Is the tide turning for ammonia freight rates?
Heading towards the end of 2022, high natural gas prices had forced ammonia production cutbacks and the Ukraine conflict was further exacerbating supply. As a result, prices were driven to all-time highs. However, since entering 2023, we’ve seen European natural gas prices drop below last year’s average. In this article, we examine what this means for ammonia freight rates going forward.
The high prices and supply reduction we saw in 2022 would normally have had a depressing effect on freight rates. Instead, the shipping market became firmer as cargoes made their way to longer-haul, premium destinations, increasing tonne-mile demand. Furthermore, new entrants looking to gain experience in ammonia, took term shipping positions. In a change from the usual ‘cost of entry’ faced by newcomers, most found it relatively easy to trades work. For once, ammonia was enjoying an all-round positive environment and it seemed that nothing could temper this forward momentum…
Is the tide turning?
European natural gas prices have recently dropped below last year’s average, although they are still ranging above 2021’s average levels. With feedstock prices currently returning to healthier levels and the expectation that imported ammonia inventories will be reduced, we could see supply moving back towards more normal levels. In particular, we expect to see this in Europe (Ukraine/Russia disruption excepted).
In fact, prices have continued to soften throughout 2023 with the Tampa benchmark dropping nearly $200 month-to-month (with the latest drop recorded from March to April of $155pmt).
The demand for shipping is not as strong as it was and, for once, there is availability for short-term ammonia freight in the market. In many respects, the short-term market is normalising and, as such, we can expect new entrants to be less enthusiastic to take time-charters than they were a few months ago and we have seen them redeliver their positions back to the market.
How are new players in the ammonia space affecting freight rates?
New players are much more motivated to take positions in any market which is strong and rising. But in this instance, the interest is not merely speculative. The drive to decarbonise, and the important role Japan has been playing, is at the heart of this development.
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. As a result, Japanese players have plenty of motivation to gain knowledge and experience in ammonia shipping. This will likely lead to strong support for new ships that can carry ammonia as a cargo as well as burn ammonia as a fuel. Indeed, virtually every new LPG ship order we have seen in recent months has ammonia cargo capability and is also ‘ammonia ready’ should ammonia engines become viable and approvable by class.
Is the outlook positive for ammonia freight rates?
After languishing in the background for many years, the spotlight is now firmly on ammonia. While its future looks bright, ammonia shipping rates will (at least for the foreseeable future) always correlate to the LPG market. After all, ammonia is carried on ammonia-capable LPG ships and it is the LPG market which determines how much of the fleet will carry ammonia as well as what the freight levels will be. In short, everyone loves ammonia today (thanks mainly to hydrogen), but big brother LPG will have a major hand in shaping its future…
Clarksons Gases welcome new players and the growing efforts being undertaken to decarbonise the industry while remaining fully committed to our traditional ammonia clients. We are already handling several project enquiries from a variety of existing and prospective clients. If you require any help, please contact the team.
Clarksons Gases and Green Ammonia Team
We are the leading provider of shipping-related services to the ammonia industry - and have been for over four decades. More recently, developments in green ammonia and CO2 carriage have become focal points for the Clarksons Gases team.
We deliver integrated solutions with our unique blend of experience and knowledge. Backed by strong analytical support, our Chartering and Asset team is well positioned to assist with developing your ammonia strategy and future-proofing your shipping requirements.
Clarksons Gases welcome new players and the growing efforts being undertaken to decarbonise the industry while remaining fully committed to our traditional ammonia clients. We are already handling several project enquiries from a variety of existing and prospective clients. If you require any help, please contact the team.