Liquefied CO2 carriers: CO2 shipping costs?

This model captures the costs of liquefied CO2 carriers, i.e., a large-scale marine vessel, carrying CO2 at -50ºC temperature and 6-10 bar of pressure, as part of a CCS value chain. A good rule of thumb is seaborne CO2 shipping costs are $8/ton/1,000-miles, as a total shipping rate of $100k/day must cover the capex of a c$150M newbuild tanker.

Could the LNG industry decarbonize by shipping LNG to gas consumers, then shipping the resultant CO2 away? We recently explored this concept in a detailed research note.

This work envisaged using the same vessel to transport LNG in and CO2 away. It required building new, dedicated, dual-purpose vessels, with ‘Type C’ containment (i.e., they would need to be capable of withstanding 8-10 bar pressures of liquefied CO2, whereas by contrast, today’s fleetof LNG vessels are ‘Type B’, and are not designed to hold pressurized gases).

Using the same vessel? The great advantage is that an LNG tanker is already making a deadhead journey back to the liquefaction facility, thus incremental transportation costs may be as little as $1.3/mcfe and total CO2 abatement costs as little as $100/ton. The great disadvantage is logisical risk and inflexibility. Swapping CO2 and LNG cargoes is do-able but annoying. It also limits the vessel to operating in ‘shuttle mode’ (i.e., no real flexibiltiy to divert cargoes). And dual-purpose ships can end up as jack of both trades, master of neither.

Liquefied CO2 carriers could harness many of the same benefits, decarbonizing LNG in geographies with no nearby CO2 disposal reservoirs; while sharing marine infrastructure with an LNG regas facility; and using the cold stream from re-gassing LNG (at -160C) to chill and liquefy CO2 (-50C). But dedicated CO2 carriers could also be optimized for CO2. And this configuration also imparts more flexibility to the LNG carriers and CO2 carriers.

This data-file captures the costs of liquefied CO2 carriers. A $100k/day total shipping cost is required to recoup the capex on a $150M CO2 carrier vessel, and generate a 10% IRR. Costs are broken down in the file, including 20 different capex estimates for large, liquefied CO2 carriers (in $M, m3 and ktons).

In our base case, the total abatement costs likely end up c$25/ton higher using dedicated CO2 carriers versus back-carrying liquefied CO2 in an LNG carrier (at an apples-to-apples transportation distance around 5,000 miles). However, the higher base case costs may be diluted by lower risk, higher flexibility, and the ability to find CO2 disposal closer-by.

Cost are most sensitive to shipping distances. Shipping liquefied CO2 migh cost $8/ton within 1,000-miles (i.e., intra basin), rising to c$50/ton at 6,000 miles (trans-Atlantic). Overall, we think liquefied CO2 carriers can be part of decarbonized value chains with total CO2 abatement costs around $100-125/ton, using bridges from our broader CCS research.

A challenge remains in regulation. Carbon markets or CO2 disposal incentives in developed world countries do not currently allow for cross-border transport of CO2. And it will be important to ensure that each ton of CO2 loaded onto a liquefied CO2 carrier is properly sequestered in a well-run CO2 disposal facility.

Another debate is over the size of the CO2 carriers. Today’s CO2 carriers are most around 10,000m3 (11kT of CO2e), and within a range of 5,000-30,000 m3. Larger vessels will be more economical. Ideally over 50,000m3. You can stress-test vessel size in the model.

Overall, we do think there is a growing opportunity for the LNG industry to develop decarbonized value chains, using CCS and nature-based solutions. Best placed to capture the opportunity are companies with existing experience in LNG, and LNG shipping. Economics of CO2 shipping in this data-file can also be compared with LNG shipping.

Decarbonized gas: ship LNG out, take CO2 back?

Transport CO2 in LNG carriers

This note explores an option to decarbonize global LNG: (i) capture the CO2 from combusting natural gas (ii) liquefy it, including heat exchange with the LNG regas stream, then (iii) send the liquid CO2 back for disposal in the return journey of the LNG tanker. There are some logistical headaches, but no technical show-stoppers. Abatement cost is c$100/ton.

LNG shipping: company screen?

LNG shipping companies

This data-file is a screen of LNG shipping companies, quantifying who has the largest fleet of LNG carriers and the cleanest fleet of LNG carriers (i.e., low CO2 intensity). Many private companies are increasingly backed by private equity. Many public companies have dividend yields of 4-9%.

In total, there are 650 LNG carriers in operation in 2023. A dozen companies control half of the fleet and are captured in this data-file. They have an ‘average’ fleet size of 13 vessels (ranging from 6 to 70 vessels).

The CO2 intensity of the LNG carrier fleet is measured on an AER basis, at 9 grams of CO2 per deadweight ton mile travelled, which equates to 18 grams of CO2 per effective ton mile travelled (factoring in the return journey).

