Don’t risk being left on the sidelines

Welcome to the Year of Ox – forecast to bring stability and calmness, marked by great opportunity and economic prosperity.

For LNG shipping, ‘great opportunity’ and ‘economic prosperity’ were evident in the early going of 2021. Soaring spot charter rates were pushed to historic highs by a tight LNG shipping market, in combination with an insatiable appetite for natural gas in Asia amid a bone-chilling winter. Atlantic spot charter rates more than tripled in a span of three days, from US$99,000/day to US$322,000/day between 5 January and 8 January. BP chartered Nigeria LNG’s 175,000-m³ LNG Abalamabie for a Bonny Island loading in early February at around US$350,000/day.

US LNG exporters benefitted from the increased demand for LNG, enjoying record months in November and December. The US Energy Information Agency expects US LNG exports to remain at record levels during the winter season, forecasting exports will average 9.5 bcfd in Q1 2021, and 8.5 bcfd on an annual basis in 2021, up 30% from 2020.

Long-term, beyond the Year of the Ox, prospects for US LNG producers remain strong, as LNG is the cleanest burning fossil fuel and a key component of the global energy transition in coal to gas switching, and later to the evolutionary transformation to lower-carbon intensive and eventually zero-emissions fuels.

LNG shipping, too, will play its part in the green transition, not only transporting energy, but burning less of it to do so. Efficiency for existing ships will be front in centre in June 2021, when IMO’s Marine Environment Protection Committee (MEPC) meets at MEPC 76 to adopt the Energy Efficiency Existing Ship Index (EEXI) and operational carbon intensity reduction requirements based on a carbon intensity indicator (CII). This approach takes both technical – how a ship is equipped and retrofitted – and operational measures into consideration in determining a ship’s efficiency. CII determines the annual reduction factor needed to ensure continuous improvements of the ship’s operational carbon intensity within a specific rating level. Ship’s will be given carbon intensity ratings from A to E indicating their performance, which will be recorded in their Ship Energy Efficiency Management Plan (SEEMP).

“Solid ESG reports will be critical in attracting socially responsible investors”

Such ratings will become increasingly important as charterers look to reign in CO₂ and greenhouse gas (GHG) emissions across their operations to align with their environmental, social and corporate governance (ESG) commitments. Solid ESG reports will be critical in attracting socially responsible investors.

Shell’s recent announcement regarding its commitment to being a net-zero emissions business by 2050 will have a deep impact on its value chain. Its strategy incorporates investing in LNG, hydrogen, renewables and carbon capture and storage, while phasing out investments in oil and gas in the coming decades. Short-term, Shell plans to reduce net carbon intensity by 6 to 8% by 2023, 20% by 2030, 45% by 2035 and 100% by 2050, based on its 2016 baseline net carbon emissions. Shell plans to assess its net carbon emissions based on what it produces from its own operations, but also the emissions from its energy products, as well as from those of others that provide products it uses and later sells.

This means Shell is going to be looking for partners that are just as committed as it is to lower carbon intensity and achieving net zero emissions.

Shell controls about 20% of the LNG shipping fleet. Shipowners that want to do business long term with charterers like Shell will need to devise energy efficient operational practices and invest in low-emissions technology, or risk being left on the sidelines.