Speaker 1: This is Dana Perkins and you're listening to Switched on
Speaker 1: the BENIF podcast. Green hydrogen is one of the most
Speaker 1: talked about clean energy technologies today and that's for good reason.
Speaker 1: It has the potential as a fuel source to address
Speaker 1: the missions coming from some of the harder to abate
Speaker 1: sectors like transport or heavy industry. But equally talked about
Speaker 1: is the cost as well as how to get this small,
Speaker 1: light and flammable gas from where it's produced to where
Speaker 1: it needs to be used. But this isn't a show
Speaker 1: about hydrogen. We're going to talk about ammonia because recently
Speaker 1: one of BNF's analysts took a closer look at the
Speaker 1: things you can make with hydrogen, and in this instance,
Speaker 1: that's ammonia. Currently, production of ammonia accounts for anywhere between
Speaker 1: one to two percent of global emissions, and overall it
Speaker 1: could be as much as three percent of global emissions
Speaker 1: coming from ammonia's production and use. Now let's just stop
Speaker 1: there for a second, three percent of global emissions from ammonia.
Speaker 1: And while ammonia is best known as a fertilizer, and
Speaker 1: of course there are other use cases such as explosives,
Speaker 1: we're going to talk about those a little bit later
Speaker 1: in the show. For those that are closely watching the
Speaker 1: hydrogen space, they may also be thinking about ammonia as
Speaker 1: a potential for an innovative shipping fuel, or perhaps thinking
Speaker 1: about how we're gonna ship hydrogen itself. Well, ammonia could
Speaker 1: be an answer by converting hydrogen to ammonia and then
Speaker 1: back again. But really what does this mean for cost
Speaker 1: and just overall efficiency? Now to talk about this chemical,
Speaker 1: I'm joined by Dithya Bashem. He's an associate from Benef's
Speaker 1: hydrogen team. If you like this podcast, make sure to
Speaker 1: subscribe to receive updates on future episodes on your device,
Speaker 1: and give us a review on Apple Podcasts or Spotify,
Speaker 1: which will make us more discoverable by others. But right now,
Speaker 1: let's jump into my conversation with Addi about ammonia. Addie,
Speaker 1: thank you very much for joining us today.
Speaker 2: Great to be in the podcast. Thanks day Now.
Speaker 1: So we set off on this journey initially thinking let's
Speaker 1: let's do another show about hydrogen. It's an ever popular topic,
Speaker 1: and as it turns out, this is not a show
Speaker 1: about hydrogen at all. This is the show about ammonia,
Speaker 1: which certainly hydrogen is a part of the discussion, but
Speaker 1: it has such a let's say, fascinating history and future,
Speaker 1: So let's get started with that. First of all, give
Speaker 1: me a quick definition of what is ammonia for the
Speaker 1: novice chemist.
Speaker 2: Yeah, I mean that's how our journey started as well.
Speaker 2: In the hydrogen team. Ammonia is its own world. Ammonia
Speaker 2: is a molecule that is produced using hydrogen and nitrogen
Speaker 2: from the air combined over a catalyst at high temperature
Speaker 2: and pressure. And then that ammonia is really an intermediate product.
Speaker 2: You make a lot of other things with it. In
Speaker 2: eighty percent of the time, you make fertilizers with it,
Speaker 2: nitrogen fertilizers, which are used on fields and sustain about
Speaker 2: half of the world's food production. And about twenty percent
Speaker 2: of the ammonia that we produce today is used in chemicals,
Speaker 2: uses everything from textiles like nylon and refrigerans, pharmaceutical and
Speaker 2: a lot of things that people don't really think about.
Speaker 2: So it's a huge industry in itself, where hydrogen just
Speaker 2: plays a role as a feedstock.
Speaker 1: So ammonia has a lot of different use cases. But
Speaker 1: additionally it and I think we'll want to go into
Speaker 1: this in more detail, but as we first get started
Speaker 1: on the show, it's also easier to transport. So give
Speaker 1: us just a quick overview of the benefits of ammonia
Speaker 1: when you think about it versus hydrogen.
Speaker 2: Yeah, the problem with hydrogen is that it takes up
Speaker 2: a lot of space, so that makes it extremely costly
Speaker 2: to transport in bulk with ammonia. Once you combine that
Speaker 2: hydrogen with nitrogen, ammonia liquifies at minus thirty four degrees
Speaker 2: or ten bar atmosphere at ambient temperature. So because it
Speaker 2: liquifies a relatively easily, the energy input to liquified is
Speaker 2: quite low, which makes it less costly, and it's a
Speaker 2: molecule that we are transporting across the globe on ships. Already,
Speaker 2: there's about forty ships today that on a continuous basis
Speaker 2: transport ammonia across the globe. There's another one hundred or
Speaker 2: so one hundred to two hundred or so which do
Speaker 2: that on and one off basis from time to time.
Speaker 2: So it's already a traded industry and we have the
Speaker 2: infrastructures to transport ammonia around, which makes it comparatively a
Speaker 2: lot easier than hydrogen. What's also interesting is and something
Speaker 2: that maybe is hard to grasp, is the fact that
Speaker 2: per unit volume, so per cubic meter or per liter,
Speaker 2: ammonia actually contains more hydrogen than liquid hydrogen itself. That's
Speaker 2: because it's NH three, so it has another hydrogen molecule
Speaker 2: in there, and it's not just H two, which is
Speaker 2: the hydroen molecule itself. So within a unit volume, it
Speaker 2: just contains my hydrogen. So it's a more efficient way
Speaker 2: of transporting hydrogen as well.
