Ammonia frenzy

Interest in ammonia transportation as an emerging green fuel is boosting investments in the sector. Although ammonia is already transported through LPG carriers, the volume is low, limiting the trade to the smaller large gas carriers (LGCs, 50-70 kcbm) and Medium gas carriers (MGCs, 30-50k).

While over 200+ projects for clean ammonia are in the planning stages, the development has been slow. Meanwhile, the uptake of clean ammonia in the existing import markets will require subsidies and incentives. Therefore, we expect the clean ammonia trade to reach 8-10 million tonnes by 2029. Despite the early impediments, the future looks bright for this trade, fuelling orders, especially for the larger vessels – VLACs. So far, 34 VLACs were ordered compared to only nine VLGC orders in 2024. There are now 55 VLACs on the orderbook, while the VLGC tally is 40.

The newbuild price for a VLAC is around $120-125 million, which is quite high, deterring shipowners. However, owners are opting for costly ammonia carriers over VLGCs to reach the decarbonisation goal.

Source: Drewry Maritime Research, Clarksons WFR

The interest in MGC gains traction

MGC orders have skyrocketed this year and stood at a record high of 32 orders so far; just like VLACs, the momentum from 2023 has rolled into 2024. MGCs offer versatility to shipowners as they can be used for LPG, ammonia and olefins/ethane (specialised carriers). The segment has an orderbook with 63 vessels, accounting for 45% of the current fleet.

MGCs are rapidly adopting dual-fuel propulsion, with 83% of the orderbook comprising dual-fuel engines. LPG as the alternative marine fuel remains the favourite but the interest in ammonia is also picking up, with 13 vessels on the orderbook.

As clean ammonia volumes will be low until the end of the decade, MGCs are touted as the first vessels to be used. Meanwhile, a higher ROI and versatility than VLGCs is stoking orders for MGCs.

The rare LGC orders

After nearly a decade, the first LGC order was recorded in 2024, with Eastern Pacific ordering four LGC carriers. The LGC segment is used in niche areas and for long-haul ammonia transportation. With only 21 vessels in service, the segment is waning. The Eastern Pacific order is expected to be a replacement tonnage as the company has three 15-year-old LGCs already in service. Moreover, Vietnam’s Asia Pacific Shipping followed up with a two-vessel order, taking the tally to six vessels.

Although we do not expect a surge in LGC orders, a few may materialise with potential for clean ammonia trade and interest from smaller shipowners who might opt for the much higher priced VLGC/VLAC.

Source: Drewry Maritime Research

Initiation of ULECs

Orders for VLECs soared, with 31 ordered in 2023 compared to 12 until 3Q24. Meanwhile, ethane cracker operators like China’s Satellite Chemicals have upgraded the vessel sizes by ordering six Ultra-large ethane carriers (ULECs), followed by another two through Eastern Pacific Shipping, all on long-term charters. The orderbook-to-ratio for the ethane carriers stands at a whopping 220%, with 60 vessels on order against 27 in service.

The rise in demand for ethane as a cheaper feedstock for petchem plants has supported new orders. Higher ethane production, associated with record-high natural gas processing in the US, has increased the economic benefits of using the commodity for cracking. Ethane cracker plants have emerged in many countries and are operational in India, China and Europe, with more crackers in the pipeline. Furthermore, weaker petchem margins with volatile LPG and naphtha prices also compel operators to convert their existing crackers to ethane.

Source: Drewry