Stakeholders Providing Incentives and Other Decarbonization Trivia

“Administrations, port authorities and other stakeholders as appropriate, are encouraged to provide incentives to ships rated as A or B. “This comes from the International Maritime Organization (IMO), describing its new carbon intensity ratings scheme, where deepsea vessels will be graded- just like in high school, on a scale from “A” (the best) through “F” (the worst). The highest rated vessels (those A and B ships) should appeal to environmentally conscious charterers, who may be signatories of the Sea Cargo Charter, or to their financiers- who may be banks that signed onto the Poseidon Principles. Over time, where equity comes into the business from providers with an ESG bent, an A or B rating may attract capital to fund decarbonization, which- in virtuous circle style, will pay for more greenhouse gas (GHG) reductions. And so it will go- but over a timeframe measured in decades.

One of the things I hear on drybulk and tanker conference calls and webinars lately is that orderbooks are down, and will remain so, because of the impossibility of predicting what fuels will emerge, and at what prices. So we won’t see overbuilding this time as dwindling vessel supply, with aging vessels needing to go to the breakers, will impinge on capacity. This is a “nice to have” but not the stuff of market booms; as one sage company CEO said at a ship finance conference, “You can’t scrap your way to prosperity.” But I like the IMO’s thinking- especially the part about “other stakeholders”, presumably with deep pockets, leaning on shipowners- maybe linking newbuild funds to responsible scrapping of aging vessels- with the tagline “build one, break one”.  As readers know, I’ve always preferred economic incentives, ie the market, to regulatory prescriptions.

Lately, offshore wind (what a great carbon intensity rating!!!) has been attracting a lot of attention, and yes- the capital has been poised to come in, as well. In my mind, it’s a second cousin of deepsea shipping and clearly a first cousin of the offshore oil and gas business, where there is an overlap of players, equipment vendors and service providers. The stakes are enormous, tens of thousands of megawatts (or dozens of gigawatts, depending on preference) with needed investment into the $Billions. For me, I am still sliding down a steep “learning curve”, trying to get a handle on the different types of equipment (not as commoditized as tankers or bulkers), the way that power is purchased (with various governmental entities pulling strings) and, generally, how the marketplace functions. It’s a great story. Back in the times of almost but not quite $700k/day on deepsea floaters, I wrote a weekly article for one of the biggest (then) shipping publications all about offshore equipment, and got to meet and/ or talk to some of the big hitters. The boundless optimism was refreshing but then came overbuilding, and readers know the rest. Now we are in a situation where multiple drillers have been re-organizing. For the vessels providing services, it’s been painful. With the big pivot away from fossil fuels by all manner of “stakeholders”, it’s hard to find optimism.

So, now, there is talk about conversion of at least some of the stacked (laid up) oilfield service vessels into boats that could be put to work on offshore wind jobs, amidst the louder talk of newbuild vessels, all with abbreviations like CTV, CLV, FIV, etc. And, then, there are the drybulk guys who are selling their bulk carriers and betting the farm on to-be-constructed heavy lifters for assembling offshore turbines. Not mentioned is the “pivot”, 12 years ago, of a drybulk leader (at the time) into big drillships (oil, at $147/barrel, was the thing then), which received a few quid and a lot of derision, as I remember. On the offshore wind energy events, frequent on the Zoom-sphere in late 2020, there is no mention of overbuilding- quite the opposite, just endless and boundless optimism. What could go wrong?