CII & Alternative Fuel Analysis
Aug. 18, 2023
Analysis of VLCC’s CII rating basis 2023 requirements for the past 5 years show how on average half of the VLCC fleet falls in D&E CII category – meaning that they would have to provide a management plan of how to improve their CII rating to at least midpoint of C rating for the following year.
An ageing VLCC fleet (on average 12 years old) and limited new orderbook will not likely see the CII ratings improving for the sector. However, when we look at the VLCC newbuilding orderbook, we find that 79% or 11 out of 14 vessel orders are scheduled to equip with gas-fueled engines - a good indication that owners are thinking ahead. The current tanker ordering and scrapping activity is still strongly determined by market earnings; this could change if charterers start to include CII ratings as one of the considerations when fixing their cargo, which in theory should prompt owners to renew their fleet to meet the 2025 legal mandate.
Looking at engine designs for other vessel segments, we have observed a mixed bag of preferences when ordering tonnages. Similar to the VLCCs, the Suezmax and Aframax-sized tanker owners favors LNG over other future bunkers, representing 32% and 35% of the orderbook respectively. Compared to the larger ships, we only captured 10% of the MR2 orders could use LNG as further bunker; a similar share% could be found for Ammonia and Methanol. Another observation from the statistics is that 40% of the LNG dual-fuel tanker orders are Gas-ready instead of Gas-fueled, mainly due to the significant premium in the initial investment. Gas fueled VLCC orders command a premium of $15 million, while Gas-ready options will range from $2-4 million making it a better alternative as the uncertainty of fuel type preferences still persists.
Figure 1: VLCC Trading Fleet by CII Figure 2: NB Orders by Engine Design
Source: McQuilling Services, Platts, Marine Benchmark
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