When compared to say complex food ingredients or aircraft composites, fertiliser can be seen as a bit of a boring corner of the chemical industry. Haber-Bosch, one of the most important industrial-chemical processes, was invented in 1909 and there has been relatively few technological advances in the production of ammonia since.
Success in such a commoditised market has historically been down to logistics; who is closest to the farmer and who can offer a delivery price better than the next company.
The energy transition could change that. Fertiliser makers are set to be centre-stage as big-ticket low-carbon ammonia projects are popping up like weeds in the hope it will transform power generation, marine fuel and industrial processes as a carrier molecule for hydrogen.
One company relishing the prospect is LSB Industries. Air-conditioning fan coils, bearings, banking…..the Oklahoma City-based company has turned its hand to host of things over the years. Its latest endeavour — building a world-scale blue ammonia facility complete with an export terminal on the Houston Ship Channel — plays to its core strengths.
“This has the potential to reenergise this whole industry,” Mark Behrman, CEO of LSB Industries, said in an interview with chemicalESG.
“In 10 years’ time, the nitrogen chemical industry could look completely different.”
Despite the sector’s rich experience handling the difficult Haber-Bosch, turning a “meat-and-potatoes” company into a leader in low-carbon products has its challenges.
Whether grey, blue or green, ammonia will always be a generic molecule. The big hope for LSB and rivals like CF Industries, OCI and Yara is that the more sustainable varieties will command a premium price to the commodity “grey” one. To begin with, they will be looking for a contractual price, an indexed type of arrangement that allows the pass-through of gas and power costs while providing an appropriate return to finance new facilities.
From the Haber-Bosch perspective, there are two options, and both have their own issues, according to Andrew Inglis, a director at etasca, a UK-based commercial, technical and ESG advisory firm.
Connecting Haber-Bosch directly to a renewable source means linking an ammonia synthesis process that requires a steady-state in-feed to a fluctuating power source, something that is “technically complex,” Inglis said. Or, alternatively, you buy renewable power off the grid via a PPA, then try and match the conditions of that power agreement with the offtake agreement, a contractually and commercially complex endeavour, he added.
“One of the key issues is matching the youthful volatility of renewable power with the aged Haber-Bosch,” Inglis said. The costs can range between 50-100% higher compared with the grey counterpart. In the more challenged European market, support mechanisms like the Carbon Border Adjustment Mechanism will be crucial, he added.
“We are seeing some off-takers accept the higher pricing even though it’s still cost-of-production based,” Inglis said.
“Grid connection through PPAs is equally cumbersome as matching the contractual conditions of an off-taker with a PPA mixed in with financing requirements can really add weight to the already heel-dragging of some of these projects.”
Fortunately, demand is being stimulated by a variety of application areas from co-firing in Japan to alleviating the bunker-fuel decarbonisation conundrum, Inglis added.
It’s poignant that one of LSB’s partners in the project is Japan’s leading E&P company INPEX. As well as collaborating on low-carbon ammonia production, the two companies together expect to sell a majority of the product for power generation in Asia.
If you are able to secure 10- to 15-year offtake agreements, then suddenly the nitrogen space starts to look a bit more like the industrial-gas sector that’s much more highly valued by stock markets.
“The question will be: would you skew more of your production away from fertiliser to a more stable contractual business, and the answer for us is yes,” Behrman said. “We will morph to a totally different model, one that the investment community will more appreciate.”
On the question of low-carbon ammonia demand, Berhman said: “Up until now, it’s just been conjecture. Buyers say “yeah, we’d be prepared to pay a premium” but it’s been all talk. When you put pen to paper and you actually have a long-term contract for a low-carbon product, at a selling price that is a premium to the currently produced product, then it becomes real.”
Behrman said he is starting to get a lot more enquiries from funds who are either mandated to invest in the energy transition or else have an interest. Traditionally, LSB shareholders have tended to take a more shorter-term view, whereas energy investors are more “growthy” and care about the opportunities over the next five to 10 years.
LSB is also working with Air Liquide and Vopak Moda on the blue ammonia project. The CO2 emitted during manufacturing will be sequestrated via carbon capture, utilisation and storage technology. If the El Dorado CCS project and Houston facility are successful, 65% of LSB’s ammonia will be low carbon.
Behrman isn’t getting carried away just yet. He’s seen a number of would-be investors who are tracking LSB on their screens but are yet to take the plunge because they can’t gauge the timing of the ramp up of the energy transition. Ultimately, LSB sees itself in the future having several irons in the fire. It could be a diversified manufacturer of anything from renewable nitrogen to sustainable aviation fuel or hydrogen itself.
“I am already thinking of the next steps needed to take in this new frontier. If we are in multiple low-carbon markets, I believe it makes for a much better investment for people. You’re de-risking the timing associated with the ramp up of demand related to the energy transition,” the CEO said.