Looking ahead: The outlook for ammonia freight rates

As we approached the end of 2022, ammonia prices were at an all-time high and the market was enjoying a forward momentum that it seemed nothing could temper. High natural gas prices had forced production cutbacks, the war in Ukraine was causing further supply issues and success was coming easy to newcomers who found the market easy to make money in. But, with European natural gas prices having recently dropped below the average levels of 2021-2022, what can we expect to see happening to ammonia freight rates over the coming period.
The drive to decarbonise, and the important role which Japan has been playing is at the heart of this development. Japanese players have plenty of motivation to gain knowledge and experience in ammonia shipping. The Japanese government has given a firm directive in support of ammonia as supplemental fuel for power generation and the future use of ammonia as a marine fuel. This will likely lead to strong support for new ships, not only capable of carrying ammonia as a cargo, but also capable of burning ammonia as a fuel. Indeed, virtually every new LPG ship order we have seen in recent months will have ammonia cargo capability and is also “ammonia ready”, should ammonia engines become viable and approvable by class.

Can the market remain supported by longer-term demand?
Regardless of the production method used, ammonia is always required to make fertilisers. And it is this demand which will continue to underline the market’s growth. In addition to that, ‘green factors’ are generating yet further demand, albeit that this growth is constrained by the speed at which production can be increased by investment in infrastructure: On a positive note, energy companies and industrial players are showing growing interest in ammonia, primarily associated with hydrogen carriage. Indirectly, the ammonia market is being pulled along by non-traditional drivers, but how and when this translates into seaborne volumes, remains to be seen.

What does the future hold for ammonia freight rates?
Ammonia’s future looks bright! After languishing in the background for many years, it is now firmly the spotlight. However, its big brother LPG will have a major hand in shaping its future. For the foreseeable future at least, ammonia shipping rates are inextricably linked to the LPG market. Given that LPG ships transport ammonia, the LPG market will also determine how much of the fleet will carry ammonia and what the freight levels will be.
Source: Clarksons Gases and Green Ammonia Team