- In the early 2000s, most very large gas carriers (VLGCs) were designed to carry ammonia with lower filling limits, but this changed in the mid-2010s as design shifted to focus on LPG-specific requirements.
- The cost of building a 93,000 cbm LPG carrier has increased significantly to around USD 125 million in 2024, up from USD 75 million in 2020. Modifying these vessels to carry ammonia adds about USD 1-1.5 million, encouraging shipowners to invest in flexibility.
- There is an almost equal split between orders for dedicated VLGCs and versatile VLACs (Very Large Ammonia Carriers), with many VLACs initially expected to trade as LPG carriers until ammonia supply chains mature.
The ordering of more than 50 very large ammonia carriers (VLACs) over the past 12 months has caught the attention of the maritime industry. Whilst these orders suggest a market surge in the direction of ammonia, a deeper analysis shows that most will be initially deployed as LPG carriers. Martin Cartwright, Global Business Director Gas Carriers & FSRUs at DNV, explains why.
In the early 2000s, many very large gas carriers (VLGCs) were designed to transport ammonia, albeit with lower filling limits, even if that wasn’t always the primary intention. However, by the mid-2010s, the design focus shifted towards LPG-specific requirements, particularly in terms of steel grades. Today, rising costs and the potential for increased ammonia demand are reshaping the market once again.
Surge in Newbuild Costs
The cost of constructing a 93,000 cbm LPG carrier has surged to approximately USD 125 million in 2024, up from around USD 75 million in 2020. Modifying these LPG carriers to enable ammonia transport adds an additional USD 1 to 1.5 million, roughly 1% of the total cost. Given the relatively low investment, shipowners are choosing to make these modifications to gain transport flexibility for the next 15 years. This has contributed to an almost even split between dedicated VLGCs and versatile VLACs ordered this year.
Transition from LPG to Ammonia
Most newly built VLACs will initially operate as conventional LPG carriers, given that large-scale ammonia supply chains are still in development. However, investing in these modifications positions shipowners to transition to ammonia transport when the market matures.
While many VLACs currently on order can carry ammonia, they are not yet optimized for it as a primary cargo. These vessels will meet initial ammonia transport needs but remain primarily designed for LPG. In the long term, new trade routes, changing requirements, and increased ammonia volumes are likely to spur the development of VLACs optimized specifically for ammonia transport.
Design Considerations for Ammonia Transport
To prioritize ammonia transport, vessel design adjustments are necessary. Key considerations include:
- Cargo Capacity: LPG and ammonia have different properties, requiring adjustments in tank filling limits. LPG’s lower specific gravity (0.61 vs. 0.68 for ammonia) and different thermal expansion necessitate design changes to accommodate both products without reducing capacity.
- Safety Requirements: Ammonia poses safety challenges, such as stress corrosion cracking in containment systems made of carbon-manganese steel, which is used in LPG carriers. Precautions include inerting cargo spaces and reducing oxygen levels before loading ammonia. Additionally, due to ammonia’s toxicity, enhanced safety equipment such as ventilation systems, vapor detectors, and personal protection gear is essential. Deepwell pumps are recommended for leak prevention, while submerged pumps must be specially designed for ammonia.
Adapting to Changing Cargo Capacities
As the first ultra-large ethane carrier (ULEC) orders emerge, larger VLACs may also be developed, potentially supported by new infrastructure like large floating ammonia storage units. With the current VLGC fleet operating mostly at speeds below 16.5 knots, it may be time for cargo owners to reassess speed requirements and optimize hull designs.
Short-term Overcapacity in the LPG Market
With over 50 VLACs ordered to initially serve the LPG market, a period of overcapacity is anticipated, especially as transit lanes ease. This year, more than 80 LPG vessel orders have been placed. Volatility in earnings has been driven by shifts in supply and demand, such as high US export volumes and the reopening of Panama Canal transits. Despite these fluctuations, the market is expected to stabilize as global trade grows, disruptions decrease, and the fleet expands, leading to some softening due to overcapacity.
Positive Outlook for LPG and Ammonia Demand
Looking ahead, demand for LPG and ammonia carriers is set to increase. LPG demand is growing in countries like China, India, and South Korea, while the global trade of low-carbon ammonia is projected to expand at an average rate of 4% annually, reaching around 69 million tonnes by 2040. In the short term, this growth will primarily be managed by medium gas carriers (MGCs), but as green and blue ammonia become more prevalent in five to ten years, VLACs will play a larger role, transitioning from LPG to ammonia as the main cargo.
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Source: DNV
