There has been plenty of noise over the demand profile of ammonia, both as a commodity and a marine fuel, with the product being touted as the ideal solution in the race to decarbonise shipping. But with all the talk of large demand projects, will there be enough vessel tonnage to match this?
Green ammonia represents just one of the options for reducing CO2 in the shipping industry, but it is one of the more significant ones. Capacity for green ammonia could rise from nothing to around 2mn t/yr by 2025, before soaring to 75mn t/yr by 2030, should all the planned projects come on line post-2026, with the Middle East and Australia making up 70pc of these projects. This is a significant jump in capacity and one the shipping sector needs to prepare for as vessel fleets are stretched around the globe.
From a green marine fuels perspective, 3mn-4mn t/yr of ammonia is expected to be used in the sector in 2030 to match International Maritime Organisation (IMO) requirements.
The IMO’s 2030 and 2050 targets will require a change in the fuel mix within the shipping industry. The 2030 target sets out to reduce average carbon intensity — CO2 per tonne mile — to at least 40pc by 2030. The 2050 target is for a 50pc reduction in overall greenhouse gas (GHG) emissions by that year, and for a 70pc cut in CO2 emissions over the same timeframe.
This is likely to mean that the proportion of ammonia required to be green will grow consistently throughout the period, from zero in 2030 to 100pc in 2050. And to keep pace with the IMO’s recommended GHG reduction trajectory, as much as possible of the expected demand will ideally be green in 2040.
Investment in ammonia-powered vessels is expected to increase in the mid-2030s, with any vessel delivered in this period needing to be at least dual-fuelled using zero-carbon fuels.
The global clean energy transition is set to elevate ammonia shipping to new heights. In the International Energy Agency’s (IEA) net zero scenario, 175 ammonia tankers with capacity of over 80,000m³ will be required year-round by 2030 for transport of low-emissions ammonia. This compares with around 40 tankers — most of which are much smaller — that currently carry ammonia at any given time, according to the IEA.
This should set off alarm bells. Ammonia typically does not travel on the 80,000m³ very large gas carriers (VLGCs) required to meet the IEA’s net zero scenario. Instead, it tends to travel on LGCs MGCs and Handysize vessels, which have capacities of around 60,000m³, 38,000m³ and 22,500m³, respectively.
So where is the market going to find 175 VLGCs in seven years?
Newbuild tanker prices are around record highs amid broader inflationary pressures. A burst of newbuild orders last year from various segments, including containerships, helped tighten shipyard capacity to 2025, putting upward pressure on newbuild costs across all market segments.
Vessel shortages could become a real concern for ammonia, should the expected demand profile come to fruition. And then there is the hydrogen conundrum.
The hidden player in the ammonia shipping market is booming demand for hydrogen. The fuel is inefficient to move in a gaseous state because of its low energy density, making it more viable to move the product in the form of ammonia before cracking it into hydrogen on discharge.
Abu Dhabi state-owned energy firm Adnoc and German steelmaker Thyssenkrupp recently signed an initial agreement to develop commercial-scale ammonia cracking plants that will allow the extraction of hydrogen from ammonia on an industrial scale.
And a group of 18 companies announced in December that they are exploring the possibility of setting up a large-scale ammonia cracker at the Dutch port of Rotterdam to facilitate imports of low-carbon hydrogen to northwest Europe.
More recently, BP announced that it is planning to set up a low-carbon hydrogen hub at the port of Wilhelmshaven in northern Germany, including an ammonia cracker that could produce up to 130,000 t/yr of hydrogen from 2028.
There is extensive storage and transport infrastructure in place to deal with ammonia shipments as well as experience handling the product. And as hydrogen demand increases, tonne mileage will grow with it, making it more economically viable to ship hydrogen as ammonia, but that does have consequences.
Ammonia tonne mileage hit a record high in 2022 of 44.4bn tonne miles, according to Vortexa, up from 37.97bn tonne miles in 2021.
And with global hydrogen demand on the rise, ammonia tonne mileage is likely to continue to grow, stretching the fleet and creating more inefficiencies.
Meanwhile, tanker availability could tighten as the shipping market implements the IMO’s Energy Efficiency Existing Ship Index and Carbon Intensity Indicator regulations in 2023. The new rules will reduce the global fleet's speed, resulting in longer voyages and ships being booked for longer periods.
But there is one recurring factor that could limit the number of green ammonia projects, and that is safety. Several parties in the shipping sector have voiced concerns over the fuel being used for marine propulsion, with many pointing to alternatives such as LNG, which poses far fewer risks to on board and shoreside workers.
German trading firm Mabanaft recently signed an initial agreement with container liner Hapag Lloyd to evaluate the use of clean ammonia as an alternative bunker fuel, including an investigation into the safe handling of clean ammonia as a bunker fuel at the port of Hamburg.
The two companies will investigate the "safe handling of clean ammonia as a bunker fuel" at Hamburg, considering "commercial, technical, and regulatory requirements".
And classification society Bureau Veritas recently launched a verification scheme for electrolytic hydrogen, with plans to expand the programme later this year to cover low-carbon hydrogen and green ammonia.
So although safety is a concern for the market at this stage, more investment is going into examining the best ways to ensure ammonia is handled and stored safely.
Which leads back to the big question. Will supply be able to match the rising demand from the green ammonia sector to meet net zero targets or is the shortfall of VLGCs that can handle the product going to cost the market?