Report: Climate Action Could Lead to Market Collapse for Tankers

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By The Maritime Executive 07-17-2019 09:49:11

If the world's nations move rapidly to decarbonize in order to avoid the worst effects of climate change, the owners of tankers and bulkers could be exposed to a plummeting charter market, warns a new report from Maritime Strategies International (MSI). 

In a new report prepared by MSI on behalf of the European Climate Foundation, MSI's researchers looked at two climate response scenarios - a business-as-usual reference case and a "reduction" case, which is based on a scenario in which the world takes action to avoid climate change. The "reduction" scenario indicates a rapid collapse in demand for oil and coal, leading to greatly reduced need for liquid and dry bulk transportation. Renewables see the biggest net gain across the forecast horizon, increasing from five percent in 2020 to 16 percent in 2050, and biomass and biofuels see substantial growth to 2030.

As traditional carbon-based fuels decline in this scenario, they are not replaced by alternative shipped commodities because in general, renewable energy cannot be transported in quantity by waterborne means.  Today, the majority of energy-related shipping is associated with moving primary feedstocks; with renewables, shipping is only involved in transporting equipment for the power generation infrastructure and parts for maintenance, not the feedstock for generating power. 

Under this scenario, shipping sectors in which hydrocarbons make up a significant proportion of the cargo mix would undergo "decades of stagnant or falling demand," MSI warned. The oil tanker market would be most exposed: overall, tanker demand would fall by slightly more than a third, leading to falling asset prices and rising demolotion activity. Bulk carriers would see demand from coal transportation fall by around half, but overall demand for the sector would only fall by about 14 percent from 2020 to 2035 before returning to modest growth.

" The destruction of demand has significant ramifications for owners and financiers of vessels. It will hurt fleet utilisation, and the earning power of tankers and bulkers would collapse in the Reduction scenario," MSI concluded. "Capesize bulkers would spend the 2030s averaging roughly half of their long-term median earnings, whilst for a VLCC earnings would underperform their long-term median by around a third."

Ultimately this would lead to a significant change in the composition of the world's fleet, with container vessels accounting for an growing share and tanker tonnage in decline. The fleet size would still rise by 60 percent over the period, despite the reduction in liquid bulk cargo capacity.