Nitrogen+Syngas 390 Jul-Aug 2024
31 July 2024
Low carbon ammonia capacity
AMMONIA
Low carbon ammonia capacity
A review of the current slate of plans for green and blue ammonia production.
Demand for low carbon emission hydrogen and ammonia is expected to accelerate as decarbonisation quickens over the coming decades. Both will play a significant role in decarbonising hard-to-abate sectors including steel, shipping, aviation and fertilizers, and within the wider energy transition generally. But after a flurry of project announcements, the number moving towards final investment decisions (FIDs) remains small. Costs have often been revised upwards, sometimes by substantial amounts, and while the subsidies now available in places like the US and EU have generated a great deal of interest and project activity, they do not appear to have been decisive in driving FIDs.
The Hydrogen Council says that there have been a total of 45 million t/a of low carbon hydrogen capacity announcements with a target completion date before 2030. However, current production remains less than 100,000 t/a, and final investment decisions have only been taken on 3 million t/a of production capacity. Overall, CRU calculates that green ammonia project announcements total 180 million t/a of capacity, but only 2% have reached FID, while blue ammonia project announcements total 60 million t/a of capacity, with 4% having reached FID.
Costs
One major reason for this is that costs have been higher than anticipated. For green projects, electrolysis capacity has not fallen as rapidly as expected. Indeed, recently in markets such as the US, Europe and China, the cost of electrolysers has risen by more than 50% in the past year, due to a combination of inflation, labour costs, increases in utility prices and bottlenecks in production. An increase in the cost of materials and labour means that associated costs for electrloysers such as pipes, cables, coolers, pumps, water-purification facilities etc have also gone up. The price of renewable electricity also remains roughly double what it had been hoped it would.
This has led to a greater focus upon blue projects, which use carbon capture and storage/sequestration (CCS) to defray the carbon intensity of conventional fossil fuel based production. CRU’s Hydrogen Cost Model puts the cost of conventional grey hydrogen at around $2.00/kg H2 . CCS requires additional investment and is energy intensive, but the added cost of carbon capture is only around $0.40– 0.50/kg H2 in a steam reforming plant, because fossil-based hydrogen production processes already separate CO2 process streams. However, hydrogen produced via electrolysis with low-emission electricity, assuming full costs of electricity are borne, is upwards of $5.00–6.00/kg H2 .
Nor is there much sign of this reducing. CRU’s model projects that most countries are still expected to exhibit green hydrogen costs above blue and grey costs by 2050, ranging between ~ $3.00–7.00/kg in real terms – even before the addition of necessary storage and distribution costs. Green ammonia costs also follow the same trajectory, with the cost of green hydrogen forming the largest part of its overall cost structure. Furthermore, as ammonia production requires a constant supply of hydrogen, additional costs associated with overcoming this challenge – if relying on the underlying intermittency of renewable energy – can also be presumed.
The conclusion is that aside from those countries that are expected to have access to low-cost renewable energy, green hydrogen and ammonia costs will still be prohibitively high by 2050, with implementation of subsidy or a carbon price likely needed for the industry to develop. It also indicates that the focus is likely to remain on hard to abate sectors such as steel, fertilizers, refining, aviation and shipping, with other sectors looking to alternative solutions.
Carbon capture
With blue ammonia favoured in the short to medium term, there will be increasing focus on carbon capture. The number and volume of projects had been climbing rapidly, with the US the most favoured area thanks to the Inflation Reduction Act credits, though the delay in finalising 45Q guidelines is stalling projects. One wrinkle with CCS is that it remains difficult to assess how long term the removal of a tonne of carbon dioxide is. The captured CO2 must be monitored to see whether or not it returns to the atmosphere and if it does, how long that process takes. While there are over 400 million t/a of CO2 capture projects on the books for completion by 2035, there has been a pause in new project activity in recent months due to uncertainties regarding policy, financing, and transport and storage permits. Most of this capacity is for power generation or hydrogen and downstream chemical use.
