In a new
report, researchers at University College London and the Kuhne Foundation
predict that the tanker and gas carrier segments will see their profits drop by
as much as $200 billion over the next 25 years if the global economy achieves
the Paris climate targets - even if all newbuild orders end. This amounts to a
third of the profits that tanker companies could earn over the same period
under a business-as-usual climate action scenario.
The research team set out to look at
the ownership structure, asset value and transport capacity of the global
tanker fleet, and how
well utilized it would be under future climate scenarios. In particular, they
sought to determine how much overcapacity there might be if the global economy
reduces fossil fuel consumption, and the resulting impact on tanker owners'
profits and asset values.
The team found that LNG, LPG and
crude tankers may be oversupplied in decades ahead if the global economy cuts
fuel consumption enough to meet the Paris Agreement's 1.5 degree Celcius
warming trajectory. The cumulative lost profits (compared to a
scenario in which the global economy does not decarbonize) could amount to up
to $214 billion by 2050, even if there are no more newbuild orders. If more
tankers and gas carriers continue to be ordered and built, lost profits could
rise to as much as $286 billion by 2050.
"The
results are quite chilling for oil and gas tankers," explains Marie
Fricaudet, who led the research at UCL. "In a scenario where newbuilding
of ships continues until 2030, about 37 percent of their expected profits would
fail to materialize."
If
demand and day rates drop, the book loss from falling vessel asset values could
amount to as much as $108 billion by 2030, or as much as $147 billion if the
orderbook continues to grow.
Simultaneously,
this decline in tanker activity would cut the cumulative CO2 emissions of the
maritime industry by 1.3-2.0 billion tonnes by 2050. This would help keep
shipping within the 12 billion tonne carbon budget the industry would need to
meet if it wants to achieve a 1.5 degree Celcius trajectory.
Other
demand-side factors in the changing energy market - like regionalized
production and reduced shipping distances - could further reduce tanker
activity. On the other hand, there is also the possibility that more these
vessels will keep sailing if they find a way to switch cargoes. Coal-carrying
bulkers could readily switch to other dry bulk commodities, the authors noted.
Tankers may also be convertible to new liquid fuels, subject to technical limitations,
and these adaptations to a new green-fuel landscape might offset the lost
profits of a decline in the traditional wet bulk trades.
"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," said Stefanie Sohm of the Kuhn Climate
Center.