LNG yields years of additional competitive advantage for Poseidon Principle loans

Written by Nick Blenkey
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Image" CMA CGM

New analysis from the SEA-LNG coalition demonstrates how ships that are fueled by LNG, rather than conventional fuels, can benefit for up to eight years of emissions compliance for preferable asset financing from lenders using the Poseidon Principles.

SEA-LNG says that LNG fuel delivers up to 28% lower CO2 profile from tank to wake, which favors LNG vessels under the Poseidon Principles’ funding criteria.

The Poseidon Principles measure progress towards shipping’s decarbonization 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-fueled vessels, with their lower CO2 profiles, track this trajectory far longer, and fall out of favor many years later than conventionally fueled 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 runway provides owners of LNG-fueled ships with advantages that include the time needed 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 are now applied by 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 group 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.”

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