In the early 2000s, most very large gas carriers (VLGCs) were constructed in a way that enabled them to carry ammonia (although at lower filling limits), even if this was not always the intention. This changed in the mid-2010s when design became more LPG-specific, particularly with regard to steel grades. However, the likelihood of increased demand for ammonia transportation in the future, and escalating costs, have once again changed the landscape.
Surge in newbuild costs changes the dynamic
The price of constructing a 93,000 cbm LPG carrier has risen to around USD 125 million in 2024, a significant increase on a price of around USD 75 million in 2020.
Making amendments to these LPG carriers so that they are capable of carrying ammonia adds between USD 1 million and USD 1.5 million to the cost. With this accounting for around 1% of overall costs, it makes sense for shipowners to make this investment and secure transportation flexibility for the next 15 years. This has also been a huge factor in the almost even split between dedicated VLGCs and multipurpose VLACs contracted this year.
From LPG carriers to ammonia carriers
Most of these new VLACs are expected to initially trade as regular LPG carriers in the earlier years of their existence, particularly as large-scale supply chains for ammonia are still some years away from development. Nonetheless, making this extra investment means that shipowners will be in a position to serve the ammonia market when the time comes.
Whilst there are currently many VLACs in the orderbook (or VLGCs capable of carrying ammonia), these vessels are not yet fully optimized for carrying ammonia as their core cargo. These vessels will be sufficient to absorb higher volumes of ammonia when the market initially gets to this point, but they are still primarily constructed - and optimized - with LPG in mind. In the longer term, we are likely to see a reversal of the trend. New trade routes, different charterer requirements and higher traded volumes of ammonia are likely to lead to growth in the number of vessels constructed as VLACs primarily for ammonia transportation are optimized for this purpose.
Design changes required for ammonia transportation
Equipping these vessels to be primarily capable of carrying ammonia requires design changes focusing on some key differentiators.
Cargo capacity is one of the main considerations. The different properties of LPG and ammonia mean that the filling limits of tanks will vary. LPG has a lower specific gravity - 0.61 compared to 0.68 for ammonia - whilst the different thermal expansions of the two substances also differ. When tanks are designed for the lower density of LPG, filling volumes have to be reduced when transporting ammonia. However, making design adjustments to the tank to allow for the gravity and density of ammonia will make filling ratios the same for both products.
Safety a fundamental concern for ammonia transportation
Safety issues are also fundamental when switching to ammonia transportation. Anhydrous ammonia causes stress corrosion cracking in containment and process systems made of carbon-manganese steels, which are used in the cargo system of LPG carriers, and measures need to be taken to minimize this. For example, after docking, inerting the cargo spaces and reducing the oxygen content in the tank atmosphere before loading liquid cargo can help reduce stress corrosion cracking.
Ammonia is a toxic product, so to mitigate the extra risks, additional equipment for personnel protection and vapor detection should be installed. This includes ventilation systems and arrangements for closing ventilation during toxic gas emergencies.
Other considerations can also improve safety for ammonia transportation. For example, the use of deepwell pumps is advised to minimize the risk of leaks. If submerged pumps are used, these should be specifically designed for ammonia due to its reactivity with copper winding from most submerged pump motors.
Changing cargo capacities require adaptation to infrastructure
Cargo capacities could rapidly change as we already see the first ultra large ethane carrier (ULEC) orders already being registered. Larger VLACs could also be developed with wider infrastructure, like large floating storage units for ammonia, also likely to be part of future development plans. In addition, with the VLGC fleet spending most of its sailing time at 16.5 knots and lower it is time for future cargo owners to review their speed needs and start optimizing hull lines.
LPG market entering short overcapacity cycle
Going forward, the ordering of the 50+ VLACs (which will be initially trading as VLGCs carrying LPG) means that the LPG market is entering a cycle of overcapacity, especially now that transit lanes are loosening. Despite that, we have seen an extremely strong number of orders this year that now surpasses 80 LPG vessels.
Swings in supply and demand - affected by strong US export volumes and other developments, like the reopening of Panama Canal transits - have resulted in relatively volatile earnings for LPG carriers in recent months. Nonetheless, much like its colder cousin LNG, we look to be heading into a relatively healthy and stable period as global trade continues to grow, disruptions decrease and the fleet expands. This will naturally lead to softening as again we reach slight overcapacity.
Healthy market ahead as LPG and ammonia demand set to increase
Looking ahead, seaborne trade is expected to continue to grow for LPG/ammonia carriers. LPG demand is on the rise from China, India and South Korea, whilst the global trade of low-carbon ammonia is expected to grow on average by around 4% per year, reaching around 69 million tonnes by 2040.
In the short term, this surge will mainly be handled by medium gas carriers (MGCs) and this remains one of the most dynamic spaces to watch in 2024. However, when larger volumes of green and blue ammonia begin to hit the market in five to ten years' time, VLACs will become much more relevant with the switch from LPG to ammonia as the main transportation cargo.
Source: DNV, https://www.dnv.com/expert-story/maritime-impact/investing-in-future-ammonia-markets/