Nitrogen+Syngas 382 Mar-Apr 2023
31 March 2023
The cost of ammonia production
AMMONIA
The cost of ammonia production
Rising costs of fossil fuels in many markets, including coal in China and high gas costs in Europe are pushing up ammonia production costs. Can the falling cost of electrolysis make green ammonia production cost competitive in the near future?
While the ammonia industry is coming around to the idea that future production will need to minimise its carbon emissions, large scale implementation faces the challenge of how much that low carbon ammonia will cost to produce. The modern ammonia industry has geared itself up to producing ammonia efficiently using natural gas or coal. This involves optimisation of not only ammonia conversion, but also recovery of the large quantities of heat that are needed to drive conversion, and of economies of scale using plants that are almost as a minimum 2,000 t/d in size, and often 3,000 or even as high as 4,000 t/d, requiring a large dedicated coal mine or gas pipeline from a nearby gas field.
Ammonia plant efficiency has a theoretical minimum energy consumption per tonne of ammonia of 19 GJ/t ammonia, dictated by the thermodynamics of the process. In the very early days of the Haber-Bosch process, which relied on very high pressures and temperatures to force the conversion, the actual energy consumption was over 200 GJ/t. Successive improvements to the process over the intervening decades have driven the average energy cost of ammonia production to around 41 GJ/t (LHV), with the most modern and efficient plants able to achieve 28-30 GJ/t, which is approaching a practical limit for process efficiency.
This efficiency very much drives the cost of production, as for traditional ‘grey’ ammonia production, most of the operating cost is determined by the feedstock being used. For natural gas, 28-30 GJ/t is equivalent to 30-32 MMBtu/t. At a low or subsidised natural gas price of, e.g. $5.00/MMBtu (US Henry Hub prices are below even this at time of writing, and some producers in the Middle East have legacy contracts with even lower gas costs), that would be a feedstock cost of $150-160/t ammonia.
But of course, ammonia prices are not set by those producers at the bottom of the cost curve, with the most advantaged feedstock costs and the most modern, efficient plants. They are set by the marginal producers at the top of the cost curve. At the moment, this is mainly coal-based capacity in China and gas-based capacity in Europe. At current European gas costs of $14/MMBtu, that is a feedstock cost of $420/t or more. Taking staff, rents, write down of capital and other costs into consideration over and above this, it is no coincidence that ammonia prices were around $500-550/t at time of writing.
Blue ammonia costs
The cost of blue ammonia production remains closely tied to feedstock cost, as grey ammonia production costs set a baseline for blue production, with the additional cost of carbon capture and storage added on. Most operational blue ammonia capacity uses captured carbon dioxide for enhanced oil recovery (EOR), because this has a value to the oil producer, and so CO2 for EOR can be sold at around $20/t, recovering some of the cost of its use. Carbon credits or taxes can also help ameliorate the cost of blue production. According to last year’s Innovation Outlook for Ammonia, published by the International Renewable Energy Agency (IRENA) and the Ammonia Energy Association (AEA), The cost of carbon capture and storage/utilisation for ammonia production depends upon the plant type; it is lowest for gas-based autothermal reformers, at an estimated $40-80/t then gas based steam reformers ($100-150/t), with coal gasification the highest cost ($>135/t). Production of ammonia entails the generation of around 2.7 tonnes of CO2 per tonne ammonia. With European carbon prices currently around e100/tonne CO2 e ($108/t), and assuming 90% carbon capture, this would be a premium of $262/t blue ammonia, and goes a long way to explaining why in terms of current low carbon ammonia projects, proposed blue ammonia tonnage is outnumbering green ammonia tonnage by 4:1. It seems highly likely that blue ammonia will form the bulk of low carbon ammonia projects over the next few years.