Speaker 1: So we know how to ship it already, We're already
Speaker 1: doing it, which I think there is some conversation around
Speaker 1: what the future of shipping hydrogen looks like, and this
Speaker 1: could be a potential path. Let's talk a bit about Well,
Speaker 1: first of all, it's current emissions profile and then what
Speaker 1: the future of greening this industry could look like. So,
Speaker 1: at this current point in time, how is the vast
Speaker 1: majority of ammonia produced? I guess what's its feedstock, let's say,
Speaker 1: And then additionally, what are the associated emissions?
Speaker 2: Yeah, even today, you still need the hydrogen at the
Speaker 2: end to make the ammonia. The difference the future may
Speaker 2: be in a decarbonized wall is that we're getting the
Speaker 2: hydrogen from either natural gas or coal, and in eighty
Speaker 2: percent of cases it's natural gas across the world, and
Speaker 2: in twenty percent of times, so twenty percent of the
Speaker 2: feedstock that is being used as coal that's mostly used
Speaker 2: in China, and the extraction of the hydrogen is really
Speaker 2: where ninety percent of the emissions in the production of
Speaker 2: ammonial lie. And that's why hydrogen and decarbonizing hydrogen is
Speaker 2: such a key aspect to this. So, for example, if
Speaker 2: you're producing ammonia using natural gas, that emits about two
Speaker 2: tons of CO two equivalent per ton of ammonia, and
Speaker 2: then you still have to do something to the ammonia
Speaker 2: later to actually make it usable as fertilizers. So actually
Speaker 2: that doesn't even cover it. And the problem with ammonia
Speaker 2: is also that to two tons or so is just
Speaker 2: the production emissions. Sixty percent of the emissions associated with
Speaker 2: ammonia come from its use. So you combine it with
Speaker 2: a carbon molecule turned into a fertilizer like urea applied
Speaker 2: to the field, and at that point a lot of
Speaker 2: the emissions from the nitrogen get released again into the atmosphere.
Speaker 2: So actually ammonia itself was probably responsible for somewhere between
Speaker 2: two and four percent of all global greenhouse gas emissions.
Speaker 1: So for those who are listening and feel like they
Speaker 1: are awash with different colors on the color we are
Speaker 1: for hydrogen which we B and EF have actually moved
Speaker 1: away from using these colors because they're somewhat confusing. And
Speaker 1: I'm going to admit I actually just asked my producer
Speaker 1: what the color was for hydrogen that's produced from natural gas,
Speaker 1: and it's gray hydrogen. But what we're here to talk
Speaker 1: about today is actually how green hydrogen that that is
Speaker 1: produced from renewable energy sources could actually dramatically change the
Speaker 1: upstream emissions associated with hydrogen production and therefore ammonia. So
Speaker 1: let's talk a little bit about green hydrogen and the
Speaker 1: emissions benefit and then you know, of course we'll acknowledge
Speaker 1: some of the challenges because we know what the opportunities
Speaker 1: are here. So, yeah, Addie, what are your views on
Speaker 1: I guess the future potential for green hydrogen as it
Speaker 1: relates to ammonia.
Speaker 2: Sure, maybe making a step back. There's really two ways
Speaker 2: of decarbonizing ammonia production. One is just adding carbon capture
Speaker 2: and storage to the natural gas facility and then capturing
Speaker 2: the emissions associated with it. We call that blue hydrogen.
Speaker 2: The problem with blue hydrogen, or I guess the issue
Speaker 2: long term, is that, yes, you save about seventy eighty
Speaker 2: percent of the emissions with blue hydrogen already today or
Speaker 2: blue ammonia, but you never get to zero with blue
Speaker 2: blue ammonia or blue hydrogen. That's really the issue. It's
Speaker 2: the easiest way to do it today, and maybe in
Speaker 2: terms of the additional cost it has, it's much smaller
Speaker 2: than what we will have for green, but it doesn't
Speaker 2: lead you to an at zero future, and that's really
Speaker 2: where green comes in. Green ammonia produced using hydrogen that
Speaker 2: is again in itself produced using renewable electricity and a
Speaker 2: machine called an electrolyzer that splits water into hydrogen and oxygen,
Speaker 2: and then we take the hydrogen from that as an input,
Speaker 2: can be as close to net zero as you can get.
Speaker 2: The emission's reduction is up to ninety percent or so,
Speaker 2: as if you're using renewable electricity, that's as good as
Speaker 2: you can get with ammonia, and then you have a
Speaker 2: little bit that you might need to offset. So long term,
Speaker 2: we would say that if you really want to decarbonize
Speaker 2: at least the production side of ammonia, you would need
Speaker 2: to switch to green and the incentives to do so
Speaker 2: will need to be there.
Speaker 1: Now you're mentioning CCS, which is not currently incredibly cheap technology,
Speaker 1: and then mentioning also that green hydrogen, and therefore this
Speaker 1: other production process, which would be significantly cleaner, is even
Speaker 1: more expensive. Do you see a situation where the ammonia
Speaker 1: production is cost competitive at some point with current methods
Speaker 1: of production?
