Recent IMO regulations may add to the uncertainty:

• The IMO’s MEPC 83 recently approved new GHG fuel intensity requirements (on a well-to-wake basis) set to take effect from 2028 onwards. These regulations aim to financially incentivise the use of low- and zero-carbon fuels, while imposing penalties on fossil-based alternatives.
• Due to limited uptake of zero-carbon fuels, many shipowners have instead turned to LNG dual-fuel vessels, which offer greater fuel availability and lower CO2 emissions on a tank-to-wake basis. As such, LNG dual-fuel vessels now represent 55% of the current orderbook. However, under the new framework, these vessels will incur fees starting in 2028 for each tonne of CO2 emitted above an increasing emissions threshold.
• Although 25% of LNG dual-fuel vessels are ammonia- or methanol-ready, conversion comes at a high cost – estimated at 8-10% of the newbuilding cost, but likely to reduce over time. This growing uncertainty will likely temper shipowners’ appetite for new vessels until more clarity emerges.

The LNG market finds itself in a predicament, despite strong demand expectations:

• It is currently facing significant overcapacity, historically low freight rates, and a heavy delivery schedule. Widespread scrapping and order cancellations are expected as the market seeks to restore balance.
• Secondhand prices appear set for a period of deflation, with shorter economic lifetimes driving lower valuations, even for relatively young vessels.
• By 2027, the vast majority of steam turbine and four-stroke single-fuel vessels could have been scrapped.

Economic lifetimes could shorten to 18 years:

• A further 16 million cbm of capacity is scheduled for delivery in 2026. To improve fleet utilisation, scrapping would need to extend beyond the oldest vessels and target tonnage aged between ten and 20 years (consisting of steam turbine, single-fuel and DFDE vessels).
• If all [LNG] steam turbine vessels within this age bracket were scrapped in 2026, the average economic lifetime could fall from 26 to 18 years.

Order cancellations and conversions:

• A further 15 million cbm of capacity is scheduled for delivery in 2027. By then, the vast majority of first generation (steam turbine) vessels are expected to have been scrapped. The outlook remains bleak.
• Should market conditions evolve as outlined above, it would be prudent to assume that not all newbuilding contracts will be fulfilled. Order cancellations and conversions are likely to become part of the industry’s response toolkit, alongside vessel lay-ups, as a means to balance the market without scrapping modern tonnage.

Caps from climate policies:

• While LNG is widely seen as a transitional fuel and demand is expected to rise in the medium term, long-term growth may be capped by climate policies.
• In one of its low-case scenarios, the IEA forecasts global natural gas demand to peak around 2030, followed by a gradual decline through 2050 as renewable energy gains momentum.
• Under the IEA’s net-zero scenario, demand would fall by 6% annually between 2035 and 2050. If realised, this trajectory could pose a significant challenge for shipowners who have invested heavily in new LNG carriers with technical lifespans of 35–40 years.