Analysis of vessels' ability to meet future emission regulations

Background

• Client was a mid-market infrastructure fund in the UK and was exploring an opportunity to invest in the general cargo shipping sector.

• Drewry was appointed to carry out a commercial due diligence study for investing in new vessels..

Client Objectives

• Commercial due diligence study for investing in new vessels;

• Analyse upcoming environmental regulations and their implications on general cargo vessels;

• Analyse the proposed new vessel’s ability to be future-proof and meet the emission regulations in the long run;

• The scope of work also included an assessment of the residual value and a long-term time charter assessment of the vessels.

Results, conclusions and recommendations

• Drewry identified designs that may not be future-proof versus alternatives expected to remain future-proof until at least 2040;

• As technology continues to evolve, it is possible that alternatives to MGO, such as eMGO or bio-diesel, or integration of fuel cells, could be used to further reduce emissions beyond 2040. 

• The report also highlighted that though the proposed vessel design will have lower emissions, it will have a significantly higher initial capex than conventional vessels. It will also be subjected to higher carbon or GHG-related taxes/levy if operated on MGO than the vessels which operate using low-emission fuels.