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| 1 minute read

Managing retirement of old turbine VLGCs - disputes incoming

Buried in a helpful piece from Hellenic Shipping News last week was the admission that a not insignificant proportion of the global LNG fleet (almost all being from the older generations of turbine vessels) will be forced into retirement by EEXI/CII. 

Many market participants had hoped that some kind of exemptions or waivers might save those venerable (but otherwise very viable) vessels; but those hopes have been looking less realistic by the month, and now are all but faded. 

Many operators of older-generation vessels are now grappling with how to manage the retirement of a vessel that earns an "E" on its first CII assessment. Some vessels will not be able to mitigate their CII status by slow steaming at a commercially acceptable speed, and cannot economically be retrofitted. Some are destined for floating storage, and others will be scrapped. 

But aside from losing an asset which could otherwise operate profitably, forced retirement of vessels becomes extremely difficult where they are under an ongoing time charter - particularly with the market for replacement tonnage showing no signs of easing.

There are few easy solutions, and older time charters are unlikely to make any provision for this issue. The only thing that can be said for certain is that if the risk is not taken seriously at an early stage, there is a strong likelihood of significant charter claims. However, with careful pre-planning, and pre-emptive commercial discussions, the risk can be assessed and steps taken to eliminate it before a crisis hits.

While these vessels will need to reduce their speed to comply with the regulations, the very old vessels will become unviable and will exit the fleet, affecting capacity and consequently supporting higher freight rates.

Tags

lng, eexi, cii, shipping, transportation, decarbonisation

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