A significant divide is developing in the global LNG carrier fleet as stricter emissions regulations in Europe start to change the economics of shipping. This insight comes from a recent analysis by Wood Mackenzie. The...
A significant divide is developing in the global LNG carrier fleet as stricter emissions regulations in Europe start to change the economics of shipping. This insight comes from a recent analysis by Wood Mackenzie.
The report highlights that engine technology is now crucial for the commercial viability of LNG carriers. Modern ships are becoming more desirable, while older vessels are facing rising compliance costs, which may lead to early retirements and fleet alterations.
According to Wood Mackenzie, the LNG shipping industry is being impacted by a combination of environmental regulations. These include the European Union Emissions Trading System (EU ETS), FuelEU Maritime, the International Maritime Organization's (IMO) proposed Net-Zero Framework, the Carbon Intensity Indicator (CII), and the Energy Efficiency Existing Ship Index (EEXI). Together, these regulations are creating significant differences in costs among various vessel types.
Itzel Torruco, a Research Analyst for LNG Freight at Wood Mackenzie, noted, “The LNG shipping fleet is splitting into two.” Ships equipped with ME-GI engines have lower methane emissions and face much lower compliance costs when operating in Europe. In contrast, older steam turbine and dual-fuel diesel electric (DFDE) vessels are accumulating liabilities that are making them less competitive.
This change has been accelerated by the EU ETS, which completed its phase-in on January 1, 2026. The system now covers 100% of emissions and includes methane and nitrous oxide. Methane slip, a known issue for LNG-fueled ships, is now financially penalized under this framework.
Wood Mackenzie's analysis indicates that by the end of the decade, a DFDE-powered LNG carrier operating in Europe might encounter compliance costs that deter charterers. They estimate that the combined effects of the EU ETS and FuelEU Maritime could raise the cost of Very Low Sulphur Fuel Oil to about $1,256 per tonne by 2030, compared to roughly $705 under the IMO's proposed framework.
Torruco stated, “Owners who thought their DFDE vessels would solve compliance issues are now facing a difficult reality.” She added that the time to retrofit or sell these vessels is shrinking and hasn't been fully accounted for yet.
Steam turbine vessels have long been considered candidates for scrapping due to their higher fuel consumption and emissions. However, Wood Mackenzie emphasizes that the increasing pressure on DFDE vessels is a more critical issue, as many of these were initially seen as a more environmentally friendly option. Instead of being scrapped, many might find new roles as floating storage and regasification units (FSRUs).
The industry's next crucial moment may come in December when governments gather at the International Maritime Organization’s Marine Environment Protection Committee (MEPC 85) to vote on the formal adoption of the IMO’s Net-Zero Framework.
This framework survived attempts to reopen discussions during earlier meetings this year and now considers LNG combined with upstream carbon capture and storage as a potential route to near-zero emissions. Wood Mackenzie believes that the outcome of December's vote could shape whether the global industry adopts a more unified compliance system or continues to deal with overlapping regional and international regulations.
“December 2026 is the most important vote for LNG shipping in a decade,” said Torruco. “If the IMO framework is approved and the EU recognizes it as aligned with the Paris Agreement, the compliance structure operators have been working on for two years could be significantly simplified. If it doesn't pass, the complexities between EU ETS, FuelEU Maritime, and the IMO framework will persist as the operational standard.”
This analysis comes as LNG remains the leading alternative marine fuel for deep-sea shipping, with shipowners continuing to invest heavily in new LNG-fueled vessels. Wood Mackenzie asserts that LNG will remain the most cost-effective compliant marine fuel at least until the mid-2030s. However, its future competitiveness will increasingly rely on vessel technology, regulatory changes, and the availability of lower-carbon fuels like bio-LNG.