Renewable electricity cost
The point at which green ammonia becomes cost competitive is perhaps the most interesting one, though, and that depends upon two things; the ‘feedstock cost’ of renewable electricity, and the capital cost of electrolysers. Figure 1 comes from the International Energy Agency’s 2019 report The Future of Hydrogen, and seems to assume a value for carbon capture and storage for blue ammonia in the lower bound of around $50/t, but it is illustrative of how the cost of electricity is crucial to the cost competitiveness of green production. The graph puts the lower cost of electrolysis at $450/kWe, and the higher cost at $900/kWe, with electrolyser efficiency in the range 65-75%. The lower bound for natural gas cost is around $3/MMBtu, the higher bound looks to be around $10/MMBtu. Assuming production towards the lower cost bound for electrolysis, the graph nevertheless indicates that green production can be competitive with the least efficient gas-based production at an electricity cost of around $50/ MWh. This is not an unreasonable electricity cost. The IRENA report notes that the global weighted average levelised cost of electricity of new utility-scale solar PV projects commissioned in 2021 fell by 13% year-on-year, from $55/MWh to $48/MWh. Most studies project the cost of renewable electricity falling further as more economies of scale are achieved and further development work is undertaken, with $20/MWh deemed achievable by 2050, which as Figure 1 shows, would be competitive even with the cheapest natural gas today. Furthermore, the US has subsidies for renewable electricity production. New electric power sector solar, wind, geothermal, and closed-loop biomass plants receive a tax credit of $25/MWh of generation, for example, putting current generation costs at an effective figure of $30/MWh.
Needless to say, there is considerable argument about these figures. IRENA argues that today’s cost of renewable ammonia, without carbon credits, is $720/t at locations with good solar and wind resources. However, consultancy CRU puts the cost of green ammonia from an integrated ‘renewables-hydrogen-ammonia’ facility at about $900/t “even where solar and wind resources are plentiful and considered ‘low cost’”, and puts a “very optimistic” lower bound for production cost at $610/t. Others argue that a future cost of $20/MWh for electricity is over-optimistic and almost brings the cost down to the cost of the raw materials. Even so, we have been through a year where ammonia prices have been above $1,000/t and still are over $500/t. A present day cost of $720/t that could come down with increasing efficiencies does not look wildly over-expensive, and if it could indeed be brought down as some proponents argue to $250-300/t, then the switch from fossil fuel to electrolysis based production would become a stampede.
And of course, this does not take into account the impact of carbon pricing and other such mechanisms. As with blue ammonia, at current EU carbon prices, knocking $260/t off the equivalent cost of green ammonia would put it on a level footing with current ammonia prices. While this only currently impacts European domestic production, from 2026 the imposition of the new Carbon Border Adjustment Mechanism (CBAM) will expose any importer of nitrogen products into the EU to EU carbon prices. This puts Chinese coal-based capacity at the highest production cost, particularly if China introduces, as it aims to, a similar carbon pricing mechanism. Green ammonia was competitive with grey ammonia in Europe when gas prices were high, but less so as they have fallen back. But the CBAM means that users will have to pay for the carbon cost wherever the ammonia is sourced from, which should make EU green ammonia cost competitive.
Fuel
But will there be a market for green ammonia? At present the two most promising areas seem to be in burning ammonia either in fossil fuel power plants to lower the overall carbon cost, as Japan aims to, and for use in ships to generate carbon free motive power. Some of the critics of ammonia as a fuel point out that, while the spin is that ammonia burns to form only nitrogen and water, in practice most combustion methods also produce nitrogen oxides, some of them (like N2 O) considerable greenhouse gases in their own right, and use of ammonia as a fuel would therefore also require the installation of NOx scrubbing technology. However, as the use of selective catalytic reduction systems in modern road vehicles has shown, this need not be prohibitively expensive.
Tipping point
The aim of all of this, of course, is to try and decarbonise fertilizer production, shipping and power, to avoid our climate reaching a ‘tipping point’ beyond which the effects may be unpredictable and potentially disastrous. There is a persuasive argument that money spent now to prevent this would be an investment that repays itself many times over in terms of avoided extreme weather events and biodiversity loss. That said, banks and ammonia producers are unlikely to invest in new capacity unless they are assured of a return. Government incentives are needed to push the adoption of the technology, but it is beginning to look as though current financial incentives now make blue and even green ammonia production an attractive option, and it is beginning to feel as though the industry has reached its own tipping point, and may soon be changed beyond recognition. n
