Ammonia shipborne trade: Navigating the bubble for sustainable growth

Introduction

Ammonia is a major contributor to the global economy, with its massive utilisation in the agriculture industry due to its use in fertilisers. It is widely shipped via fully refrigerated LPG carriers (MGCs) ranging between 30kcbm and 50 kcbm. Traditionally, ammonia is produced by the Haber-Bosch process, producing ‘Grey’ ammonia, which accounts for around 1.8% of global carbon dioxide emissions.

Global annual production of grey ammonia is around 185-190 million tonnes, half of which is produced by Asian countries, but only 15-20 million tonnes are traded annually through the seaborne route, as most of it is consumed by the fertiliser sector. China is the largest producer, contributing nearly 30% to the global output, producing a key portion by coal-fired plants. The capacity utilisation for ammonia plants varies from 30% to 80%, depending on the feedstock and the firing methodology. Meanwhile, Saudi Arabia, Indonesia and the US are the top seaborne ammonia exporters. 

Globally, around 198 terminals can handle ammonia as a cargo, with a combined capacity of 9.6 million cbm. South America and the Middle East are the leading regions in terminal capacity.

Trade and demand

In recent years, the ammonia trade has weakened despite steady demand. This downturn is due to ample domestic availability of ammonia, fertiliser production capacity and heightened natural gas prices, which has resulted in global shortages. Demand for ammonia remained robust because of its high dependency on the fertiliser and refrigerant industries. 

Global consumption was around 190 million tonnes in 2023, up from 178 million tonnes in 2018. Asia is the leading market for ammonia, particularly China which accounts for 40% of the global demand, followed by India. The long-term demand outlook is bright because of the rapid urbanisation, supporting its demand in the industrial sector. 

Clean ammonia (Green + Blue)

The low carbon versions of the conventional grey ammonia, which is used as fertilisers and raw material for chemical production, are Blue ammonia and Green ammonia, often termed as clean ammonia. The source of hydrogen used to produce ammonia differs between them. In order to reduce emissions, blue ammonia uses hydrogen from natural gas but also carbon capture and storage. Hydrogen from water electrolysis, powered by renewable energy, is used to produce green ammonia, which is carbon free.

Clean ammonia represents a massive potential to drive market growth and meet the decarbonisation goals of the industry. The major players already have their ambitious investment plans in the pipeline, which is likely to fulfil the global demand to a certain extent. This will be the most feasible low-carbon option in four sizeable industry segments - traditional (agricultural), co-firing (coal replacement), marine fuel and hydrogen carriers.

Ammonia - Carrier of the future

The future of ammonia transportation belongs to large parcel long-haul ammonia trades, for which a specialised version of VLGCs - VLACs or Very Large Ammonia Carriers (90-95k cbm) are becoming the new trend in the shipping sector. In 2023, KR (Korean Register) granted an Approval in Principle for a 200kcbm class Ultra Large Ammonia Carrier (ULAC) using ammonia fuel.

Some of the existing VLGCs are also ammonia capable, but as they were designed for the LPG trade specifically and due to the higher specific gravity of ammonia can be filled only 80-85%. Meanwhile, VLACs with strengthened hulls and tank structures can sail with 98% of its capacity filled with ammonia.   

Currently, around 30% of the existing LPG fleet and 53% of the orderbook is ammonia-capable, but the majority of the ammonia seaborne trade is facilitated by the MGC segment.

For the VLGC segment, 10% of the fleet and 54% of the orderbook are ammonia-capable.  These vessels, touted to be used as ‘hydrogen carriers of the future’ (due to green ammonia’s potential as an intermediary in hydrogen supply chain), warrant much larger parcels than traditional ammonia trades shipped by MGC fleet.

Interestingly, the structure of the LPG fleet is transforming. The expansion of the LPG trade into the future is set to be driven by 70+ kcbm VLGC and VLAC tonnage. According to the current orderbook, 86 vessels (38 VLACs and remaining VLGCs) are scheduled for delivery during 2024-28.