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

Climate Action Tracker: 2024 warming projection update

Despite an escalating climate crisis marked by unprecedented wildfires, storms, floods, and droughts, the Climate Action Tracker annual global temperature update shows global warming projections for 2100 are flatlining, with no improvement since 2021. The aggregate effect of current policies set the world on a path toward 2.7°C of warming.

Decarbonising light-duty vehicle road transport

The Climate Action Tracker provides updated 1.5ºC compatible benchmarks for the transport sector for the world as a whole and for seven individual countries; the US, EU, China, India, Brazil, South Africa and Indonesia.

Emissions Gap Report 2024: No more hot air … please!

The 2024 edition of UNEP’s Emissions Gap Report shows how much higher nations must aim. To get on a least-cost pathway for 1.5°C, emissions must fall 42 per cent by 2030, compared to 2019 levels. G20 nations, particularly the largest-emitting members, would need to do the heavy lifting.

The role of northern forests in limiting warming to 1.5°C

Northern forests are critical in the race to net zero CO₂ by mid-century. Protecting and restoring these forests, alongside steep and rapid reductions in fossil fuel emissions, is essential both to mitigating emissions and to supporting forest ecosystem services and biodiversity.

Methodology underpinning the State of Climate Action series: 2024 update

This technical note describes the State of Climate Action series’ methodology for identifying sectors that must transform, translating these transformations into global mitigation targets primarily for 2030, 2035 and 2050 and selecting indicators with datasets to monitor annual change. It also outlines the report’s approach for assessing progress made toward near-term targets and comparing trends over time.

LNG shipbuilding industry heading to huge oversupply

The LNG shipbuilding industry appears to be doubling down on building new carriers, ignoring the global shift to a low carbon economy and putting itself into an even worse oversupply situation than a year ago, we find in our updated report.

Setting 1.5°C compatible wind and solar targets

Based on global energy system modelling sense-checked against key national studies, this report presents new analysis on what a 1.5°C-aligned rollout of wind and solar could look like for key countries. It aims to inform target setting for 2030, 2035 and beyond in third generation NDCs.

Technical guide for the development of long-term low emission development strategies in Africa

This technical guide proposes concrete steps and actions to help African countries develop strong, high-performing Long-Term Low Emission and Climate Resilient Development Strategies that chart a low-emission development path, build resilience, encourage innovation, and create new opportunities for green growth.

Evaluating the near and long-term role of carbon dioxide removal in meeting global climate objectives

For 1.5°C pathways with limited overshoot, most of the mitigation between now and 2030 should come from emissions reductions (70%), with reductions from cutting non-CO2 emissions (20%) and land-based carbon dioxide removals such as afforestation and preventing deforestation (10%) making up the remainder.

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.

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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