Rystad report a worrying read for energy carriers

Rystad Energy’s latest annual report makes uncomfortable reading for many, not least the owners of tankers and gas carriers, particularly if limiting the rise in world temperature to levels close to today’s 1.5°C target proves to be the world’s target.

In its Global Energy Scenarios 2024 analysis, the Oslo-based energy consultancy notes that the world’s energy transition is gathering pace. And although the goal of limiting global warming to well below 2°C by mid-century is a monumental task, it is still achievable, the firm believes.

Solar, wind, and battery costs are continuing to drop at unprecedented speed, Rystad said, with capacity coming online at record pace. Solar installations rose dramatically in 2023, adding 60% to existing capacity and taking the total to 360 gigawatt-hours alternating current.

Rystad analyses the impact of three temperature reduction scenarios, with a 1.6°C drop being the most demanding. In this scenario, demand for oil, natural gas and coal would all start to fall off sharply later this decade, plunging to about half of today’s levels by 2040 and significantly more for coal – see graphic.

This scenario is deeply troubling for shipowners, particularly of tankers and LNG carriers, who have embarked on dramatic spending sprees recently. Many of the hundreds of new ships currently on order are unlikely to deliver before 2027/8, and 2040 is little more than half way through the operating lives of these vessels.

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The other two scenarios examined by Rystad are based on limiting global warming to 1.9°C and 2.2°C. And, although less serious from a shipowner’s point of view, they still have important implications for those involved in shipping energy by sea.

Many believe that the 1.6°C target is extremely unlikely to be met. Oil producers are still ramping up output, with new oil and gas sources constantly under development. Recent signs of rising hydrocarbon output include a relaxation of voluntary crude output constraints by OPEC+, likely to start at the end of November; rapidly expanding crude production and exports to Asia from Canada where the Trans Mountain pipeline has recently come on stream; and promises by one of the US presidential candidates to “pump, pump, pump” and bring more US hydrocarbon energy on stream in the years ahead.