Title: A real option application to investment in low-sulphur maritime transport

Authors: Michele Acciaro

Addresses: DNV Research and Innovation, Det Norske Veritas, Veritasveien 1, 1363 Høvik, Norway; Center for Maritime Economics and Logistics/Erasmus SmartPort, Erasmus University Rotterdam, Burg. Oudlaan 50, 3062 PA, Rotterdam, The Netherlands; Department of Logistics, The Kühne Logistics University, Brooktorkai 20, 20457 Hamburg, Germany

Abstract: In the last few years, sulphur emissions to air from shipping have been of heightened interest to policymakers and the media, and more stringent regulation is on the way. Various alternatives are available in the shipping industry to comply with emission regulation and minimise impacts on shipowners' bottom-line. New regulation is adding complexity to managerial decision-making, so that advanced decision support tools can provide useful contributions to management processes. The present paper presents an analysis of the options available to shipowners taking into consideration the value of deferring the investment decision vis-à-vis the advantages obtainable from the exploitation of fuel price differentials. The model shows that there is a trade-off between low LNG prices and LNG capital expenses. While in most cases it would not be recommended to invest in LNG as early as today, the model shows that investment in LNG can make economic sense as early as 2015. This is highly dependent on the capital costs necessary for retrofitting ships with LNG engines and the difference between LNG prices and distillates prices.

Keywords: green shipping; sulphur emissions; real options; LNG retrofit; SOx regulation; maritime fuel prices; option to defer; maritime scrubbers; emission control areas; ECAs; low sulphur shipping; maritime transport; decision support; investment decisions; investment deferral; liquid natural gas; capital expenses; ship retrofitting; LNG engines; LNG prices; distillates prices; shipping industry; environmental impact.

DOI: 10.1504/IJSTL.2014.059570

International Journal of Shipping and Transport Logistics, 2014 Vol.6 No.2, pp.189 - 212

Available online: 23 Feb 2014 *

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