Speaker 2: I mean, starting again with CCS. If you add carbon
Speaker 2: capture and storage to your existing ammonia facility today, with
Speaker 2: a carbon price of about one hundred dollars potanol slightly
Speaker 2: higher than that, it would be profitable to produce blue
Speaker 2: ammonia blue hydrogen with that carbon price alone. And there
Speaker 2: are markets where we have that, like in the EU.
Speaker 2: The EUETS hovers around that price, and if you look
Speaker 2: at our forecast for the EUETS carbon price out to
Speaker 2: twenty thirty, we will be well in above the one
Speaker 2: hundred euros per ton and would will make blue ammonia
Speaker 2: cost competitive by itself. On top of that, there's tax
Speaker 2: credits in the US which allow blue ammonia to be
Speaker 2: competitive today already. Now, if you look at green ammonia,
Speaker 2: the cost differential today could be about somewhere between two
Speaker 2: and four times gray ammonia. So, if you want to
Speaker 2: think of this in absolute numbers, gray ammonia or fossil ammonia,
Speaker 2: over the last ten years has traded at a price
Speaker 2: of about four hundred eighty dollars per ton or so,
Speaker 2: and it's produced at a price about two to three
Speaker 2: hundred dollars per ton or so. Green ammonia will cost
Speaker 2: you anywhere between eight hundred to one thousand, two hundred
Speaker 2: dollars per ton, and that's largely because of the cost
Speaker 2: of hydrogen contained within it, because green hydrogen today costs
Speaker 2: at least four or five times as much as the
Speaker 2: fossil kind. So what really needs to happen is for
Speaker 2: that cost gap to close down the line, and we
Speaker 2: see that in hydrogen already. We see by twenty thirty
Speaker 2: green hydrogen will be cheaper than blue hydrogen with so
Speaker 2: hydrogen produced carbon captrin storage, and then down the line
Speaker 2: in the late twenty thirties, early twenty forties or so
Speaker 2: that green hydrogen will even outcompete gray hydrogen in most markets.
Speaker 2: That we are looking at.
Speaker 1: So in parts of the world where there is you know,
Speaker 1: functioning carbon market, there is some real potential there now
Speaker 1: just pivoting. Actually, you mentioned the price of ammonia, and
Speaker 1: this is a fascinating part of the ammonia story, which
Speaker 1: essentially is how the prices are formed and how trading works.
Speaker 1: Can you talk a little bit about how our price
Speaker 1: is dictated for when those who are actually purchasing ammonia
Speaker 1: down the line.
Speaker 2: Yeah, that's a great question. We produce about one hundred
Speaker 2: and eighty million metric tons of ammonia globally today. Just
Speaker 2: about ten percent of that ammonia is traded as is
Speaker 2: so actually in the pure form of ammonia, and maybe
Speaker 2: another fifteen percent or so are traded as a fertilizer product,
Speaker 2: particularly urea. So about a quota to a third the
Speaker 2: market is really traded in ammonia. But the key point
Speaker 2: is that traded market sets the benchmark prices that all
Speaker 2: the ammonias apply in the world use this as a
Speaker 2: formula to set their own pricing methodology. There's one in particular,
Speaker 2: which is the Tampa ammonia price, which is simply just
Speaker 2: based on a contract between an ammonia producer called Yarra
Speaker 2: and a phosphate fertilized a producer called Mosaic in the US,
Speaker 2: and they import about a million metric tons of ammonia
Speaker 2: every year to Tampa, and the price that they pay
Speaker 2: for these cargoes is used as a global benchmark for
Speaker 2: what ammonia prices really are, because why they use Tampa
Speaker 2: is because it's the most transparent price benchmark, they have
Speaker 2: the longest history, and that it then goes into a
Speaker 2: lot of pricing formulas across the globe. They might add
Speaker 2: an additional charge for transport and storage, some local discounts
Speaker 2: and so on, but that's the benchmark price and in
Speaker 2: that sense that that one contract really determines a lot.
Speaker 2: There's other benchmarks as well that are used, like the
Speaker 2: landed price of ammonia in Western Europe for example. All
Speaker 2: of those matter, but the key thing is that maybe
Speaker 2: ten to twenty percent of the market and the price
Speaker 2: that that traded market receives sets the price for a
Speaker 2: lot of the global supply and demand of ammonia.
Speaker 1: So this is a future is rather than a spot
Speaker 1: price market.
Speaker 2: This is completely spot so there is actually no futures
Speaker 2: market for ammonia. So ammonia is largely traded based on
Speaker 2: spot prices. There are term contracts, so ammonia is typically
Speaker 2: traded on one to three year term contracts where the
Speaker 2: pricing is then set based on a monthly ammonia price
Speaker 2: that varies every month. But the contract itself is up
Speaker 2: to three years long. But there's no futures that it
Speaker 2: can use, which makes actually hedging and protecting against risk
Speaker 2: really challenging in the ammonia market.
Speaker 1: Well, and talk to me a little bit about the volatility.
