How much does a hydrogen ladder cost?

In a perfect world, clean hydrogen is allocated to where it’s most important.

There’s only one problem. How do you define importance?

For some experts, it’s replacing existing hydrogen made from polluting fossil fuels, for others it’s focusing on efficiency or where there is no alternative. The other school of thought is related to maintaining business as usual and minimise change while others see a brave new world where alternative energy means an alternative way of doing things.

But while we think something is important, it only becomes important when we pay for it. And that requires an understanding of the cost of hydrogen. Especially when no one is buying the clean stuff!

Michael Liebreich’s hydrogen ladder is a good place to start, and I’ll pick a few of the items on the ladder, starting with this post on fertiliser to understand the cost and how that impacts decision making.

Fertiliser

Fertiliser is on the top rung of the hydrogen ladder and for good reason. Without it, the worlds crop production would halve. So, it’s VERY important, even for those on a diet.

Ammonia is the key ingredient, and with a current price of between $400-$600/tonne, is very sensitive to natural gas prices and even more sensitive to grumpy farmers who if the price is not right, wont plant a crop and feed the world.

Is it possible to be clean and cheap?

There’s two ways to clean up the process, continue using gas and capture the carbon (blue ammonia) or start with green electricity (wind, solar) followed by electrolysis to make the hydrogen and then put it through a Haber-Bosch process to manufacture ammonia.

Blue Ammonia (Gas with Carbon Capture)

The about to be completed OCI-Linde project in Beaumont Texas, was originally budgeted at a combined $2.8 billion (Linde $1.8b for the hydrogen plant, OCI $1b for the ammonia plant) and would produce 1.1 million tonnes of ammonia with 1.7 million of CO2 sequestered in old oil wells.

And as a side note, the plant captures 1.5 tCO2-e is estimated to still emit 0.8 tCO2-e/ per tonne of ammonia.

Assume a financial investment of 25 years, and the capex would come to about $100/tonne and add in financing of 10% and it works out to be about $280/tonne.

Since then, Woodside Energy, an Australian company has since bought the OCI ammonia component for $2.3b which with the Linde part would increase the capex per tonne to $410.

The key advantage is the access to cheap gas. With a Henry Hub price of $2.5/MMBTU and needing 30 MMBTU to produce a tonne of ammonia, the feedstock only costs $75/t. Add in another 3% of capex for other operating expenses and the total cost to produce is around $600/t using the Woodside purchase price.

https://keynumbers.com/#/public/page/lcoa-blue-ammonia-atr-natural-gas-plant-with-carbon-capture-14650 (note: model uses IEA values, update to Woodside-Linde to get to $600/t)

On top of this is the 45Q carbon sequestration credit of $85/tonne of CO2 that is available to US projects. Woodside estimates the project will save 1.5 tCO2/tNH3 which provides a saving of $127/tNH3 less the cost to Exxon for storing it.

Green Ammonia

It doesn’t get any-more greener than Project Nujio’qonik GH2, off the coast of Newfoundland? Canada. With access to excellent wind resources and potentially firmed by cheap hydropower, it taps into electricity with some of the lowest carbon intensity in the world.

The first phase budget is also close to $2.8 billion ($1.7b for Onshore Wind, $1b for electrolysis and a Haber Bosch plant) but is expected to produce only 400,000 tonnes of ammonia.

This still needs a bit of grid connected electricity when the wind is not blowing. Crunching the numbers is closer to $850+/t with a lot depending on what they can do with the excess wind.

Do you buy the blue or green ladder?

From a pricing decision, the obvious answer is to go with blue ammonia. Woodside made it clear in its investor presentation that a key feature is the ability to navigate Europe’s Carbon Border Adjustment Mechanism (CBAM).

With an estimated carbon tax of $159/tCO2 by 2030, this would save $240/tNH3. It would still incur some tax, but this would be less than the green ammonia premium meaning it will be more profitable to Woodside to pay the tax.

But a key issue is how really clean is it?

A recent study by Robert Howarth highlighted the problem of upstream and fugitive emissions from LNG. While the focus was on the LNG part, the problem was more about natural gas in general and specifically from around the area where the Woodside-Linde blue hydrogen plant is.

Assume Howarth’s 2.8% fugitive methane emissions and blue hydrogen suddenly looks a very distinctive shade of grey/black. In effect, there maybe no difference to the polluting type.

But there’s a bit of a loophole.

The European CBAM taxes CO2 not CH4.

According to a Columbia University report, methane is not part of the emissions test because it’s difficult to quantify. Add in a region such as Texas which encourages not quantifying and it’s easy to see a race to the bottom for cheaper, leakier natural gas.

Can the loophole close?

It’s difficult to see how countries such as Norway and other countries who play by the rules would accept this situation.

But a bigger loophole is that once companies decide that it’s cheaper to pay the tax, then why not just sell unabated ammonia and pay the full tax?

A fully depreciated clunker of an old grey ammonia plant would just need to pay for the gas and other operating costs. If Woodside/Linde are paying $400/t for capex, then the carbon tax would need to rise substantially before blue ammonia is competitive again.

In this case, the most expensive hydrogen ladder is the clean one that never gets used.

Want to follow more hydrogen ladder keynumbers?

As a disclaimer, I have no affiliation, nor endorsed by Liebreich Associates, it's just a nice segway to understand the costs.

I'll be looking crunch the numbers on a few of the rungs of the ladder and the models can be accessed for free at the link below. Just fertiliser for now, more to come soon.

For those interested in more information on ammonia, I have been greatly helped by Alex T. who is a proper hydrogen and ammonia expert. Please feel free to get in touch with him for any of your clean ammonia needs whether you're a buyer or a seller. He's knows a lot!

https://keynumbers.com/#/public/page/hydrogen-ladder-14617