MSI: Rapid Decarbonisation to Lead to Radical Transition

Rapid decarbonisation of global energy supplies will have radical implications for the global shipping industry, according to a new report from Maritime Strategies International (MSI).

If the Paris Agreement goals are met, the fossil fuel cargo base that shipping serves would undergo an aggressive and prolonged transformation. MSI’s report examined the consequences of a major shift in energy consumption away from hydrocarbons and towards renewables and biofuels for shipping markets.

“Whilst some sectors of the shipping industry, such as containerships, would be virtually unscathed, those for which hydrocarbons comprise a significant proportion of – or all – the cargo mix would undergo decades of falling demand,” Stuart Nicoll, MSI Director, said.

“The results, detailed in the report, would be multi-decade declines in fleet capacity, earnings and asset prices across the affected sectors. Ship owners would be forced to slash new ordering and scrap uneconomic vessels.”

MSI said that the analysis projects two demand frameworks – ‘Reduction’ and ‘Reference’ – designed to provide broad narrative and structure to long-term global energy demand.

Global energy consumption in the Reduction scenario is largely based on projections made for pathways consistent with limiting warming to 1.5°C above preindustrial levels, as described in the IPCC SR1.5 report.

The Reference scenario is designed to provide a comparison to Reduction. Although it describes a more limited change in the global energy consumption profile, Reference still incorporates substantial restraints on future energy consumption.

The more extreme Reduction scenario is the focus of the report, under which fossil fuel demand sees radical decline over the next three decades. By 2050 world coal consumption falls by 80%, oil consumption halves, and gas demand drops by about a quarter.

“The energy transition from fossil fuels to renewables means that investors in shipping and ports are exposed to substantial financial risks, which have not been adequately assessed before,” co-author Tim Smith, Director, Oil and Tanker Markets at MSI, added.

“Those in the industry who believe that that global commitments to cut carbon emissions will be achieved need to prepare for radical transition that this implies. Vessel selection will be critical, and divestment from sectors with the greatest exposure to fossil fuels may prove the only way to profitably navigate the changing landscape.”