Speaker 2: Yeah, ammonia is actually extremely volatile. The ammonia prices are cyclical,
Speaker 2: so they go up and down with certain changes in
Speaker 2: supply and demand and availability of natural gas. Again, I
Speaker 2: mentioned four hundred and eighty dollars per ton was a
Speaker 2: ten year average, including the spikes that happened due to
Speaker 2: the Ukraine War. But actually ammonia prices have gone all
Speaker 2: the way down from one hundred and fifty dollars a
Speaker 2: ton to all the way to I think over one
Speaker 2: thousand dollars per ton, particularly last year when the Ukraine
Speaker 2: War happened and that cost a spike in natural gas prices,
Speaker 2: So you can see how volatile the price of ammonia
Speaker 2: is I just checked today and today in Europe the
Speaker 2: price of ammonia is already again at four hundred dollars paton,
Speaker 2: while his last year was about a thousand dollars paton.
Speaker 2: Now it dropped tremendously because natural gas prices relaxed.
Speaker 1: Where in the world is it really popular to import it?
Speaker 1: And I guess just which countries and are the biggest buyers.
Speaker 2: Yeah, the biggest buyers of pure ammonia are European countries.
Speaker 2: In particular, India buys a lot of ammonia, and actually
Speaker 2: the US is also a net importer of ammonia today,
Speaker 2: even though they do produce a lot themselves. But then
Speaker 2: there's a lot of buyers who buy ammonia not as
Speaker 2: ammonia but as urea, so a carbon based molecule produced
Speaker 2: using ammonia, And India and Brazil really top that ranking.
Speaker 2: They're one of the largest fertilizer importers in the world
Speaker 2: and really dependent on it. Sometimes countries also directly import
Speaker 2: natural gas to produce their own ammonia, so that's not
Speaker 2: accountid for within these figures, but that happens as well.
Speaker 1: Well. Then let's talk about who the producers are then,
Speaker 1: so it's clearly coming from somewhere.
Speaker 2: Everyone in the world has some level of production of
Speaker 2: ammonia because they see it as energy security issue. So
Speaker 2: every country has at least a small amount of ammonia
Speaker 2: production facilities domestically, even if that means they are importing
Speaker 2: the natural gas itself. However, I think four or five
Speaker 2: countries really dominate global supply of ammonia. That's first China.
Speaker 2: China accounts for about a third of all global subpi
Speaker 2: of ammonia, but China mostly uses that domestically. It's a
Speaker 2: huge market. All the ammonia that they produce they use domestically.
Speaker 2: They also have some sort of export restrictions on fertilized
Speaker 2: products like urea, so not much urea or ammonia actually
Speaker 2: leaves China. Ever, then that's about third, About nine to
Speaker 2: ten percent typically outside of today's situation comes from Russia.
Speaker 2: Russia is a major exporter. Over fifty percent of the
Speaker 2: production that Russia produces in house is exported to other markets,
Speaker 2: and both in the form of ammonia and as urea,
Speaker 2: and that's a big one. What happened now is a
Speaker 2: result of the Ukraine War, is that Russian ammonia exports
Speaker 2: completely ceased. Why because Russia exports ammonia through a pipeline
Speaker 2: and where ammonia pipeline that goes from Russia to Ukraine
Speaker 2: to import in Ukraine from where it is then exported
Speaker 2: overseas via ships, So that pipeline ceased operating as a
Speaker 2: result of the Ukraine War. Well, Russia is still exporting
Speaker 2: urea directly from Russia, but ammonia exports from Russia have
Speaker 2: completely seized. The other two markets where a lot of
Speaker 2: ammonia is produced are you the US in India, So
Speaker 2: the US, even though it has a lot of natural gas,
Speaker 2: is producing a lot of ammonia itself, but still needs
Speaker 2: to import a lot of ammonia to satisfy its own demand.
Speaker 2: Similarly with India, India produces a lot of ammonia domestically,
Speaker 2: but all of that ammonia is typically through imported natural gas.
Speaker 2: So in a sense they're not self reliant on fertilizers
Speaker 2: at all. They just have a lot of production capacity
Speaker 2: for it, it still need the feedstock to come in
Speaker 2: or the import ammonia are other places, so on net basis,
Speaker 2: they still import more ammonia than they produce.
Speaker 1: The Inflation Reduction Act in the US has certainly got
Speaker 1: hydrogen in its sites in terms of making the US
Speaker 1: possibly quite big producer of hydrogen, in particular green hydrogen.
Speaker 1: Have we started to see any of those projects come
Speaker 1: online and come to light? And if not, because I
Speaker 1: think I might know what the answer is. These are
Speaker 1: large infrastructure projects. When do we expect to start seeing
Speaker 1: some change.
Speaker 2: Yeah. What's interesting about the Inflation Reduction Act, especially in
Speaker 2: terms of ammonia, is the fact that in the law
Speaker 2: there's nothing that says that a hydrid producer in the
Speaker 2: US could not use the tax credit and then export
Speaker 2: that subsidized hydrogen as ammonia, for example, to other markets,
Speaker 2: which really means that US could become one of the
Speaker 2: cheapest suppliers of clean ammonia of any kind. To the goal,
Speaker 2: why we haven't really seen any impact of the Inflation
Speaker 2: Reduction Act tax credit just yet, I would say, is one,
Speaker 2: you're right, it's large infrastructure projects that will take another
Speaker 2: three four years to actually become operational. And second, no
Speaker 2: one has actually received any tax for it, at least
Speaker 2: on the hydrogen part yet, and that's because they're waiting
Speaker 2: on crucial guidance from the US Treasury and how you
Speaker 2: can actually produce hydrogen and call that clean or green
Speaker 2: hydrogen and meet the emissions thresholds that the Inflation Reduction
Speaker 2: Act has set out for its tax credit. And there's
Speaker 2: a heated debate. There's full page ads in the New
Speaker 2: York Times and the Washington Post about how these criteria
Speaker 2: should be set out, and that still needs to be determined.
