# Economic Feasibility of Retrofitting an Ageing Ship to Improve the Environmental Footprint
## 4 Economic Analysis  
### Current LNG Fuel Market  
Simultaneously, with the increase in the number of orders for retrofitting and especially the construction of new ships using LNG as fuel, a severe increase in the price of LNG has been observed in the last year. Figure 2 shows the historical price in USD$/mt for VLSFO and LNG and the difference between them in the port of Rotterdam for the last three years [46].  
The recent economic and political instability showed the importance of LNG as an energy source, especially as a marine fuel for the rapidly expanding fleet. The price in the week ending 6 March is 2512.25 USD$/mt (circled in Figure 2). According to the 29 April report from S&P Global Commodity Insights [61], at least the supply balance is expected to support a price above USD$15/MMBtu (ab. 781 $/mt) per year until 2025.  
\begin{table}
\begin{tabular}{c c c} \hline \hline
**Characteristics** & **Route Varna-Poti-Varna** & \\ \hline Fuel type & VLSFO & LNG \\ CF & 3.151 & 2.750 \\ Cargo, tonne & & 7850 \\ Distance, nm & & 1234 \\ EEOI & \(2.12\times 10^{-5}\) & \(1.51\times 10^{-5}\) \\ \hline \hline \end{tabular}
\end{table}
Table 9: Summary for EEOI for the considered scenarios.  
The price of LNG as a ship fuel is highly volatile and proper forecasting requires an adequate method. An analysis of possible algorithms is presented in [62].  
Standard & Poor claims that LNG is still a viable solution for maritime decarbonisation despite hurdles. They presented in September a report [63] that by 2030, petroleum-based fuels will be 90%, with 7.8% LNG and 2.2% alternative fuels. The optimistic scenario, considering higher CO\({}_{2}\) reduction efforts, estimates alternative fuels at 39%, LNG at 32%, LNG at 1% and petroleum-based fuels at 28% of total consumption in 2050. In practice, LNG currently gives the best reduction in CO\({}_{2}\) emissions of 23% to 28%.  
In the last days of November 2022, there was also a development in the Emissions Trading System. The EU institutions have agreed on including shipping and ETS with expected changes [64]. Ship operators will have to pay taxes in 2025 for 40% of their 2024 emissions, in 2026 for 70% of their 2025 emissions and in 2027 for all their 2026 emissions, with the full coverage will continue after that.  
The historical price of CO\({}_{2}\) emissions for the last five years are shown in Figure 3. In addition to the price of LNG, there has been significant volatility in prices for CO\({}_{2}\) over the last year with a minimum price of 58.341 EUR/mt CO\({}_{2}\)e in March 2022 and maximum of 98.198 EUR/mt CO\({}_{2}\)e in August 2022.  
Introducing CO\({}_{2}\) charges, shipping operators are expected to increase freight rates to cover these costs. If using petroleum-based fuels and 100% emissions coverage, [PERSON] [65] estimates show that, as an example, Aframax freight rates would increase by USD$1.30/mt for the Baltic Sea and the UK and USD$1.80/mt for Black Sea-Mediterranean if the new  
Figure 3: Historical price of CO\({}_{2}\) emissions (EUR/mt CO\({}_{2}\)e) for the last 5 years ([[https://tradingeconomics.com/commodity/carbon](https://tradingeconomics.com/commodity/carbon)]([https://tradingeconomics.com/commodity/carbon](https://tradingeconomics.com/commodity/carbon)) (accessed on 20 November 2022)).  
Figure 2: Price (USD$/mt) of VLSFO, LNG and the difference (right axis).  
ETS rules were in force. Additionally, in this case, it seems natural to take measures to reduce CO2 emissions charges to make the ship competitive.