Fertilizer companies are betting on ammonia as a low-carbon fuel | Mint

Fertilizer companies are betting on ammonia as a low-carbon fuel

Construction is under way on dehydration and compression equipment to prepare carbon dioxide for sequestration at CF Industries in Donaldsonville, La. (Photo: Kathleen Flynn for the WSJ)
Construction is under way on dehydration and compression equipment to prepare carbon dioxide for sequestration at CF Industries in Donaldsonville, La. (Photo: Kathleen Flynn for the WSJ)

Summary

Ammonia, a key ingredient in fertilizer and made in massive amounts globally, is high on the list of potential replacements for fossil fuels.

The logo of Illinois-based CF Industries, one of the world’s biggest fertilizer makers, used to be a stylized cornstalk meant to represent the bounty of the harvest. Then a few years ago, the company changed its logo to a cluster of triangles meant to represent an ammonia molecule.

The logo change signaled a strategy shift at CF—and is part of a surprising development that has propelled fertilizer companies, and the ammonia they make for their products, to the bleeding edge of a global energy transition toward low-carbon fuels. Proponents say ammonia is one of the easiest alternative fuels to ramp up, and that it could eventually help drive electric generators, power cargo ships or even prove useful in making jet fuel.

There are still obstacles to overcome before that happens. One is that while ammonia burns clean, the way it is produced now generates a lot of carbon emissions. So fertilizer companies, which already make much of the ammonia that is traded around the world, are positioning themselves for that budding clean-energy market by taking steps to reduce those emissions and negotiate supply deals.

“Agriculture continues to be a critically important part of our business," says Tony Will, CF’s chief executive officer. But the company also is seeing an “expanding belief and movement toward using decarbonized ammonia as a clean energy source," he says.

Ammonia’s upsides

Ammonia is made by producing hydrogen, then adding nitrogen. It is made in massive volumes globally—the bulk as a building block for fertilizer and the rest for uses ranging from refrigerants for skating rinks to the smelly household cleaning liquids most people are familiar with.

While plants benefit from the nitrogen portion of ammonia, the clean-fuel industry is interested in its hydrogen content.

Hydrogen, one of the world’s most common elements, can burn like oil, gas or coal but doesn’t emit carbon dioxide when it does, making it a favorite of clean-energy advocates for decades.

But hydrogen has drawbacks, too, which have stymied its development as a green fuel. It rarely occurs by itself, and separating it out of compounds such as water or methane—the main ingredient of natural gas—is expensive and takes more energy than the hydrogen delivers when it is used.

Pure hydrogen also is extremely hard to transport and store. The atom is so small it tends to seep out of seams and welds in pipes and tanks. It takes up so much space at normal temperatures that the only way to carry it long distances is to compress it or liquefy it at minus 253 degrees Celsius, just above absolute zero.

Even hydrogen supporters say it likely will be decades before the technology develops to transport it around the world, so until then it likely will need to be produced very close to where it is used.

Ammonia, though, can burn like pure hydrogen—with no carbon emissions—and is much easier to store and ship. Around 180 million metric tons of the chemical is produced, roughly 10% of which is traded globally.

Most of the hydrogen for that ammonia is made from natural gas in a process that generates a lot of carbon dioxide. Companies such as CF vent much of that CO2 into the atmosphere. But they are starting to roll out plans to store it deep underground instead, which would reduce emissions sharply.

Companies are also working on ways to scale up the production of hydrogen from water, using renewable energy—a much greener technology.

Demand catalysts

One catalyst for demand occured in 2018, when the United Nations agency that oversees global shipping pledged to cut greenhouse-gas emissions from international shipping in half by 2050. Ammonia was high on its list of alternative-fuel candidates, and engine makers as well as shipbuilding companies are starting to design craft that can run on the chemical.

Another push came from Japan, when its biggest power company, JERA, in 2020 proposed lowering emissions at its coal-fired power plants by mixing in some ammonia as well. JERA plans to start running one of its big coal-fired generators on an ammonia mix early next year as a final test of feasibility. Other Japanese utilities picked up the idea, as did many South Korean power companies.

In the U.S., meanwhile, government subsidies for hydrogen production and carbon capture have spurred a rush of clean-ammonia project announcements. Fertilizer makers are some of the first out of the gate, since they already have ammonia-manufacturing facilities, and experience with storage and shipping.

“Incumbents have a huge advantage to decarbonize first because if you think about it, like a race, you’re already starting well ahead," says Ahmed El-Hoshy, chief executive of OCI Global, a Netherlands-based ammonia maker.

OCI is planning to capture and store carbon at an existing fertilizer factory in Iowa, and it is building a low-carbon ammonia plant in Texas. It also is talking to shipping companies, as well as Asian power companies, to gauge potential demand for low-carbon ammonia, El-Hoshy says.

It’s unclear whether the new markets for ammonia as a green fuel will develop. Current plans for making and using low-carbon ammonia may not be as clean as advertised and could end up just wasting time and money, some environmentalists say.

What’s more, ammonia isn’t yet made or traded at the volumes needed to start replacing fossil fuels, and companies are still figuring out how many new factories, tankers and terminals they might need, as well as how to pay for them. Low-carbon ammonia likely will be much more expensive than the fossil fuels such as coal or diesel that it replaces, so Japan and other countries are considering subsidies and other support to help potential buyers.

CF and other producers have to make sure they don’t get too far over their skis as the market starts up, says CF’s Will. “It’s really the timing of supply and demand that needs to be threaded carefully," he says.

The shift at CF

CF started rethinking its corporate strategy in 2020, after spotting a number of trends that executives worried could reduce demand for fertilizer—such as interest in meat substitutes and thus declining demand for cattle feed. At the same time, they saw lots of headlines discussing future demand for hydrogen fuel, says Will.

CF’s executives decided to capitalize on that potential clean-energy demand and lean a bit less on fertilizer. One advantage for CF is that it can convert its ammonia to a low-carbon variety relatively cheaply, since the company already captures much of the CO2 generated. It just has to sequester that carbon dioxide instead of venting it to the atmosphere, as it does now.

The company is installing equipment to help it do that and expects to be making low-carbon ammonia at its biggest ammonia-production facility in Louisiana in early 2025. Thanks to U.S. government subsidies, that low-carbon ammonia will be cheaper to produce than normal ammonia, adding an estimated $100 million a year in free cash flow, the company says.

CF is in discussions to sell low-carbon ammonia to a company in Brazil that wants to use it as green fertilizer in the production of ethanol for clean aviation fuel, Will says. CF also is talking about building new factories to supply JERA, as well as other Japanese and South Korean companies that are interested in using ammonia for power generation and shipping.

There is a “realization that demand for clean ammonia is happening, is real and it’s upon us," Will says. “It’s not just something that’s being forecast for some indeterminate time in the future."

Phred Dvorak is a reporter for The Wall Street Journal in Houston. Email her at phred.dvorak@wsj.com.

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