Ammonia is one of the hottest topics in the energy market as is evident from multiple project announcements, FEED & EPC awards, and in some cases positive Final Investment Decisions on large clean ammonia projects. In April, Yara and Enbridge announced they signed a letter of intent for the joint development of a ~US$2.9 billion CCS-based clean ammonia production facility at the Enbridge oil storage and export facility near Corpus Christi. Production is anticipated to start around 2027-28 with a supply capacity of 1.2 – 1.4 MTPA once fully operational…and there are many such project initiatives dotted along the U.S. Gulf Coast. So, what is driving this interest amongst project developers, energy companies, and the investment community? While the future of ammonia will be shaped by changes to technology, and economics, there have been significant policy developments in the US, providing investment and production tax credits offered under the Inflation Reduction Act (“IRA”). Supportive policies such as the IRA along with commercial support globally for a cleaner fuel will foster international interest in transitioning from “grey” ammonia to “blue/Green” ammonia. This article explores commercial developments in the U.S. ammonia space.

What is ammonia?

NH3, or ammonia, is a colorless, pungent gas at room temperature. Ammonia has many desirable physical properties that allow for efficient deployment for bulk storage; its energy density in the liquid state is comparable with fossil fuels. Hydrogen carriers, such as ammonia, have about 200% more energy density than compressed hydrogen, and about 50% more than liquefied hydrogen, according to the Royal Society. This feature is enormously important.

Ammonia, like hydrogen, is referenced by three important “colors” signifying the primary source of feedstock: Grey/Brown, Blue, and Green (there are other variations, such as Turquoise, but we won’t get into them for simplicity’s sake). Grey ammonia is produced from natural gas via steam reformation of methane (although Chinese ammonia production leans heavily on coal. We term coal-fed ammonia as “brown ammonia”). Blue ammonia, on the other hand, is produced via steam reformation – but with CO2 byproducts captured and stored. Finally, Green ammonia is produced by hydrogen derived from water electrolysis and powered by solar, wind, geothermal, and other clean energy sources.

Taking stock of current demand

U.S. Ammonia capacity continues to show strong fundamental support, although the nature of that capacity may be changing due to technology, policy, and economics. The overall U.S. ammonia supply (production + imports) has grown from 17 MTPA in 2010 to 20 MTPA in 2022. Corresponding domestic production of ammonia in the U.S. has risen from historical levels due to – you guessed it – the shale revolution. Ammonia production in 2022 stood at about 16 million tons per annum (MTPA), up from about 10 MTPA in 2010. This increase has reduced U.S. import reliance from 45% of total supply in 2010 to merely 10% in 2022 and trending towards a net exporter status towards the end of this decade. 

Commercial Frenzy

The march towards being a net exporter will largely be driven by global demand for clean or low-carbon ammonia as countries work towards reducing their carbon footprint as part of their energy transitioning goals.  There are two primary drivers for the shift toward being a net exporter. First and foremost, there are multiple credit-worthy entities with strong balance sheets willing to execute multi-year long-term offtake agreements that are required to sanction these multi-billion-dollar projects. At the forefront of this global demand pull are utilities from Japan and S. Korea, which are now expanding efforts to comply with their national goals of importing low-carbon/clean energy sources. Co-firing blue (or green) ammonia in their existing coal plants will reduce overall emissions. As a result, we have seen a frenzy of commercial activity to export clean ammonia from multiple projects in the U.S. Gulf Coast. For example, Nutrien (one of the largest producers of nitrogen fertilizer) signed a letter of intent for Mitsubishi to buy 40% of Nutrien’s Geismar blue ammonia production for export to the Asian market. Likewise, CF Industries will be providing clean ammonia for JERA to export 30% of its Donaldsonville production to Japan. CF Industries has also entered a joint venture to build a new ammonia plant in Louisiana with Japanese conglomerate Mitsui, which we surmise will support export demand in Japan. Recently, Exxon signed an agreement with SK Materials for the export of blue ammonia from its mega Ammonia/CCUS site being developed in Baytown, TX. This commercial impetus is predominately coming from Japanese and Korean firms that have a clear vision to use clean ammonia in their energy mix starting 2028+.

As shown in the graphic below, approximately 17 MTPA of brownfield and greenfield ammonia capacity in the U.S. is in various stages of development scheduled to be online by 2028. If these projects are commercialized as planned, then the share of clean ammonia production in the U.S. could rise to over 55% by 2028, although technology developments and continued policy support will determine market share.

While commercial interest is essential for any project, it also needs to work economically for producers and consumers. Supercharged tax credits being offered by the IRA for carbon capture and sequestration (CCS) and green hydrogen production have drastically tilted the scales for clean ammonia. Our analysis suggests that IRA tax credits are making projects economically feasible, and the pursuit of commercial activity is now making it bankable. If you’d like to know more about ammonia markets, and recent commercial and market developments for ammonia projects, give us a shout! We can be reached at info@enkonenergy.com.