Gibson: CO2 shipping capacity shortage looms as orders for carriers lag behind

The recent pick-up in the development of carbon capture and storage (CCS) projects across the globe is expected to provide a new source of cargo demand for the maritime industry, helping offset demand for a declining trade of conventional hydrocarbon cargoes.

CCS involves capturing carbon dioxide emissions from industrial processes and storing them underground or under the sea. Shipping will to play an important role in the transportation of the captured CO2 to the storage locations.

Currently, North America leads the way, accounting for approximately half of the installed, under construction or planned CCS capacity. Europe then accounts for around 35% of planned projects due to the region’s stricter environmental targets. Although Asia has significant potential, currently planned projects amount to just 19.2 mtCo2/year, less than 10% of the global project pipeline, Gibson Shipbrokers said in a weekly market report.

The greatest demand for shipping CO2 is estimated to arise in Europe, where most projects are planned to be located offshore under the North Sea. Shipping is anticipated to play a role in either direct injection via floating infrastructure, or transport to dedicated onshore injection facilities from across Europe where subsea pipelines will transport captured CO2 into depleted oil and gas fields.

With that in mind, Gibson estimates that there could be a shortage of shipping capacity available for when the projects are commissioned. Currently, two CO2 carriers are on order and will be dedicated to the Northern Lights project, which commences in 2024.

Namely, Dalian Shipbuilding Industry is building two LNG-powered, wind-assisted LCO2 transportation ships for Northern Lights, a joint venture (JV) of energy majors Shell, Equinor, and TotalEnergies. The construction process has recently reached the block assembly stage and the duo is slated for delivery in 2024.

Northern Lights is developing the world’s first open-source and flexible infrastructure to transport CO2 from industrial emitters by ship to a receiving terminal at Øygarden, west of Bergen in Norway.

The CO2 will be transported from the terminal by pipeline for permanent storage in a geological reservoir 2,600 metres under the seabed. Operations are scheduled to start in 2024. 

“Given current newbuilding lead times and uncertainty over designs, projects coming onstream, which require shipping capacity in the 2026 period, could find themselves short of specialised tonnage, if orders are not placed soon. For shipowners, this could create an opportunity for a speculative order, however, with most projects still in their infancy, the risk of ordering the wrong size/design cannot be ignored,” Gibson said.

“Yet, with yards researching designs which can carry ammonia and LPG, as well as CO2, it may not be long until shipowners can mitigate the risk through cargo flexibility, giving some owners the confidence to take the plunge into this burgeoning market, whilst also (potentially) improving their ESG credentials. From the perspective of CO2 project developers, it is not inconceivable that projects and infrastructure could be designed around the specifications of any vessels that are ordered, particularly if yard availability remains tight.”

The global nature of shipping means that CO2 can be transported from areas with high emissions to storage locations in regions with the necessary geology for safe and permanent storage. This also means that markets such as the US and Europe, where significant CO2 storage is being developed, could import CO2 from outside the region, requiring larger vessels to facilitate economies of scale. While there are technical and regulatory challenges, there is a clear will at the government and corporate level to develop CCS as a solution to combat climate change, making the role of shipping all the more important in this effort.

If these projects are to be developed by the late 2020s, time is running out to secure dedicated vessels. This creates an opportunity for those willing to order ahead of the crowd. Undoubtedly, there is a future for CO2 shipping, Gibson concludes.