The world’s largest builder of LNG carriers methane dilemmaThe world’s largest builder of LNG carriers methane dilemma

Energy and maritime have not seriously competed for fuels since the days of coal and steam, but the increasing interest from shipping in LNG could see that competition revisited as carriers switch to gas in the immediate absence of a net zero alternative.

Nowhere is that competition more relevant than South Korea, the world’s leading LNG carrier builder, with some 80% of that market, while China leads the Koreans in all other types of vessels, however, Seoul is in a dilemma, having pledged to reduce the pollutant methane, the main constituent of LNG, and the major cargo for its ships.

South Korea’s government signed the Global Methane Pledge in 2021 when it announced its national Methane Emissions Reduction Roadmap, in November 2023, Korea pledged to reduce methane emissions by 30% in 2030 compared to 2020 emission levels,

Earlier this week South Korea, along with Turkey, came under pressure to back a plan to limit overseas oil and gas financing by major global economies, in a bid to “Trump proof” global warming mitigation.

Discussions at the Organization for Economic Cooperation and Development (OECD) ended in deadlock in June with South Korea and Turkey refusing to end overseas energy investments in new oil and gas projects, those meetings resumed this week with intense pressure being applied on Seoul to agree a deal.

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According to Greek shipbroker Allied there are currently 384 LNG carriers on order, that could be worth over $60 billion in contracts for newbuild orders to Korean yards. In addition, it is necessary for LNG demand to be maintained to keep these new vessel orders flowing.

That demand is threatened by OECD discussions aimed at phasing out fossil fuels, starting with an agreement to stop investments in new fossil fuel projects, which South Korea has, so far, refused to sign.

A recent National Assembly audit in South Korea revealed that investments in new overseas fossil fuel projects by the Export-Import Bank of Korea increased by nearly 40%, rising from KRW 14.3 trillion ($10.97 billion) in 2017–2020 to KRW 20.3 trillion ($15.61 billion) in 2021–2024.

Only Canada has invested more in LNG between 2020 and 2022 and this “dramatic increase has sparked controversy,” according to Korean climate NGO Solutions For Our Climate (SFOC).

Vivian Lee, director of fossil fuels and heavy industries program SFOC said: “The critical upsurge of LNG prices in the past several years is linked to the over-reliance on volatile fossil fuels. This has been the trend in the past decade.”

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Lee added that OECD restrictions would apply to new projects as a response to climate change and the price of LNG will not necessarily increase because of the restriction by the OECD on new fossil fuel projects.

Carbon pricing is also changing with a new standard released by the International Standards Organisation, ISO 14083, which measures the GHGs throughout a supply chain and compares like with like, making the understanding of the emissions clearer.

According to freight forwarder association, CLECAT: “ISO 14083 does not stand alone but is part of a number of other international standards for the quantification of environmental impacts and GHG emissions and specifies general principles for calculating GHG emissions in passenger and freight transport.”

It can be used as a starting point for other analyses, including, for example carbon footprint, product carbon footprint or life cycle assessments.

As the maritime industry has accepted that new fuels will not be available in sufficient quantities to meet the sector’s requirements many carriers have opted for LNG, with a view to switching to methanol, which ship operators have said is an easier transition from LNG than other fuel types.

South Korea the world’s second largest shipbuilder will also be producing a considerable number of LNG, dual fuel, vessels, with the global total expected to reach over 1,000 over the coming five years.

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In this scenario, maritime will definitely be the junior partner in terms of demand for the fuel, in what will be a volatile and uncertain market.

International Energy Agency (IEA) executive director Fatih Birol said: “A 75% cut in methane emissions from fossil fuels by 2030 is imperative to stop the planet from warming to a dangerous level. I am encouraged by the momentum we’ve seen in recent months, which our analysis shows could make an enormous and immediate difference in the world’s fight against climate change.”

Methane abatement is extremely cost-effective, said the IEA, around 40% of methane emissions in 2023 could have been avoided at no cost, “since the value of the captured methane was higher than the cost of the abatement measure.”

Carbon pricing in general, and in shipping in particular, will be forcing costs to go in the opposite direction, driving prices ever higher, if that imperative drives a shift to methanol, or other alternative fuel, the collapse in demand for LNG could leave owners of LNG assets in serious financial trouble.

SFOC’s Lee warned that increasing investment in LNG as an alternative fuel risks vessels becoming stranded assets as more stringent environmental regulations are introduced.

“Shipowners considering long-term investments in LNG-powered fleets as well as LNG-carriers should carefully weigh this historical volatility against short-term price advantages when making fleet decisions,” she added.