Unpacking ammonia’s market landscape and its role in the energy transition

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The surge in natural gas feedstocks costs in Europe in mid-2021 and the ongoing war between Russia and Ukraine boosted global ammonia spot prices to historic highs in April. For most of 2022 prices have been triple or quadruple the levels seen between 2016 and 2020.

The abrupt stop of Russian and Ukrainian ammonia shipments out of the Black Sea after the Russian invasion of Ukraine in February slashed global supplies. Russian ammonia had previously been transported via a pipeline from Togliatti to the Ukrainian Black Sea port of Yuzhne, which had turned the Black Sea into a major ammonia benchmark. Russia and Ukraine had a combined market share of around 20% in global ammonia exports before the war.

Meanwhile, record high natural gas feedstock costs in Europe forced ammonia producers in the region to lower operating rates or shut down altogether. This in turn led to a surge in additional demand in Europe for ammonia from around the globe, including from the Caribbean, Middle East and as far afield as Southeast Asia.

Platts ammonia prices

Ammonia as key driver for hydrogen into the energy transition

Just as there have been dramatic changes on the supply side, the demand side is also gearing up for ammonia's use as a fuel in the years to come.

Ammonia has traditionally been used in fertilizers, with nearly 90% of the product supporting agriculture around the world. It has also found usage in chemicals such as caprolactam, the feedstock for nylon, and acrylonitrile, the feedstock for acrylic fiber. It is also a feedstock for explosives used in mining.

Ammonia's chemical composition – each molecule has one nitrogen and three hydrogen atoms – makes it a key candidate to become a carrier for hydrogen, while decarbonization goals have made it a target for production as well.

Ammonia is relatively easy to transport – this has been technologically and commercially proven for decades. The infrastructure for producing and transporting liquified hydrogen, on the other hand, is still in its infancy and it could take many years before the business is commercially viable, and up and running globally. The key hurdle for hydrogen is the extreme low temperature needed for liquefaction at -253 C, while for ammonia the requirement is only -33 C.

Another driver behind ammonia's popularity is the emergence of end-users with decarbonization goals. These end-users plan to use ammonia produced from low-carbon or zero-carbon hydrogen as a fuel for power generation and bunkering. Ammonia itself does not release carbons on combustion.

Ammonia uses

Massive investments are now taking place or are being considered, which will change the ammonia landscape dramatically in the years ahead, according to data from S&P Global Commodity Insights. Demand from the power sector and bunkering for ammonia, currently not measurable as the volumes are too small, will see its share in total ammonia demand rising to around 4% in 2030, and to around 29% in 2050.

Asia is expected to be a key driver in the increasing demand for ammonia as an energy transition fuel.

Consider, for instance, the goals of the Japanese government: the Ministry of Economy, Trade and Industry estimates that Japan's ammonia demand for power generation would be 3 million mt/year in 2030, will grow to 30 million mt/year in 2050. Ammonia is needed in Japan to be able to decarbonize gradually given the amount of existing coal-fired power plants there, as it can be used for co-firing.

Ammonia demand forecast

Increasing transparency in ammonia markets

Platts, part of S&P Global Commodity Insights, launched the world's first prices and premiums for low-carbon blue ammonia on April 22, with daily assessments for the Middle East, Far East Asia, Northwest Europe and the US Gulf as a first step into ammonia assessments related to the energy transition. Blue ammonia is a low-carbon ammonia produced conventionally using gas as feedstock, but where most carbons produced in the process are being captured and sequestrated. S&P Global defines blue ammonia as ammonia with a carbon capture rate of 90%.

On Sept. 16, S&P Global is expanding its portfolio of global Platts forward curves for ammonia to 24 months, building on top of the current Platts ammonia forward curves offerings. The launch is a response to an increased interest for longer-term ammonia price trends, amid unprecedented volatility and historically high ammonia spot prices seen this year.

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