Speaker 2: And we're working actually on a publication to set out
Speaker 2: our own view on this.
Speaker 1: So we'll keep our eyes on what's going to happen
Speaker 1: in the US with the IRA. There are other parts
Speaker 1: of the world that are actively engaged in this market,
Speaker 1: and certainly incumbents don't want to lose market share. Can
Speaker 1: you talk a little bit about countries that are actively
Speaker 1: involved in this space and more importantly, the companies that
Speaker 1: are actually producing ammonia right now and really what they're
Speaker 1: doing with it.
Speaker 2: Yeah, that's a really good point. I mean, every market
Speaker 2: with good renewable electricity sources like good sola and wind resources,
Speaker 2: as well as abundant natural gas, has been looking at
Speaker 2: one point at producing green or blue ammonia and trying
Speaker 2: to export that, particularly in the Middle East. Australia, Latin America,
Speaker 2: all of those markets have looked at it, and the
Speaker 2: Middle East is probably one of the places where most
Speaker 2: of the projects are concentrated. In One project in particular
Speaker 2: that is worth highlighting here is in Saudi Arabia. It's
Speaker 2: the Neo project. It's a two point two gigaboute electoralizer
Speaker 2: project that has actually taken final investment decision, so it
Speaker 2: is becoming reality very soon. It'll be operational by twenty
Speaker 2: twenty six and it looks to export over a million
Speaker 2: metric tons of ammonia. That's actually huge for the traded
Speaker 2: market that is only about twenty millimetric tons today, so
Speaker 2: that's going to happen. The challenge with NIOM is really
Speaker 2: part of its business model. So in Saudi Arabia, producing
Speaker 2: green ammonia makes a lot of sense because they have
Speaker 2: both good solar radiation but also good wind speeds, which
Speaker 2: means you can combine it to and produce really cheap
Speaker 2: green ammonia in the region. And the project is financed,
Speaker 2: so it's going ahead as well, and it has an
Speaker 2: off taker in air Products, which has been willing to
Speaker 2: sign a thirty year off take. So in a lot
Speaker 2: of ways, the financial zion place, the renewables are in place,
Speaker 2: and the ammonia will be cheap. The questionnaer on Neium
Speaker 2: is really what they will do with the ammonia, because
Speaker 2: air Product is buying the ammonia, but they're not the
Speaker 2: final user of the ammonia. Air Product's role within this
Speaker 2: is to take the ammonia, put it on ships and
Speaker 2: then export it to other markets and then find willing
Speaker 2: buyers in these other markets for that ammonia. So they're
Speaker 2: really a trader of the ammonia. And the stated business
Speaker 2: model right now is to take the ammonia, move it
Speaker 2: via ship to Europe to an import terminal that air
Speaker 2: Products is building, actually three of them, and then crack
Speaker 2: it back to hydrogen, so not actually use the ammonia
Speaker 2: as is, but crack the ammonia under high temperature back
Speaker 2: to hydrogen, which in a sense makes it more useful
Speaker 2: because there's more use cases for hydrogen and ammonia. But
Speaker 2: that's where for us the economics really fall apart. We
Speaker 2: think it could make a lot of sense for country
Speaker 2: like Audi Area to produce ammonia in bulk ship it
Speaker 2: and then for that ammonia to be used as ammonia,
Speaker 2: and that will be broadly competitive with domestic production in
Speaker 2: let's say Germany or so. Once you think about cracking
Speaker 2: the ammonia bag, that's such an energy intense process that
Speaker 2: the efficiency losses along the chain mean that the hydrogen
Speaker 2: that you're getting out of that is probably a lot
Speaker 2: more expensive than just domestic production of the hydrogen. And
Speaker 2: right now the business model goes further to use that
Speaker 2: hydrogen than in road transport in refueling stations, which is
Speaker 2: also probably not the most viable use case for clean
Speaker 2: hydrogen today. It will mean that needs to be heavily subsidized.
Speaker 2: So there's a huge question around what happens to the
Speaker 2: project and who's actually ends up buying it, and if
Speaker 2: this stated use case will actually go ahead. Overall, I
Speaker 2: would say any project that is looking to crack ammonia
Speaker 2: back to hydrogen will struggle with finding buyers. Now, the
Speaker 2: wider issue beyond nium is the fact that about half
Speaker 2: of the world's hydrogen production is looking to export in
Speaker 2: some form and not just use it domestically. Because export
Speaker 2: projects tend to be quite large. Ninety percent of these projects.
Speaker 2: Of these export projects are looking to export as ammonia,
Speaker 2: and at BNF we really struggle where with all this
Speaker 2: ammonia will go in the near term, at least, we
Speaker 2: don't see enough demand for all of this ammonia because
Speaker 2: the fertilizer industry is quickly saturated. Even if you put
Speaker 2: all the government targets together, you struggle with demands for
Speaker 2: that ammonia, especially as is and cracking makes it really expensive,
Speaker 2: so that's not really a good option. So we really
Speaker 2: need to talk about future use cases of ammonia and
Speaker 2: how quickly those can be developed.
