Fossil fuel shipping profits could decrease by 30% as we move to decarbonisation

While uncertainties exist regarding future demand and energy transition trajectories, proactive measures are essential for sustainable development –this study highlights that there’s an urgent need for stakeholders to assess climate-related risks and redirect investments.

The transition towards a low-carbon society presents both challenges and opportunities. Investments in fossil fuel-dependent ventures face increasing risks, while avenues for sustainable alternatives emerge. The International Energy Agency forecasts a drastic reduction in demand for coal, oil, and natural gas by 2050, necessitating a shift in investment focus.

“This study shows what would happen to fossil fuel carrying ships if, as a society, we choose to meet the commonly agreed goals of the Paris Agreement and avoid the catastrophic effects of climate change. The results are quite chilling for oil and gas tankers: in a scenario where newbuilding of ships continues until 2030, about 37% of their expected profits would fail to materialise. – Marie Fricaudet, UCL.

Repurposing ships for alternative cargo presents challenges, particularly for LNG tankers due to their specialised nature. The capacity to mitigate these risks by transporting alternative cargo remains severely restricted. LPG tankers have, from a technical perspective, relatively good chances to transport ammonia; some oil tankers may find biofuels or chemicals to transport. However, many uncertainties persist over market and transport demand for new energy products as well as over the economic viability of retrofitting fossil fuels carrying ships. 

“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. – Stefanie Sohm, Kühne Climate Center

Results indicate that a significant portion of the world’s oil and gas tanker fleet worth a combined USD 539 billion, faces the risk of being stranded. The potential losses could amount to USD 214 billion or 32% of the fleet’s expected profits, before accounting for depreciation and cost of financing. By around 2030, the value of the inactive fleet could peak at USD 108 billion, representing 30% of its total value.

In contrast, bulk carriers transporting coal possess greater flexibility in transitioning to other dry bulk cargos. Overall, investments aligned with the climate transition are encouraged, including the expansion of transport capacity for dry bulk cargo and the development of low-carbon fuels.

Explore the results

The full research report presents the study's findings, methodology, and limitations in more depth and additionally provides a characterisation of the fossil fuel carrying fleet and the main stakeholders.

Links

• Full report: Fossil fuel carrying ships and the risk of stranded assets, June 2024
• Summary: Fossil fuel carrying ships and the risk of stranded assets in the transition to a low-carbon economy, June 2024
• Kühne Climate Centre
• UCL Energy Institute
• UCL Faculty of the Built Environment

Image credit

Unsplash.com – Shaah Shahidh