According to WoodMac data, the details of climate policy may split the gas carrier fleet into those who can meet the new requirements and those who cannot. Outdated steam turbines and diesel-electric vessels are facing rising compliance costs due to their emissions, while modern dual-fuel ME-GI (with low methane slip) vessels will gain an advantage as regulations tighten.
There are four different policy frameworks on efficiency and emissions for shipping between the EU and IMO (plus one with an uncertain future): EU ETS, FuelEU Maritime, and CII and EEXI from the IMO. The EU ETS is the most significant for gas carrier operators as they emit methane, which was included in the ETS penalty coverage earlier this year. Methane slip is now taxed at $75 per ton of carbon equivalent for voyages within the EU (including components of international voyages as defined in the rules).
According to the Wood Mac report, diesel-electric dual-fuel vessels will be significantly affected as the rules tighten. FuelEU Maritime introduces additional penalties and tightens fuel reduction targets - at a much higher price of €645 per ton.
"Owners who invested in DFDE vessels expecting them to be the solution for compliance are facing a harsher reality," says Itzel Torruco, LNG shipping research analyst at Wood Mackenzie. "Under EU rules from 2030, a DFDE vessel on a European route will face penalties that will make it commercially unattractive for charters. The window for upgrading or exiting is narrowing, and this has not yet been fully factored into pricing."
The DFDE technology was introduced in the 2000s as a more efficient alternative to traditional steam systems, which were difficult to operate from a crew perspective. Typical DFDE configurations use multiple medium-speed diesel engines that can run on gas or diesel, configured as generators to power electric drives. Medium-speed diesels are generally less fuel-efficient than low-speed two-stroke engines and (historically) have been prone to higher levels of methane slip than ME-GI designs; although modern medium-speed engines have significantly improved in this regard, DFDE propulsion is an outdated technology in the gas carrier space, and the existing DFDE fleet operates on older engine designs.
This will become an increasing problem in Europe, a key market for the gas carrier fleet. By 2030, the combined price for burning VLSFO in Europe will rise to over €1250 per ton, with equivalent pricing for similar sources of emissions. This is a high enough price that DFDE vessels are likely to be phased out by the mid-2030s, according to Wood Mac - but the trajectory could change if the IMO adopts NZF and the EU abandons its regional standards.
"If the IMO framework is adopted, and the EU recognizes it as compliant with the Paris Agreement, the compliance architecture that operators have built over the past two years could be significantly simplified," Torruco added. "If this fails, the intersection between EU ETS, FuelEU Maritime, and the IMO framework will become a permanent operational environment."