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Customers are demanding more and more sustainable products from petrochemical producers. Mohd Yusri Mohamed Yusof, CEO of Petronas Chemicals, talks about how his company is advancing its sustainable portfolio by working with various stakeholders and not only looking at the company’s carbon footprint, but also its consumption of natural resources such as water.Conferences LIVE
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Low-carbon ammonia project developers across the world are facing challenges securing final investment decisions, amid a downtrend in global spot ammonia prices and demand uncertainties, according to industry experts and an analysis of market data by S&P Global Commodity Insights.New project advancements have slowed in the low-carbon ammonia market, as in the hydrogen market, amid government policy delays to deal with worsening production economics, slow demand and supply chain issues.The biggest barrier for projects is the cost difference between current unabated fossil fuel-based hydrogen and ammonia, and lower emission technologies. The current costs for electrolysis-based hydrogen production are double that of conventional steam-methane reforming (without CCS) -- utilizing natural gas as a feedstock -- according to a report by S&P Global.Platts, part of S&P Global Commodity Insights, assessed renewable-derived (green) ammonia prices for the USGC delivered into Northwest Europe at $789.58 Aug. 14, falling 0.28% since Dec. 1, while traditional spot CFR Northwest Europe ammonia values were assessed at $380/mt Aug. 14, falling 63.91% during the same timeframe. This widened the green - traditional ammonia spread to $410/mt from $216/mt on Dec. 1, according to S&P Global data.Despite vast financial support schemes to incentivize production, bridge the cost gap and drive demand-side support, weaker spot ammonia margins have added pressure on developers' financials.Uncertainties in pricing for low-carbon ammonia have forced project developers into strategic offtake contracts to lock in export demand in order to secure financing.Global ammonia earnings bearish, producers reinstate low-carbon commitmentGlobal spot ammonia prices fell 71%-77% over Q2 2022 to Q2 2023, moving in lockstep with lower natural gas prices, S&P Global data showed. Ammonia prices were elevated throughout 2022 following a spike in feedstock natural gas costs.In response to weaker ammonia prices, producers saw lower year-on-year Q2 2023 financial results but maintained their commitment to low-carbon ammonia projects.Canada's Nutrien, on the other hand, announced Aug. 2 in their second quarter earnings report they would suspend their blue ammonia project, the $2 billion expansion of its existing facility in Geismar, Louisiana. The facility was slated to be the world's largest clean ammonia plant with a production capacity of 1.2 million mt/year of low-carbon ammonia with a CCS rate of at least 90%."Nutrien believes in the potential for new sources of demand for clean ammonia to emerge, particularly over the long-term. However, the timing, size and nature of this future potential remains uncertain today," Mark Thompson, Executive Vice President, and Chief Commercial Officer at Nutrientold S&P Global Aug. 8.Nutrien attributed their decision to suspend the project to reassess capital cost increases, as well as "uncertainty around the timing of clean ammonia demand and higher-return opportunities within Nutrien to optimize the deployment of capital," Thompson added.At the time of the initial announcement in May 2022, Nutrien said they had signed a Letter of Intent with Mitsubishi Corporation for offtake of up to 40% of the plant's low-carbon ammonia production, which Mitsubishi intended to export into Japan and other Asian fuel markets. Nutrien also revealed an agreement with Denbury to transport 1.8 million mt/year of CO2 captured from the ammonia plant. Final investment decision was scheduled for 2023, with construction planned for 2024, and full production expected in 2027.In reference to the status of their non-binding agreements, Thompson said "all such activities or partnership options that are contingent on Nutrien's final approval of the project have also been suspended at this time."But the market is showing signs of turning around as Platts last assessed CFR Northwest Europe ammonia forward prices for September and October at $405/mt and $415/mt, respectively, reflecting a premium to the spot price of $380/mt, with pricing supported by a bullish natural gas price curve, S&P Global data showed August 14.The rebound in the market was noted by Norway's Yara in their latest Q2 2023 financials report that a recovery in prices was likely in the third quarter based on the latest market developments.Market challenges: securing offtake and baseload demand "Uncertainty on the timing of the emerging uses for clean ammonia is 100% accurate for any low carbon projects," said Anthony Garcia, a trader at Trammo. "New demand centers aren't expected to need ammonia at a great scale for years [until 2030] for Japan and South Korea.This suggests a poor return on investment for shareholders during those years, Garcia said.Project developers looking to secure financing and long-term offtake for their planned production face difficulties in this young market, yet some ammonia producers face less investment risk."[A]t least securing baseload type demand for their newbuild," Eren Basak Gursoy, Director Product Management Pricing at Yara Clean Ammonia said. Gursoy added that some fertilizer companies have internal demand to meet in this, and therefore do not share the same pressures as Nutrien.Total announced volumes for low-carbon ammonia and hydrogen MOU and offtake contracts for the second quarter declined 77%, and 96%, respectively, from the first quarter, with the decline attributed to market uncertainties, according to data from S&P Global.The potential for low-carbon ammonia to replace current fertilizer demand, and for abating industrial, shipping and power sector emissions continues to be a much discussed topic for the sector."We do get demand signals but indeed only very niche companies for small amounts are ready to sign on a final price and offtake timeline commitment," Gursoy said with respect to the nascence of the market and projects having to secure large volumes for their projects."When governments are involved -- as in the case of the co-firing initiatives in Japan/Korea and hydrogen market initiatives in Germany -- you see large volume offtake agreements happening," Gursoy said. "Regulations and government incentives are needed to create demand."Countries with hydrogen import strategies and net-zero targets are expected to be the first demand centers, with support schemes and mandates to encourage demand.The EU's carbon border adjustment mechanism is slated to begin its transitional phase in October 2023, formally starting in January 2025. As a result, "hydrogen and ammonia importers in Europe will be subject to CBAM penalty for grey ammonia/hydrogen. If blue ammonia is priced at a premium lower than the CBAM tax, it creates a market already next year," Gursoy said.Blue ammonia is produced through the Haber-Bosch Process using natural gas as a feedstock and with CCS of at least 60%, while green ammonia is produced from hydrogen generated through an electrolysis process using renewable energy. Register for our Global Carbon Markets Conference in Paris, France, 6-8 November 2023.
There are increasing calls for supply chains to diversify, particularly from China which controls a lion’s share of solar and critical minerals manufacturing and processing. Atul Arya, Chief Energy Strategist at S&P Global Commodity Insights discusses how diversification may take time but is inevitable. Learn more at APPEC 2023 | Houston | September 4-6
