ON THE HORIZON - CCS and LCO2 carriage. How far have we come and what lies around the corner?

Introduction

Carbon capture and storage remains a key tool in the global battle to fight climate change. Despite efforts to move towards greener energy, governments around the world cannot ignore the fact that oil and gas will continue to feature in our energy supply for years to come. CCS is one of the ways to mitigate against the impact of ongoing oil and gas use and an important component in achieving net zero by 2050. The maritime and offshore energy industry is already repurposing its existing knowledge and expertise to support these projects. In particular, now that projects are beginning to come to life, LCO₂ carriage is one of the main issues that the maritime industry is grappling with in its effort to support carbon capture initiatives.

Novel shipbuilding design

The shipping industry is already in the midst of a revolution when it comes to novel ship designs – the last few years have seen a huge rise in the design and build of dual fuel and green fuel vessels. However, as the new global fleet of vessels begins to hit the water, teething problems have started to appear – for example, dual fuel vessels with engines that, in practice, struggle to run off anything other than traditional bunker fuel despite passing sea trials before delivery. Or, issues with bunkering green fuels, whether that is an issue with the vessel’s fuel system or problems at the relevant port.

When it comes to CCS, LCO₂ carriers are novel in the same way as dual fuel or green fuel ships – the designs are not tried and tested as with designs for other types of vessel. To put how new these vessels are into context, DNV reported in March 2024 that the only LCO₂ carriers already in operation were four small vessels that carried food-grade CO₂. Since then, two LCO₂ carriers have been delivered for the Northern Lights Project (Northern Pioneer and Northern Pathfinder, both 7,500 m³), with two more sister ships under construction; all are designed for LCO₂ transport. Capital Clean Energy Carriers has also committed to four low pressure 22,000 m³ LCO₂ carriers, which are being built by HD Hyundai Mipo. The first of these vessels was launched in April 2025, with the others to follow in 2026. These vessels will also be capable of transporting LPG or ammonia and capable of carrying two different types of cargo at the same time; this gives the owners the flexibility to use the vessels to carry other cargoes whilst the carbon capture industry develops.

As a cargo, LCO₂ has some unique properties that present a challenge for the design of these new LCO₂ carriers (and are the key reason why LCO₂ carriers must be purpose built, as opposed to carrying LCO₂ in existing tankers) - LCO₂ has to be carried under pressure, at low temperatures and impurities in the LCO₂ can lead to corrosion. It is easy to see that unforeseen operational issues may arise as and when trade for these vessels increases (in the same way as issues have appeared in dual fuel vessels) and a buyer may be left with little recourse against a shipyard if the issues were not apparent during sea trials. It will be crucial to have a carefully drafted shipbuilding contract with, for example, sophisticated latent defect warranty provisions and a clear delineation of design risk to ensure an owner is protected if issues arise after delivery.

Charterparties

Another consequence of building brand new vessels with novel designs – such as the LCO₂ carriers that can carry ammonia or LPG as well as LCO₂ – is that there are not yet any industry wide standard form charterparties specifically for LCO₂ carriage. For now, it may be possible for owners and charterers of the small number of available LCO₂ carriers to prepare and use bespoke charterparties, potentially based on an adapted LNG standard form charterparty. That said, hundreds more LCO₂ carriers will be needed in the not so distant future if CCS projects are to be viable. Issues are likely to quickly arise if every owner and every charterer is attempting to use their own, different bespoke drafted charterparty form.

Further, the specific properties of LCO₂ as a cargo (as described above) will need to be factored into charterparties as well as shipbuilding contracts. The problem with bespoke drafting or adapting LNG charters for LCO₂ carriage is that there is a greater risk that issues unique to LCO₂ will not be adequately addressed and disputes will start to arise. For example, if an LCO₂ carrier is also capable of carrying other types of cargo like LPG and ammonia (presumably in the same tanks) the charterparty will need to regulate this carefully, particularly where impurities in LCO₂ can lead to corrosion. Further, in circumstances where the carriage of LCO₂ is new and the regulatory framework is still developing (and likely to develop at a slower rate than the LCO₂ carriers are built and chartered out), it is important for long term charterparties to contain detailed change of law provisions.

It will likely take some time before there are enough LCO₂ carriers, and before the operational practicalities fully materialise, such that it is both desirable and possible for the industry to develop a standard form charterparty. This means the early charters for LCO₂ carriers will likely be bespoke and parties should pay close attention to ensure that adapting existing charterparties or bespoke drafting adequately accounts for the unique issues associated with transporting LCO₂.

Pollution

Another issue that is presently puzzling shipowners, charterers and lawyers alike is what happens if an LCO₂ carrier is involved in a casualty such that it spills its cargo? From a practical perspective, LCO₂ is not a pollutant in the same way as, for example, a traditional oil spill i.e. there would not be clean up costs, and LCO₂ is not flammable. Further, the carriage of LCO₂ is so new that it is unclear how and if the existing regulatory framework and conventions related to pollution would be interpreted and applied in respect of LCO₂. What is clear is that releasing a significant amount of LCO₂ into the atmosphere and surrounding environment will likely have a negative impact – setting aside the fact that the purpose of capturing the carbon is to remove it from the atmosphere, the sudden release of large volumes of CO₂ could cause, for example, a safety concern for crew or port personnel as it is an asphyxiation risk.

Shipowners and charterers of LCO₂ carriers will need to keep a keen eye on the regulatory environment surrounding LCO₂ as it attempts to catch up with the predicted rise in the carriage of LCO₂. They will also need to be aware that the first casualty is likely to be met with significant uncertainty and present a test case for the regulatory framework and maritime conventions.

FSIUs

The marine side of CCS projects features more than just LCO₂ carriers. The offshore oil and gas industry is also turning its hand to CCS projects, particularly in respect of floating storage and injection units (FSIUs). There are various companies who have joined forces to combine the expertise of shipping companies in respect of LCO₂ carriers with the expertise of offshore energy companies developing FSIUs. For example, Yinson and K Line have recently signed a memorandum of understanding to jointly develop and market a floating storage and injection unit (FSIU) and a liquefied CO₂ carrier – the idea is that Yinson will combine its FPSO and offshore engineering expertise with K Line’s CO₂ shipping capabilities.

Collaborations such as these are common in the offshore energy industry and should continue – but JVs and long term agreements between multiple companies across interconnecting parts of the CCS value chain leaves room for dispute. The oil and gas industry is tried and tested, but the CCS industry is new – risk allocation, the law of good faith and termination rights are likely to play a key part in such contractual relationships, which will need to be managed carefully to ensure the relationship can stand the test of time.

Conclusion

CCS projects present an exciting time for innovation in the maritime industry as well as progress towards net zero targets. However, the legal and contractual framework governing these projects is new to even those existing players in the market with sophisticated oil and gas, shipping or LNG knowledge; it will take time and care to correctly adapt that knowledge to LCO₂ carriage and injection units. In particular, those operating in this space should be keeping a careful eye on the LCO₂ specific issues in their contracts, as well as changes in the regulatory framework.

If you have queries relating to a specific transaction or case, please do not hesitate to contact us.