Shipbuilders lured by a temporary bull market will likely be left stranded as the world transitions away from fossil fuels. They are facing significant risk by overshooting liquefied natural gas (LNG) shipping capacity that is inconsistent with future energy scenarios.

This report finds that the uptake in shipping capacity far exceeds global forecasts of LNG trade as the world transitions away from fossil fuels to limit global warming to 1.5°C, and that the LNG shipbuilding business could become stranded under the International Energy Agency (IEA)’s net-zero scenario.

In 2022, 34 LNG carriers were added to the global fleet, and 335 LNG carriers are expected to be added between 2023 and 2028, according to data from Clarkson Research. This surge in orders was largely driven by the oil and gas industry’s dash for LNG following Russia’s invasion of Ukraine.

However, under growing pressure to decarbonise, governments around the world have announced pledges and adopted policies that would render much of the new LNG vessels useless.

The findings are especially relevant to South Korea, which dominates the global LNG shipbuilding industry. In 2022, Korean shipbuilders won over 70 percent of LNG carrier vessel orders.

In the 2010s, Korean shipbuilders faced major financial challenges after oil prices slumped following the recession, and vessel owners began pulling out of contracts or delaying delivery and payment of drillships and offshore oil and gas production facilities.

Despite the high stranded asset risk of LNG carriers, South Korean shipbuilders are looking at a wave of new building orders from oil and gas companies that are doubling down on their fossil fuel business. Currently, QatarEnergy and South Korean shipbuilders are discussing an order of up to 40 new LNG carriers for delivery in 2027.

The French oil and gas major TotalEnergies is also resuming the highly controversial Mozambique LNG project, which was halted in 2021 due to escalating conflicts in the region. The company and Korean shipbuilders are looking to sign contracts for an order of 17 LNG carriers in July.

If built, the global LNG shipping capacity will further exceed IEA’s forecast of LNG trade. This poses particular risk for financial institutions that provide loans and underwriting to the capital-intensive shipbuilding industry.

Between 2011 and 2020, South Korean public financiers provided a total of USD 127 billion to the oil and gas industry. Of this, 46 percent went towards the construction of oil and gas-related shipbuilding – including offshore oil and gas production facilities and LNG carriers.

Decarbonisation targets and 1.5℃ pathways

Publications

What good looks like: G7 climate policy 2024 update

This brief outlines seven key policy recommendations for this June’s G7 summit that, if adopted, would demonstrate the ambition and leadership needed to keep the Paris Agreement’s 1.5°C limit in sight.

Tripling renewables by 2030: interpreting the global goal at the regional level

At COP28, governments agreed to triple global renewable capacity by 2030. This report breaks down what a 1.5ºC-aligned renewables rollout would look like at the regional level and calculate the associated investment needs.

Submission to the Australian Treasury consultation on the Petroleum Resource Rent Tax

As the gas industry in Australia has grown exponentially, the profit taxes it pays to the government have proportionally plummeted, presenting an opportunity to change this regime. Here, we respond to the Australian Government Treasury consultation on the Petroleum Resource Rent Tax (PRRT) – anti-avoidance provisions and clarifying treatment of ‘exploration’ and Mining, Quarrying or Prospecting Rights.

COP28 initiatives will only reduce emissions if followed through

Few of the sectoral initiatives announced during COP28 will meaningfully contribute to closing the emissions gap. Many of them lack either the ambition, clarity, coverage or accountability needed to really make a difference.

Unabated: the Carbon Capture and Storage 86 billion tonne carbon bomb aimed at derailing a fossil phase-out

The climate talks at COP28 have centred around the need for a fossil fuel phase-out. Our analysis quantifies the risk posed by restricting a phase-out commitment to only ‘unabated’ fossil fuels.

No change to warming as fossil fuel endgame brings focus onto false solutions

The CAT's annual warming estimate has risen by 0.1˚C to 2.5˚C. The estimate is largely influenced by weak existing targets rather than shifts triggered by updated Nationally Determined Contributions.

Submission on Australia's future gas strategy

The Australian government asked for answers to its questions around the future of its gas strategy. This was our submission.

When will global greenhouse gas emissions peak?

The IPCC says peaking before 2025 is a critical step to keep the 1.5°C limit within reach. With emissions set to rise in 2023, this leaves limited time to act. To assess if we can meet this milestone, we look at when global emissions might peak, as well as what we can do to get there in time.

Wind and solar benchmarks for a 1.5°C world

This report presents a detailed methodology for determining the amount of wind and solar capacity that is required for a country to align with the Paris Agreement’s 1.5°C temperature goal. While the focus of the report is the method, it includes illustrative benchmarks for Brazil, China, India, Indonesia, Germany, South Africa.

A 1.5°C future is possible: getting fossil fuels out of the Philippine power sector

The Philippines is also one of the fastest-growing developing countries: poverty is in decline, access to energy is rising and, with that, demand for energy services. However, fossil fuels still dominate the energy system, accounting for 78% of power generation in 2022. This report sets out what the Philippines government needs to do to get the country’s power sector onto a 1.5˚C compatible emissions pathway, replacing fossil fuels with renewable energy.

State of Climate Action 2023

This report finds that global efforts to limit warming to 1.5°C are failing across the board, with recent progress made on every indicator – except electric vehicle sales – lagging behind the pace and scale needed to address the climate crisis.

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Production Gap Report 2023

Governments, in aggregate, still plan to produce more than double the amount of fossil fuels in 2030 than would be consistent with limiting warming to 1.5°C. The persistence of the global production gap puts a well-managed and equitable energy transition at risk.

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Decarbonisation targets and 1.5℃ pathways

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High and dry: the global energy transition's looming impact on the LNG and oil shipbuilding industry