Leonard: Hello, and welcome to the "Weight of Freight" podcast where we explore the connections between the freight markets and commodities themselves. I'm Leonard Fisher-Matthews, a market reporter here at Argus Media. And today. we're going to explore the ammonia markets. and our 12 new rates we've launched for ammonia freight. Today I'm joined by Johanna Pinheiro, market reporter for the LPG and ammonia freight markets. And Ruth Sharpe, the editor of our ammonia publication. So to kick it off, Johanna, I'd like to ask you about the new rates that we're launching, what are they. and how are they going to work?
Johanna: Sure. Thanks Lenny. And like you said, there are 12 new rates, which will bring our total up to 32 rates for ammonia freight. Eight of these are for mid-sized gas carriers, MGCs, which carry about 25,300-ton cargoes. And now we're stepping into the LGC market. So these are large gas carriers that carry around 40,000-ton cargoes. And it's a very niche market. There are only about 20 to 30 ships in the world carrying this, but last year alone they were responsible for about 20% of all the volumes that were traded in the world, so it's a very relevant market. Most of the market itself, the ammonia trade, it's a niche market in itself. There are about 70 to 80 ships carrying ammonia, but this can change a little bit because these vessels carry not just ammonia, but they can also carry LPG, which is a much more liquid market, and also petrochemicals. But because there are so many costs into cleaning up the tanks and preparing the vessels to transit, we don't see a drastic change within these numbers. And apart from these, MGCs are responsible for around more than half of the current seaborne trade within the ammonia. A large portion is also carried by smaller ships as [inaudible 00:02:15] sizes that carry around 15,000-ton cargoes, which we also cover. And with these new LGCs, we are offering assessments across all these categories for the market.
Leonard: Thank you very much, Johanna. Okay, so Ruth, in terms of current trade flows, which of our ammonia rates see the most liquidity? And with the new clean ammonia market, how do you see this changing?
Ruth: Okay. Well, things have changed quite a lot in the last couple of years for ammonia, mainly because there's been a couple of very market disruptive events which have changed trade flows drastically on how they used to be. And it's one of the reasons why we're expanding our freight coverage constantly. The first being Russian ammonia still isn't coming into the market from the Black Sea, and Russia used to be the biggest global producer of ammonia. So we've lost nearly 20% of global trade there. And that's now being covered from differing destinations, such as the Middle East, the U.S., North Africa, and other regions.
And then, while we're still not seeing that come back to the market, the second event is the closure of the Red Sea, essentially, for all ammonia shipments. And so this Middle East ammonia that was coming in to cover Russia is now having to go all the way around the Cape of Good Hope, and it's really expanding and tightening, and putting a squeeze on today's ammonia fleet. And as Johanna mentioned, it's only about 70 or 80 vessels covering all of global trade, and global trade is, say, like 70 million tons. So these events can have huge impacts on shipping lanes and trade routes, and can often create, obviously, a lot more long haul, but create a lot more opportunities over short haul voyages from some North Africa to Europe.
So, I mean, your question was about which prices are seeing the most liquidity. Because we've lost Russia, we still see a lot around the Middle East. We're seeing a lot more from the U.S. Gulf, and our freight rates, a lot of them are going to be covering ports such as [inaudible 00:04:14], where we're seeing a lot more liquidity there. We're also hopefully going to see more around Texas City as well. There's a new big ammonia plant coming online there at the end of the year, which we'll probably see LGCs coming out of Texas City across to Morocco. So it's essentially those two hubs as well. Algeria is also a very important hub in terms of spot liquidity, feeding Europe, too.
I mean, you mentioned about clean ammonia as well. That's a whole other topic. If and when this comes, I mean, it will have a massive impact on the market, because we could go from something such as 17 million tonnes now to potentially hundreds of millions of tonnes in the future. And that will...I mean, it depends if and when the supply emerges, which we're not quite sure about yet, but it will probably become clearer in the next few years.
Leonard: Right, I see. So in terms of these changes, potential changes, Johanna, how do you think the freight markets can evolve or keep up?