The lowest carbon and most efficient vessels currently being delivered are large (174,000m3+) and have two-stroke, low-speed propulsion such as MEGI (Man) and X-DF (WinGD), yielding AER CO2 intensities below 5 grams of CO2 per dwt-mile. Conversely, older vessels and steam vessels can have AER CO2 intensities above 12 grams per dwt-mile.

Another theme that stands out from the screen is the high 4-9% dividend yields of leading public LNG shipping specialists, with high-quality fleets and vessels locked-in on long-term contracts, with high-quality charterers.

A final theme that stands out is the growing involvement of private equity firms, including taking public LNG carrier companies private and investing to expand and modernize future fleets.

Please download the data-file for an overview of the LNG shipping companies and the fleets of gas carriers. Further details can be found in our broader LNG research, including the economics of LNG shipping.

Global gas: is there enough gas for energy transition?

Global gas production forecasts

Our roadmap to ‘Net Zero’ requires doubling global gas production from 400bcfd to 800bcfd, as a complement to wind, solar, nuclear and other low-carbon energy. This data-file quantifies global gas production forecasts by country, what do you have to believe about global gas reserves, and is there enough gas?

Global gas production already doubled in the c30 years from 1990-2019, rising at a 2.5% CAGR, which is the same trajectory that needs to be sustained to 2050 on our long-term energy market supply-demand balances.

Amazingly, from 1990-2019, global gas reserves increased from 4,000 TCF to 7,000 TCF, for a reserve replacement ratio of 190%, although the numbers have been cyclical and have fallen below 100% in recent years (chart below).

On our numbers through 2050, a reserve replacement ratio of 107% is needed, while the ‘reserve life’ (RP ratio) will likely also decline from around 50-years today to 25-years in 2050. Please download the data-file for reserve numbers and production numbers by country.

Onshore resource extensions are seen primarily coming from shale, with continued upside in the US, and vast new potential in the Middle East, North Africa and possibly even European shale as a way of replacing Russian gas.

Another offshore cycle is also seen to be necessary, discovering and developing an average of 45 TCF of offshore resource each year in 2023-2050. These are big numbers, equivalent to discovering a large new gas basin (e.g., an “entire Mozambique of gas”) every 3-5 years.

Our best guesses for how a doubling of global gas production might unfold is captured in this model of global gas production forecasts by country/region and global gas reserves.

Energy transition: the top ten commodities?

Commodities needed for energy transition

This data-file summarizes our latest thesis on ten leading commodities with upside in the energy transition. We estimate that the average commodity will see demand rise by 3x and price/cost appreciate or re-inflate by 100%.

The data-file contains a 6-10 line summary of our view on each commodity, and ballpark numbers on the market size, future marginal cost, CO2 intensity and pricing.

Covered commodities include aluminium, carbon fiber, cobalt, copper, lithium, LNG, oil, photovoltaic silicon, sulphuric acid, uranium.

Global gas: five predictions through 2030?

European gas outlook

Modelling Europe’s gas balances currently feels like grasping at straws. Yet this 10-page note makes five predictions through 2030. We have revised our views on how fast new energies ramp, which gas gets displaced first, which energy sources are no longer ‘in the firing line’, and gas pricing.

Gas diffusion: how will record prices resolve?

Displacing industrial gas demand in Europe

Dispersion in global gas prices has hit new highs in 2022. Hence this 17-page note evaluates two possible solutions. Building more LNG plants achieves 15-20% IRRs. But shuttering some of Europe’s gas-consuming industry then re-locating it in gas-rich countries can achieve 20-40% IRRs, lower net CO2 and lower risk? Both solutions should step up. What implications?

North Field: sharing the weight of the world?

North Field energy production

The North Field is now the most important conventional energy asset on the planet. It produces 4% of world energy, 20% of global LNG and aims to ramp another 50MTpa of low-carbon LNG by 2028. But what if Qatar’s exceptional reliability gets disrupted by unforeseen conflict with Iran? Without wishing to catastrophize, this 18-page note explores important tail-risks for near-term energy balances and long-term energy transition.

Qatar’s North Field: production and productivity?

Qatar's North Field production

This data-file aggregates production from Qatar’s North Field (aka Iran’s South Pars), plus associated data, based on technical papers and other commentaries that have crossed our screen, covering this enormous 1,260 TCF resource, which straddles the Qatar-Iran border.

We think total production at the North Field has more than doubled to 43bcfd in the past decade, including a 3x ramp-up from the Iranian side to 25bcfd, which is now more than total production from the Qatari side.

Intensifying, competition seems to coincide with Qatari plans to ramp up their own production from the field, but also with lower well productivities.

Backup data are also presented on the relative military strengths of GCC nations and Iran, as tail risks are increasingly important to decision-makers in global LNG markets.

Energy security: the return of long-term contracts?

Energy commodities

Spot markets have delivered more and more ‘commodities on demand’ over the past half-century. But is this model fit for the energy transition? Many markets are now desperately short, causing explosive price rises. And sufficient volumes may still not be available at any price. So this 13-page note considers a renaissance for long-term contracts and who might benefit?

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