A Real Option Application to Investment in Low-sulphur Maritime Transport

Michele Acciaro*

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

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.

Original languageEnglish
JournalInternational Journal of Shipping and Transport Logistics
Volume6
Issue number2
Pages (from-to)189-212
Number of pages24
ISSN1756-6517
DOIs
Publication statusPublished - 2014
Externally publishedYes

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

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