The risks of China, Japan, Korea investing billions in LNG fleets
While the climate impacts of increased LNG fleet usage are a major issue, there are other concerns too, including methane slip from engines, warned experts.
There is a construction boom at shipyards around the world, with billions from public and private financiers flowing into expanding liquefied natural gas (LNG) carrier fleets, despite growing evidence that these ships will likely not be needed and could end up as stranded assets.
“LNG carriers take years and millions of dollars to build; their expected life span is decades long. Any hastily made investments in expanding the LNG fleet are likely to become stranded assets within a decade,” said Anna Barford, an ocean campaigner at the non-profit Stand.Earth, to Gas Outlook.
In South Korea, the non-profit Solutions for Our Climate (SFOC) has filed a complaint to Korea’s contact point with the Organisation for Economic Co-operation and Development (OECD), arguing that Korean financiers — Export–Import Bank of Korea, Korea Development Bank, and Korea Trade Insurance Corporation — are violating the OECD Guidelines for Multinational Enterprises on environmental impact, human rights, and climate.
“We believe that new gas carrier financing should be re-evaluated,” Rachel Eun-bi Shin, a specialist in ship financing and shipbuilding at SFOC, told Gas Outlook. “Not only should we look obviously at the environmental and climate costs, but we should also look at the economic rationale of such financing.”
LNG tanker boom
According to research conducted by SFOC, Friends of the Earth Japan, Banktrack and Reclaim Finance, 324 more vessels are under construction and another 708 are under order, which will nearly double the global LNG fleet in the next decade.
Most of the fleet are for the three main global buyers of LNG — China, Japan, South Korea, and Greece. The climate impacts of expanding the use of natural gas would result in massive greenhouse gas emissions, right when scientists are raising alarm bells about a need to peak emissions as soon as possible.
While the climate impacts of LNG are a major issue, there are other concerns too. According to the complaint, LNG carriers are also linked to “methane slip from dual-fuel marine engines, underwater noise pollution affecting marine mammals, ballast water discharge introducing invasive species, and collision risks in biodiversity-rich coastal waters.”
“This OECD complaint draws needed attention to pollution that has been left out of environmental assessments. Hiding pollution doesn’t help wildlife and communities subjected to the pollution previously unaccounted for,” Anna Barford, a shipping campaigner at the non-profit Stand.Earth, told Gas Outlook.
Financial and economic risk
According to SFOC, under a 1.5°C scenario, most of these vessels won’t be used or necessary, leading to $48 billion in stranded assets. That is because it’s unclear if there’s that much demand for LNG globally, leading to concerns of a tanker bubble and a huge risk of stranded assets. Taxpayers could also be on the hook if countries have to bail out or cover bad investments. This money would be better used to support alternatives with more clear benefits and returns, says Shin.
“We believe that a lot of the funds that are currently going into fossil fuel financing should be redirected to domestically produce renewable energy and a renewable energy system that is more resilient,” said Shin.
Expanding the LNG fleet goes against the goals of Korea, Japan, and the European Union (EU), of which Greece is a member. Japan has set a goal of achieving net-zero emissions by 2050 and cutting its greenhouse gas emissions by 74% by 2040.
“If Japan follows through on its strategy, that means roughly half of the LNG carriers that are currently in service or on order will have no work, and they will become stranded assets,” said Shin.
Korea also has a 2050 net-zero target and has, in the past year, pushed forward on an ambitious target to expand its renewable energy sector. Meanwhile, the EU also is aiming to be climate neutral by 2050 and reduce its use of all fossil fuels before then.
Beyond Korea
While the complaint is, for now, focused on Korea, other countries are also expanding their fleets. Leading is China, who in 2023 was the world’s largest LNG importer, consuming 71 million tonnes, and has over 80 carriers on order by companies like CNOOC Gas, PetroChina, and Power Group, with China’s Bank of Communications and China Development Bank playing a key role as financiers.
Japan, which has the current largest fleet, has 60 on order, and many are being built in South Korea by Hyundai LNG Shipping, H-Line Shipping, and Pan Ocean/SK.
While China presents a challenge with its limited space for civil society engagement or public complaints, Japan, which, like Korea, is seeing domestic LNG demand decline, could face a similar complaint. Countries exporting LNG, like Canada and Australia, could also face increased pressure.
“The pollution that LNG carriers enable isn’t just a Korean problem; this applies to countries like Canada that are financing other aspects of LNG,” said Barford. “Banks and financial institutions should be reconsidering their risk profile and commitments to pollution reduction.”
(Writing by Nithin Coca; editing by Sophie Davies)