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New LNG Shipping Emissions Rules Increase Variable Costs in Europe

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LNG vessels operating within Europe are bearing the cost of purchasing EUA carbon certificates under new shipping emissions rules from 1 Jan 2024, increasing variable shipping costs according to Timera Energy.

  • Shipping activities under the EU-ETS carbon scheme will be phased in over the next 3 years. Vessel owners’ burden will increase from 40% of emissions cost in 2024 to 70% in 2025 and 100% in 2026 for all ships over 5,000GT in size travelling within Europe.
  • The scheme applies for laden and ballast legs with 100% of emissions for voyages starting and ending within Europe and 50% of emissions for voyages to or from Europe.
  • The incremental costs from the change may not seem huge, but at the margin can impact LNG market price spreads and cargo flows especially in an oversupplied market.
  • The increase in shipping cost to Europe could raise European LNG prices vs other destinations to incentivise the flows to Europe but could also reduce European gas demand due to the higher prices.
  • Even relatively small changes in shipping costs and cross basin spreads can have a substantial impact on cargo routing and margins.

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LNG vessels operating within Europe are bearing the cost of purchasing EUA carbon certificates under new shipping emissions rules from 1 Jan 2024, increasing variable shipping costs according to Timera Energy.

  • Shipping activities under the EU-ETS carbon scheme will be phased in over the next 3 years. Vessel owners’ burden will increase from 40% of emissions cost in 2024 to 70% in 2025 and 100% in 2026 for all ships over 5,000GT in size travelling within Europe.
  • The scheme applies for laden and ballast legs with 100% of emissions for voyages starting and ending within Europe and 50% of emissions for voyages to or from Europe.
  • The incremental costs from the change may not seem huge, but at the margin can impact LNG market price spreads and cargo flows especially in an oversupplied market.
  • The increase in shipping cost to Europe could raise European LNG prices vs other destinations to incentivise the flows to Europe but could also reduce European gas demand due to the higher prices.
  • Even relatively small changes in shipping costs and cross basin spreads can have a substantial impact on cargo routing and margins.

Keep reading...Show less