Demand for low carbon ammonia
Existing uses of hydrogen, including refining, methanol and ammonia production, are forecast to be the most significant demand markets for low-emissions hydrogen, driven by decarbonisation. Uptake in these sectors poses less of a technical challenge, and end-users are able to leverage existing hydrogen infrastructure, supporting a switch to low-emissions alternatives sooner. Demand for methanol and ammonia production will be supported by existing uses, as well as their uptake into new markets, such as marine fuels. Low-emissions ammonia demand is forecast to surpass 200 million t/a by 2050, driven by substitution into existing uses and uptake into new demand markets. However, most of this demand will come in the late 2030s and 2040s, as fuel substitution in aviation and marine uses gathers pace. Near-term demand will be focused on existing markets, including fertilizer and industrial uses, as these present the least technical hurdles for adoption, although co-firing ammonia with coal to reduce emissions from coal-fired power generation will be important in Japan and South Korea.
As a substitute product, the main advantage low carbon ammonia offers is a reduction in CO2 emissions compared with alternatives. The value delivered is therefore dependent on the carbon savings from its use in a specific end-market. Today, the best value proposition for green ammonia based on its low carbon credentials is in Europe. However, it is important to consider that the application of emission taxes is not global. Many countries are opting not to use taxation schemes to encourage decarbonisation. This adds downside to the value of green ammonia in markets outside of these jurisdictions. Based on CRU’s calculations, the value of green ammonia in the power sector will not exceed the cost of delivering it to the market until 2040, necessitating additional incentives to encourage uptake.
In the near term, low-emissions ammonia capacity is forecast to increase by 11 million t/a by 2030, based projects that are expected to be firm additions announced for the period. Capacity additions from green ammonia projects are expected to be 4 million t/a, the majority of which are in China, as shown in Table 2. Blue ammonia projects represent 7 million t/a, concentrated in the US, as shown in Table 1. The Inflation Reduction Act (IRA) legislation has incentivised CCS projects, with blue ammonia producers now eligible to claim $85 and $60 for each tonne of CO2 that is permanently stored or utilised, respectively. There are now 17 projects under development in the US totalling 33 million t/a of ammonia capacity, with half of those announced in 2023. Greenfield projects make up the majority of announced capacity (27 million t/a), with the remainder coming from CCS conversions of existing production.
Most new supply in the build-out is expected to feed into traditional fertilizer production, with uptake in new end uses more limited in the short term. If new demand fails to materialise in e.g. the marine sector, the traditional ammonia market could become oversupplied.
The missing key for project financing remains the committed offtake, with potential end-users still unconvinced by the lack of policy clarity, high costs and infrastructure requirements of adopting hydrogen or ammonia.
Energy transition
Longer term, the energy transition will lead to far more renewable electricity production and gradually begin to bring the cost of green projects down to one comparable with blue production. CRU’s Power Transition Service forecasts that energy generation will slightly more than double by 2050, with additional capacity mainly coming from wind and solar generation. Economic growth will support rising electricity generation, while the use of new technologies, including AI, will push electricity generation growth higher. By 2050, most people will have swapped fossil-powered vehicles and boilers for EVs and electric heat pumps, respectively.
Solar PV and wind turbine manufacturing costs are declining and CRU carbon abatement curves show that replacing fossil-fired generation with solar and wind power is among the least expensive steps to decarbonise. Many countries are planning to significantly reduce fossil-fired generation and increase solar and wind power over the next decade; and a rise in carbon taxes will help incentivise this transition. While many renewable energy targets and ambitions may not ultimately be realised within the timeline expected, there will still be a significant shift to solar and wind power.
However, increasing solar and wind power reduces grid stability. To address this, intermittent power needs to be supplemented by battery energy storage systems (BESS) or other means, which will increase costs. Indeed, energy storage costs will become more important as solar and wind generation begins to comprise a larger proportion of power mixes. n
