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Ammonia-fuelled vessels - the opportunities and challenges

A current article in TradeWinds explores the challenges that need to be overcome in order for ammonia to become a globally used fuel for vessels.

The world's first ammonia-powered containership, the Yara Eyde, is set to debut in 2026 according to its developers and Höegh Autoliners has recently been granted substantial funding by Enova (a Norwegian government enterprise) for the construction of the world's first ammonia-powered pure car and truck carriers.

Ammonia certainly presents an exciting prospect as a marine fuel. Its status as a zero-carbon fuel when produced renewably could help assist in meeting IMO 2050 emissions reduction targets.

However, there are major challenges regarding where supplies of ammonia will come from and how they will be supplied to ships. In addition, ammonia is highly toxic to both people and marine life and so there are serious safety challenges that need to addressed.

From a finance lawyer's perspective, an interesting question is how ammonia fuel ships will be made commercially viable as such vessels are seen as significantly more expensive to own and operate than their conventionally powered counterparts. Moreover, a study initiated and facilitated by the Norwegian Green Shipping Programme found that retrofitting ships for green ammonia propulsion was prohibitively expensive.

This question has been analysed by a study conducted by the Global Maritime Forum. The study was carried out as part of the Nordic Green Ammonia Powered Ship (NoGAPS) project for an ammonia-powered gas carrier designed to operate between the US Gulf and Northwestern Europe, and which has recently been awarded Approval in Principle by DNV.

The study found four interlocking “levers” that, if jointly pulled, could unlock successful financing for ammonia powered vessels. Firstly, cost-efficient, dual fuel vessel design can reduce capital requirements and related commercial risks and also mitigate against residual value risks should clean ammonia not become widely available. 

Secondly, competitive financing arrangements should be made available by banks and lessors. This would be coupled with the third lever of public sector de-risking measures e.g. backing from export credit agencies and/or access to grants covering some of the additional capex requirements of the vessels. These two levers would, together, help shipowners reach break-even and improve vessels' chartering prospects.

Finally, and perhaps most importantly, ammonia-powered vessels will need to secure premium long-term chartering agreements with creditworthy charterers. This could be especially challenging for the first ammonia-powered vessels which come into operation.

We will be looking with interest to see how and when financiers step into the market.

While financiers acknowledge there are technical, operational and safety risks for early ammonia-powered vessels, these are not seen as a major barrier to investment. Rather, the key challenge is likely to be reducing the vessels’ elevated costs and related commercial risks to acceptable levels. Without intervention, an ammonia-powered gas carrier is expected to be between 50-130% more expensive than an equivalent gas carrier over the coming years. This creates significant commercial risks for both shipowners and lenders. Executive summary from Phase 2 report: Commercialising early ammonia-powered vessels (GMF, Aug 2023)