Green ammonia pricing varies, on a global basis
Deals that share risk and remain competitive are a challenge: Asian buyer
Pricing visibility is a global trend that has gained momentum in the emerging low-carbon hydrogen and ammonia markets, as participants recognize that the information helps secure competitive offtake agreements and bring projects online, according to an S&P Global Commodity Insights analysis.
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Market indices for low-carbon ammonia rose 15% over the year, while they rose 51% for low-carbon hydrogen, with the total up 42% year-on-year through April 26, fueling the market’s progress toward transparency, S&P Global data shows.
Stakeholders exploring hydrogen as a decarbonisation option are increasingly inclined to disclose pricing details as there is a growing desire to assess market value, in order to promote market growth.
Global hydrogen production volumes are expected to grow from 97 million metric tons in 2023 to 120 million metric tons in 2030 and 265 million metric tons in 2050, according to S&P Global’s Clean Energy Technology Analytics Market Outlook.
Conventional hydrogen market
The conventional hydrogen market has traditionally relied on project financing for long-term infrastructure projects, with long-term offtake contracts being structured prior to the final project investment decision.
These personal, undisclosed supply contracts were effective in securing financing, managing raw material price fluctuations, and mitigating project risks. They have played a crucial role in delivering “gray” hydrogen to end users such as refineries and ammonia producers. However, this market has been dominated by a limited number of players, with limited visibility of prices and options, making it difficult for new entrants to make informed decisions based on price references.
Historically, the high cost of transporting hydrogen has prompted industrial gas producers to build infrastructure in areas where demand exists, and these infrastructure costs have been built into long-term contracts. As a result, the region’s first industrial gas entrant enjoys a competitive advantage on a regional basis, enhancing limited options.
However, the low-carbon hydrogen market is now seeing a boom in global investment and supply deals, such as Norwegian fertilizer company Yara and ACME Cleantech signing a long-term offtake agreement to supply 100,000 metric tons per year of renewable ammonia from 2027 onwards. Auctions and tenders for low carbon hydrogen and ammonia – such as TotalEnergies’ tender for a 500,000 metric ton per year supply of green hydrogen to Europe, with expected use in the refinery sector – are becoming more popular to support project developers and secure structured, competitively priced contracts.
These more transparent deals have helped other companies create business models that use actual prices and contract structures from the market. The more trades are made, the more pricing information becomes available, which in turn leads to more transparency and creates a kind of virtuous circle for investments.
Pricing has become clearer
Renewable derivative ammonia pricing information shared with S&P Global has evolved from a standard, fixed-price offtake contract structure to price ranges that vary across regions based on support plans, renewable portfolios, mandates and best-fit technologies.
For example, market participants have demonstrated their willingness to pay (WTP) for Asia in the range of $550-$650 per tonne, with 15-year to 20-year contracts being the most common, and 10-year contracts looking at a $720-range. $750 per metric ton. WTP values for Europe indicated in the range of $600-$1,000 per tonne are also being offered as long-term contracts with preference given to shorter contracts of 10 to 15 years, sources told S&P Global.
It has been observed that the duration of contracts is related to the age of the plant and the time frame for debt repayment, with shorter fixed-price contracts generally retaining a premium over longer contracts.
Securing a modest offtake agreement where project risks are shared and competitive pricing is offered is difficult, a potential low-carbon Japanese buyer told S&P Global Commodity Insights.
“Green” ammonia derived from renewable energy assessments based on the Platts model for CFR Europe reached US$938.05/kg on 22 April. The price was for US items and reflects the most competitive export price among exporters from the Middle East, USGC and the East Coast of Canada. The Platts value for Europe’s CFR green ammonia falls within the market-defined WTP range of $600 to $1,000 per metric ton for Europe, however it is higher than many long-term contract offers heard in the $600 to $750 per metric ton range, Which also varies in periods.
Platts green ammonia was also assessed to CFR Asia on 22 April at US$899.85/tonne for cargo from the Middle East, the most competitive price compared to product from Australia and the west coast of Canada.
According to Platts Market Data, market-based green ammonia values reported on an FOB basis for export vary due to differences in regulations, regional renewable energy pricing and portfolio mix, as well as freight rates. With all these variables, what is competitive today may not be so competitive tomorrow.
“I feel this may be the year we see increases in green ammonia/hydrogen forecasts and quotes due to a lack of cheap green energy prices,” an ammonia producer and low-carbon ammonia developer told S&P Global.
Platts is part of S&P Global Commodity Insights.
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