Poseidon Principle Loans: LNG Averages Seven Extra Years Additional Competitive Advantage
New analysis from SEA-LNG demonstrates how ship assets opting for LNG can benefit for up to eight years of emissions compliance for preferable asset financing versus conventional vessel fuels like HSFO, VLSFO, and MGO.
LNG fuel delivers up to 28% lower CO2 profile from tank to wake, which makes LNG vessels favourable to the Poseidon Principles’ funding criteria, which were instituted by the founding financial institutions to improve strategic decision making and to shape a better future for the shipping industry and society.
The Poseidon Principles measure progress towards these objectives using Average Efficiency Ratio (AER) scoring. This follows an ever-tightening decarbonisation trajectory index to 2050, requiring a vessel’s aggregate carbon emissions intensity to improve.
LNG-fuelled vessels, with their lower CO2 profiles, comply with this trajectory far longer, and ‘fall out’ of favour many years later than conventionally fuelled vessels. SEA-LNG’s analysis found that LNG fuel can extend the emissions compliance runway for five to eight more years for owners across all market scenarios; weak (requiring slow steaming), normal, and strong (requiring elevated speeds).
This ‘extended compliance runway’ provides LNG-fuelled ship owners with strong competitive advantages, including the precious time to extend compliance through the use of fuel options that reduce emissions further, such as bio-LNG or liquefied synthetic methane (LSM) – both of which are interchangeable with LNG.
Data from SEA-LNG analysis, referencing recent public U.S. Securities & Exchange Commission (SEC) filings, indicates that AER scores are key metrics for determining the interest rate charge for “Sustainability Linked Loan Principles”. The loan interest rate for a public case shows the potential loan interest reduction or increase of 10 basis points, for good or poor performing AER scores respectively; representing a 20 basis point range – Each basis point represents 1/100 of 1 percent, thus 20 basis points is 2/10 of 1 percent.
This comes at a time when more banks in shipping are aligning with green finance principles. The Poseidon Principles now cover over 15 financial institutions, representing a loan portfolio near $150 billion, or about a third of all maritime loans.
Chartering criteria are quickly following finance with a similar emissions reduction trajectory, according to SEA-LNG. Sea Cargo Charter, a newly formed organisation that represents 17 major charterers, will give preference to green ships with its emissions compliance program.
John Hatley, SEA-LNG Investment Committee Chairman, said: “The combination of these factors makes LNG the clear compelling choice for long-term emissions compliance. Asset finance (banks) and Charterers are two incredibly powerful forces when it comes to moving shipping towards its decarbonization goals. These incentives provide a compelling pathway for shipowner’s aspiring to achieve lower emissions and also gain a competitive advantage with LNG fuel.”