We are pleased to bring you in full Vassilios Kroustallis’ speech at Tradewinds Shipowners Forum Japan 2024
in mid October at Conrad Tokyo on “Opportunities for Shipping in Japan’s World Leadership on Alternative Fuels“:
“Ladies and gentlemen, thank you for the opportunity to speak to you today. It is great to be back in Japan, a place where we have many clients and friends and somewhere that is a genuine world leader in the development of green fuels.
In a complex, fast moving global energy transition, Japan’s commitment to developing a hydrogen and ammonia economy really stands out. In December 2017, Japan was the first country in the world to release a Hydrogen Strategy. Ammonia has started gathering more interest here in recent years as well, both as a hydrogen carrier and for its potential to be used as fuel in power generation and was included in the strategy in a revision last year.
From a current base of around 2 million tonnes per year, Japan is targeting consumption of 20 million tons of hydrogen or ammonia per year by 2050. With the goal of hydrogen and ammonia making up 1% of the country’s primary energy mix by 2030. The real demand may in fact be much higher.
Before large-scale use of hydrogen and ammonia is possible, however, Japan needs to overcome several major challenges, namely: the high cost of hydrogen and ammonia production and the lack of a large-scale hydrogen and ammonia supply chain.
And it is in this second challenge that there is a huge opportunity for shipping both here in Japan and internationally. While supporting the Japanese industry domestically and abroad are key goals of its hydrogen and ammonia policies, the Japanese government recognises that domestic production alone will not be enough to achieve hydrogen supply targets. That’s why another major theme of last year’s revision of the Hydrogen Strategy is the need to develop an international hydrogen and ammonia supply chain.
Crucially, the strategy specifies that efficient and stable international transport from overseas to domestic bases and secondary transportation from domestic bases to all parts of Japan are necessary, and ships capable of long-distance and large-scale transportation are going to be essential to deliver the vision.
As if that was not incentive enough, the Japanese Government is backing this vision with 15 trillion-yen worth of investment, much of it designed to offset the risks inherent in establishing a new supply chain.
Unsurprisingly, shipping is responding, with orders for Very Large Ammonia Carriers or VLACs at 90 to 95,000 cubic meters emerging as a new trend. This is because only some of the existing global fleet of very large gas carriers are also ammonia capable, but as they were designed for the LPG trade specifically and due to the higher specific gravity of ammonia can be filled only 80-85%. Meanwhile, VLACs with strengthened hulls and tank structures can sail with 98% of their capacity filled with ammonia.
VLAC ordering, which began in 2023, is going strong in 2024, with the first delivery scheduled in 2026. Newbuild cost of VLACs on average is at a premium of $1.5-3 million over VLGCs. Some shipowners are also investing to upgrade their VLGCs to transport ammonia, costing an average $2 million per ship.
Interestingly, the structure of the LPG fleet is also transforming. The expansion of the LPG trade into the future is set to be driven by orders for VLGC and VLAC tonnage of 70,000 cubic meters and above. According to the current orderbook, 96 vessels – 55 VLACs and 41 VLGCs are scheduled for delivery between 2024-29.
Importantly, 34 VLACs on order are scheduled to be delivered in 2027, just in time to support Japan’s commitment to push fuel ammonia demand to 3 million tonnes annually by 2030. But the transition is already well underway. Last year saw the first shipment of low carbon ammonia cargo from Saudi Arabia and there have been others since, including from Abu Dhabi. Earlier this year, Exxon Mobil signed an agreement to ship half a million tonnes of blue ammonia from Texas to Japan. Other agreements have been signed with firms in Western Canada and Australia among others.
The common thread throughout all of these is shipping emerging as the vital connector – the foundation on which all the related supply chains are built. Shipping will be the vehicle for the transition both as carrier and end user – 18 ammonia fueled vessels have been ordered so far in 2024 alone and 439 newbuilds are listed as ammonia “ready”.
So, the industry is responding but governments must make investments to provide scalability of options and enable commercial first movers. Here, Japan is leading the way.
It is surely a lesson for the rest of the world that a land of limited natural energy resources has turned a weakness into a strength through vision and a powerful commitment to delivering on it.
Thank you for your time today.”