Johanna: The new rates that we are launching, they are accounting not just for the current market, but also the new potential routes that will come from the new blue and green ammonia projects. And although there is a lot of uncertainty regarding when and how many of these projects will actually come online, the shipowners have already taken a step forward and ordered lots of vessels preparing for this market. We have a current order book of around 90 ships distributed along MGCs and VLACs, which is a version of the VLGC, which is a very large gas carrier that has the capability of carrying ammonia. And a lot of these ships have not been contracted against ammonia projects. So we believe that a lot of these vessels will actually need to trade LPG, which is a more liquid market, before they are absorbed by the ammonia market. So in that period, which we think a lot, there are a lot of vessels coming online in 2027 and 2028. There was a key period, at least for a couple of years, maybe more. These two markets, both the LPG market and the ammonia market, will be pressured within the freight perspective. And this freight for these two markets will be pressured because we are expecting a lot more. So because of the order book that I mentioned, the 90 ships, this could effectively, potentially, if all of them were to trade ammonia, would double the fleet within the next four years. So that is why we are seeing these trends.
Leonard: Okay. So the freight market is gearing up for these changes. I think Ruth, you might have touched on this already, but how much production is in the works and how much do you think will materialize?
Ruth: Well, I guess, again, it's probably best to kind of differentiate between what's going to happen with grey and how we transition towards lower carbon, because in the near term, there's not that much new capacity for grey ammonia. There's obviously this one plant coming up in the U.S. We might see the market kind of be in a surplus for a few years, whilst at the same time, some downstream demand, like from phosphates, will take some ammonia supply out the market. So there's going to be a bit of a balancing act for the next few years for grey. And then we're going to see the development of low carbon ammonia capacity coming online. And some of the early projections, I mean, in terms of how much is actually going to come online, I think maybe Argus is tracking about 50 million tonnes of blue ammonia capacity, which is, you know, speculative and only a few million tonnes of that is firm. And then for green, I think it's over 150 million tonnes of green.
So you've got this huge amount of speculative capacity coming. Only a small portion of that is probably firm or going to happen or going to pass FID in the next few years. But even that coming online is going to have a huge impact. And like we said, even if only 10% of that comes online, that's around 20 million tonnes of new capacity. And as we've mentioned, like today's...I mean, there's 200 million tonnes of ammonia capacity today, but there's only 17 million tonnes, which is traded on the water. So it's a very niche market, and it could potentially even double by, say, 2030. Obviously, all of this has a lot of moving parts to it. And it depends on when firm demand emerges. At the moment, it's mainly just being seen in Japan and Korea for co-firing. Beyond that, if marine fuel demand emerges, which is probably going to be post 2030, that's when it could be a real game changer. And if the speed of demand comes there, we may see some logistical bottlenecks in terms of all elements of the supply chain.
And I guess what that means in terms of new shipping lanes, I guess...I mean, the ones that we're very likely to see, and I think Argus is starting to cover is from the Americas to Japan and Korea, maybe for larger vessels to meet this co-firing demand. And that's not a route that you see very often in today's ammonia market. But either way, there's going to be a lot of new shipping routes, just...and a big knock on impact on today's shipping routes, I think, just even if small bits of this capacity filter into the market in the next few years. But we're still not sure on the exact timelines yet. So it's going to be, like we think, potentially a surplus of ships and all the new vessels that are coming in the near term if the demand doesn't come on stream as people think it might do.
Johanna: Exactly. And it all could change quite quickly if in 2030, we have a lot of new cargos around that could flip. So we see that the relations between the LPG and ammonia market tend to strengthen within the future, because it will depend on how the markets balance itself, because the vessels have this flexibility. And it's why a lot of shipowners have chosen to start already preparing for the ammonia market, even though we're not very certain when it's going to start, because it gives them a possibility of being in both markets at the same time.
Leonard: Okay, so time will tell. Thank you very much, Johanna, and thank you, Ruth, for your wisdom and expertise on the markets. If anyone would like more information, please go to the gas freight publication and the ammonia publication for in-depth news and analysis. Thank you for joining. We look forward to seeing you on our next "Weight of Freight" podcast. Good day.