Speaker 1: What are some of those future use cases and things
Speaker 1: that they could green because certainly when I think of hydrogen,
Speaker 1: I think about the hard to abate sectors and the
Speaker 1: things that we're still trying to figure out the answers
Speaker 1: for decarbonizing, and that's really where it comes into play.
Speaker 1: That's where we start to hear some very creative solutions
Speaker 1: to decarbonize that are really at the technology forefront. And
Speaker 1: one of them that I think that we would love
Speaker 1: to see in that hard to abate sector get cleaned
Speaker 1: up is shipping, not the shipping of We've just went
Speaker 1: through the fact that shipping ammonia and then returning it
Speaker 1: into hydrogen again is very cost intensive, although technically feasible,
Speaker 1: so certainly something that many people are thinking about. But
Speaker 1: what about as a fuel and as a means to
Speaker 1: decarbonize this critical part of how the world functions as
Speaker 1: a global marketplace.
Speaker 2: That would be probably the use case right after what
Speaker 2: the low hanging food is, which is the fertilizer industry,
Speaker 2: once you have decombonized that, or in parallel, the next
Speaker 2: biggest use case will be the shipping sector. And we
Speaker 2: have been have to do a lot of analysis on
Speaker 2: how a net zero shipping industry will look like. And
Speaker 2: in our net zero scenario, the way this actually looks
Speaker 2: like is that sixty percent of the fuel used in
Speaker 2: shipping will actually be reduced just through fuel efficiency. Efficiency
Speaker 2: gain could be so strong that sixty percent of the
Speaker 2: fuel you could just mitigate through efficiency. About forty percent
Speaker 2: of the PI is then met through a combination of
Speaker 2: biofuels and hydrogen based fuels, so we say each twenty
Speaker 2: percent or so, So twenty percent of the total fuel
Speaker 2: demand for shipping in twenty fifty could be met through
Speaker 2: hydrogen based fuels. And there's really two competing fuels in
Speaker 2: the hydrogen sector. One is methanol and the other is ammonia.
Speaker 2: Just to put this into context, if that twenty percent
Speaker 2: were to use ammonia only, the amount of ammonia you
Speaker 2: need for that is about one hundred and fifty million
Speaker 2: metric tons of ammonia, which is as large as the
Speaker 2: ammonia industry today. So just with that, with just with
Speaker 2: a small share of shipping, you're looking at doubling the
Speaker 2: industry size of ammonia production today, which is crazy.
Speaker 1: So that's where all the ammonia could.
Speaker 2: Go potentially, right. The problem is that one ammonia has
Speaker 2: competition from methenol, which is a carbon based molecule and
Speaker 2: which a lot of shipping companies are investing in early
Speaker 2: in terms of buying vessels that are capable of running
Speaker 2: a methenol Long term, we do think ammonia could make
Speaker 2: a lot of sense simply because it's cheaper to get
Speaker 2: nitrogen out of the air than carbon out of the air.
Speaker 2: It's just more expensive because the concentration of carbon in
Speaker 2: the air is low.
Speaker 1: And by long term, what timeframe are you talking?
Speaker 2: I think right now, what we'll mostly see over the
Speaker 2: next few years is methenol fueled vessels and then towards
Speaker 2: the twenty thirties, there will be investment in ammonia fueled
Speaker 2: vessels as well.
Speaker 1: To the new vessels coming out will essentially be focused
Speaker 1: on a different fuel source.
Speaker 2: Exactly, or a dual fuel source. That's how shipping companies
Speaker 2: are approaching it. So have be able to both run
Speaker 2: on heavy fuel oil with just a conventional fuel and
Speaker 2: today methanol for example, and then switch between the two
Speaker 2: depending on which jurisdiction they're currently on and what carbon
Speaker 2: restrictions they have within that jurisdiction.
Speaker 1: How difficult would it be to retrofit existing ships.
Speaker 2: That's a really good question. I mean, what we don't
Speaker 2: have today is ammonia capable engines at all. There are
Speaker 2: companies like m an with which have suggested they're working
Speaker 2: on that and by about mid decade or so by
Speaker 2: twenty twenty five that they will have ammonia capable engines.
Speaker 2: Those could be retrofitted in existing ships, but I believe
Speaker 2: also ammonia takes up more space than existing fuel oil,
Speaker 2: which so you also reduce your voyage by that. So
Speaker 2: there's challenges with retrofitting where I think probably most ships
Speaker 2: will actually be new builds where they can run either
Speaker 2: on existing fuel or ammonia. That's how methanol is being
Speaker 2: approached today, and from the hydrand sectors, I think that's
Speaker 2: the approach that most companies will take towards ammonia in
Speaker 2: the beginning as well once ammonia ready vessels are available.
Speaker 1: So this falls firmly into the new technology space which
Speaker 1: we are watching closely but really is under development exactly.
Speaker 2: I mean, the problem or the challenge with ammonia use
Speaker 2: as a fuel is the fact that it's very different
Speaker 2: to handling it as a cargo. We know very well
Speaker 2: how to handle it as a cargo. The problem with
Speaker 2: ammonia is that it's toxic. You don't want to be
Speaker 2: near ammonia at all, so but we know how to
Speaker 2: handle it as a cargo. Using it as a fuel
Speaker 2: creates a new challenge, and we don't have any safety
Speaker 2: protocols for that yet or these are being under are
Speaker 2: still under development. So what first one needs to happen
Speaker 2: is one the engines need to become available that can
Speaker 2: actually combust ammonia, and the second is to have the
Speaker 2: protocols in place to actually use it as a fuel,
Speaker 2: which the IMO and other organizations are working on but
Speaker 2: we don't have them to. All of those are short
Speaker 2: term barriers to using ammonia as a shipping fuel. Long term, though,
Speaker 2: if ammonia is being used, the industry could actually be
Speaker 2: huge and the demand for it could be huge.
