of about 0.15% of cargo.

These ships were designed to use ‘Boil-Off’ for propulsion. In this manner their propulsion arrangements did not look on efficiency but to the productive consumption of liquid turning into gas

For this reason, boilers along with steam turbines were considered as “a good match despite its efficiency being marginally over 30%, or even lower when away from the optimum operating point like in ‘slow steaming’ conditions.”

The next stage of LNG ship design, explains Mr. Mitrou, moved from steamers to four-stroke, dual- or tri-fuel diesel-electric propulsion systems, using types of marine fuels or LNG. These vessels, with lower BORs of around 0.1%, have smaller engines and better efficiency of more than 40%. There are about 150 of these ships in the fleet today.

The latest generation of two-stroke LNG vessels have BORs as low as 0.07%. Their efficiency is almost or marginally below 50% and these vessels are equipped with reliquefaction plants on board to convert any excess boil-off back into liquid cargo.

So, during a slow canal transit, for example, or port operations when propulsion power is not required, operators of such vessels can conserve cargo and its value. There are about 210 of these ships in operation today, making up the balance of the fleet

Now, the first two ship categories, which represent well over half of the existing fleet, are unlikely to achieve CII ratings of A, B, or C when they are gauged next year.

This means that ships rated E will have to undergo carbon-efficiency improvements immediately and owners of D-rated vessels will have to make sure that ships become more fuel efficient within the three following years.

However, Lloyd’s Register’s Global Gas Segment Manager warns that since CII assessments will become progressively stricter from 2027 until the end of the decade, ships which are adapted to meet CII requirements by 2024/5 may subsequently fall into categories D and E later in the decade.

Owners of these older vessels will then have to decide whether to invest in expensive sustainability measures, sell them for conversion to floating LNG plants, or dispose of them for recycling

So, on one hand, there is limited scope to raise supply to meet the growing demand for seaborne LNG because shipbuilders have no extra capacity. On the other, you have a majority of ships in the fleet which are unlikely to meet CII requirements from 2025 onwards, in what could resemble to a perfect storm

Mr. Mitrou concludes.

During the 2020 GREEN4SEA Athens Forum, Mr. Panayiotis Mitrou, Global Gas Segment Manager, Lloyd’s Register Marine & Offshore, shared his views on LNG as a fuel, towards 2050 compliance and beyond, explaining that:

• The oversupply question, despite the projected LNG market Growth, liquefaction capacity of an additional 35% within the next 6 years is expected to create a ‘long’ market.

• LNG Bunkering cannot tackle but can benefit from potential oversupply of LNG

• LNG will need to remain competitive to pipeline Gas, this means competitive pricing both at source and the supply chain

• LNG market and its supply chain are expected to mature and expand with more spot trading opportunities and a wider storage network

• LNG Bunkering is expected to grow by 50-60% CAGR until mid 2020s to a several billion $ industry.

What is more, IMO’s EEXI and CII measures slated for 2023 to reduce emissions may be too slow to enforce change by only factoring in operational considerations, as maritime organisation RightShip announced.

Namely, RightShip has argued that the IMO’s Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII) to reduce greenhouse gas (GHG) emissions slated for 2023 may be too slow to enforce change by only factoring in operational considerations, missing out on the crucial emissions reduction capabilities of the Energy Efficiency Design Index (EEDI).