Speaker 1: So let's back up a bit. When we first started
Speaker 1: talking about using ammonia as a potential means to decarbonize
Speaker 1: the shipping industry, you noted that the number one thing
Speaker 1: that ammonia can do to reduce emissions is actually going
Speaker 1: to be in the agriculture space. And we've talked about
Speaker 1: it upstream, and I just want to know, am I
Speaker 1: missing something given that ammonia actually has such a downstream
Speaker 1: I guess in Scope three applications emissions profile, is there
Speaker 1: anything that really can be done to reduce emissions on
Speaker 1: that end of things? And kind of what's the problem there.
Speaker 2: Decarbonizing ammonia use in agriculture will be challenging because even
Speaker 2: if you introduce green hydrogen and reduce about ninety percent
Speaker 2: of the production emissions, that's only about forty percent of
Speaker 2: the emission's footprint of the ammonia use. Got sixty percent
Speaker 2: of it is really happening on the field when it's
Speaker 2: being applied and used by farmers, and that's partly because
Speaker 2: ammonia releases nitrogen emissions, but also because the most common
Speaker 2: way ammonia is applied to fields is not as is,
Speaker 2: but in the form of a fertilizer called urea, which
Speaker 2: is ammonia combined with a carbon source, which makes it
Speaker 2: more easy to transport it across the globe and easier
Speaker 2: to apply. But that there's the problem. You need to
Speaker 2: have a sustainable carbon source able to decarbonize that, and
Speaker 2: that's what most countries are using, and most countries are
Speaker 2: not necessarily able to switch away from that. Other markets,
Speaker 2: like in europemonium nitrate is being used as a source
Speaker 2: of ammonia, the nitrogen fertilizer. That could be a solution,
Speaker 2: so switching from urea to ammonium nitrate, But ammonium nitrate
Speaker 2: is more expensive, it has explosive property, so that's also
Speaker 2: a challenge. So partly the solution to decarbonizing nitrogen fertilizers
Speaker 2: used in agriculture is one. One answer to this is
Speaker 2: really using hydrogen and greening the ammonia production itself. There's
Speaker 2: probably a part which means that you switch to fertilizes
Speaker 2: that don't use any carbon with of themselves. There's probably
Speaker 2: a part of this which just means reduction of nitrogen
Speaker 2: fertilizer use overall. And these are questions that our sustainable
Speaker 2: Agriculture team is looking at in a lot more detail,
Speaker 2: and we'll come up with a more clear answer in
Speaker 2: your future.
Speaker 1: I mean, I guess that's part of the reason why
Speaker 1: your job is a lot of fun, because you get
Speaker 1: to overlap with the sustainable agriculture team and then the
Speaker 1: clean energy team, and there's a lot of different people
Speaker 1: to collaborate with because it is so interconnected to so
Speaker 1: many different parts of the economy. One of the things
Speaker 1: you had mentioned a little bit earlier on was policies
Speaker 1: that may need to be formed around some of the
Speaker 1: safety considerations. And certainly we know that hydrogen is flammable.
Speaker 1: There are various other things in our daily lives, like
Speaker 1: natural gas that are flammable, although albeit not quite as flammable.
Speaker 1: But let's talk about ammonia and really whether or not
Speaker 1: many countries around the world are really focused on this
Speaker 1: safety consideration as something they're going to need to think
Speaker 1: about in the future, as we do expect to see
Speaker 1: ammonia taking off with some potential additional use cases in
Speaker 1: the future. And the reason I bring this up really
Speaker 1: specifically is I think in many of our minds there's
Speaker 1: kind of this picture of a fairly recent explosion of
Speaker 1: an ammonia facility in Lebanon, and that was just over
Speaker 1: a year ago in twenty twenty two. In Beirut, When
Speaker 1: we talk about hydrogen, we say, oh, well, you know
Speaker 1: the Hindenberg, but it was so long ago, and maybe
Speaker 1: you have this ability to almost put distance in time,
Speaker 1: but we don't with this particular disaster that really was
Speaker 1: quite fresh in people's memories. And therefore, do you think
Speaker 1: that something that those on the policy side are really
Speaker 1: looking at quite closely when they're thinking about whether or
Speaker 1: not to really support certain parts of hydrogen and ammonia
Speaker 1: production in their countries.
Speaker 2: I think a lot of that is still being developed
Speaker 2: at the moment, just because there is no green or
Speaker 2: low carbon ammonia industry today. Really there's pilot's scale facilities,
Speaker 2: but not really much use of ammonia. The aemonia that
Speaker 2: is being used and sold is used into fertilizer and
Speaker 2: agriculture industry, where we have safety protocols in place to
Speaker 2: handle ammonia. But yeah, once you're talking about doubling or
Speaker 2: tripling demand for ammonia, that will mean a lot more infrastructure,
Speaker 2: a lot more people involved in this, which will be
Speaker 2: exposed to ammonia, which is a toxic gas. If you're
Speaker 2: converted to something like ammonium nitrate that's used in explosives,
Speaker 2: so you have a flammability issue there. So all of
Speaker 2: that will need to be handled with it, particularly when
Speaker 2: you're using it as a fuel on ships. And that's
Speaker 2: I would say that that's mostly are still under development
Speaker 2: and still under discussion and something that needs to be
Speaker 2: figured out. We haven't really spent a lot of time
Speaker 2: and attention on it today because simply because there isn't
Speaker 2: really an industry there today. I think these are questions
Speaker 2: that we'll need to tackle as we go forward into
Speaker 2: the future and ammonia's role increases. Safety protocols really vary
Speaker 2: by by by markets. For example, in Europe, ammonia is
Speaker 2: really only put on trains and then on one pipeline
Speaker 2: that goes from Russia to Ukraine. Otherwise people don't really
Speaker 2: like to handle ammonia inland. In the US, you can
Speaker 2: put ammonia on a truck, you can put it on
Speaker 2: a train, you can put it through a pipeline. There's
Speaker 2: not very many restrictions on how you can handle ammonia.
Speaker 2: So there's all the differences between countries on how risk
Speaker 2: averse they are towards using ammonia and its safety issues.
Speaker 2: So all of that will need to be harmonized to
Speaker 2: some extent to be able to enable a globally traded
Speaker 2: market for ammonia more widely than it is already traded today.
Speaker 1: So we already discussed the US Inflation Reduction Act and
Speaker 1: how that may spur the hydrogen industry in the US
Speaker 1: to become much more prominent. What other sort of policies
Speaker 1: are really in place to or could be in place
Speaker 1: in the future to really get this going.
Speaker 2: Yeah, it's actually something we're looking at as a research
Speaker 2: partner of the Bloomberg New Economy FUM Climate Technology Coalison
Speaker 2: and how to stimulate ammonia demand. And what we're settling
Speaker 2: on is ammonia's probably needs both supply side incentive for
Speaker 2: the hydrogen to scale up and become cheap, So that
Speaker 2: could be anywhere from direct subsidies to fixed premium support
Speaker 2: contract for difference mechanisms and so on to make hydrogen cheaper,
Speaker 2: but also demand side mechanisms. We've talked about carbon pricing before.
Speaker 2: That will be a huge one, particularly for blue ammonia,
Speaker 2: which with a carbon price can already be competitive mechanic
Speaker 2: like the carbon border adjustment mechanism in the EU, which
Speaker 2: will incentivize importers to rely on more cleaner forms of
Speaker 2: ammonia as well, and then just encouraging the use of
Speaker 2: clean ammonia in sectors where there's no other alternative, right
Speaker 2: like in the fertilizer industry and so on. That could
Speaker 2: be for example, to quotas on mandates. For example, in
Speaker 2: the EU, what we have is a quota to use
Speaker 2: renewable hydrogen in existing industry that is already using fossil hydrogen.
Speaker 2: The biggest user of fossil hydroen today in Europe is
Speaker 2: the fertilizer industry. They use about I think two and
Speaker 2: a half million metric tons of hydrogen, so they now
Speaker 2: have a quota by twenty thirty to replace about forty
Speaker 2: two percent of the hydrogen that they're using with green hydrogen,
Speaker 2: meaning they will be producing green ammonia and by twenty
Speaker 2: thirty five that's all the way to sixty percent. Quotas
Speaker 2: like that and sort of carrots and sticks like that
Speaker 2: will probably help a lot in scaling up the industry. Well.
Speaker 1: And then how about one of the policy interventions that
Speaker 1: certainly is more of a stick. How about the carbon
Speaker 1: border adjustment mechanism.
Speaker 2: Yeah, absolutely, I mean that will really define what form
Speaker 2: of ammonia is treated and imported into the once the
Speaker 2: carbon bordered adjustment mechanism is in place, which will it
Speaker 2: will be fully in place from twenty thirty four. Carbon
Speaker 2: prices alone will probably encourage domestic ammonia importers to rely
Speaker 2: on lower carbon forms of ammonia because the carbon price
Speaker 2: incentivizes you to do so. With the carbon price of
Speaker 2: over one hundred years per ton, blue ammonia is already
Speaker 2: in the money, and by the time green ammonia is
Speaker 2: probably cheap enough that a carbon price alone will also
Speaker 2: incentivize green ammonia use in low domestic industry over fossil fuels.
Speaker 2: So the carbon border adjustment mechanism will really define what
Speaker 2: ammonia is being imported, and not just for ammonia, other
Speaker 2: other hydrid projects as well.
Speaker 1: You've been great at giving us so much detail around
Speaker 1: this industry and the pricing. And I am going to
Speaker 1: ask one final, extremely novice question. Can you see it
Speaker 1: and can you smell it?
Speaker 2: I certainly don't want to smell it because that might
Speaker 2: affect me in some way. Yeah, it's a colorless guys
Speaker 2: with a pundit note.
Speaker 1: Okay, so it smells bad. We might be familiar with
Speaker 1: it in cleaning products and stuff, but it's uh, you'll
Speaker 1: know it when you smell it, so to speak, but
Speaker 1: not necessarily when you see it. Addie, thank you so
Speaker 1: much for joining us today.
Speaker 2: Thank you for having me.
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