Feature: US delays impede low-carbon hydrogen project participation in Japan, S. Korea subsidy schemes

Despite ambitious goals and hydrogen carbon intensity thresholds set by South Korea and Japan, delays in implementing low-carbon hydrogen projects in the US may impede their participation in subsidy programs aimed at incorporating low-carbon hydrogen derivatives into their energy sectors.

South Korea set a 2028 deadline in its recently announced hydrogen power auction and Japan is planning to import ammonia from 2030 onwards as part of their contract for difference support scheme.

The carbon intensity definitions of both countries allow imports of renewable-derived or "green" ammonia and fossil fuel-derived ammonia with carbon capture or "blue" ammonia. These support schemes have been announced to bridge the gap between the high cost of production of low-carbon hydrogen and derivatives and the price of current in-use carbon intensive fuels.

"Japan and South Korea have established their carbon intensity criteria, and ammonia is expected to be four or five times more expensive than coal, resulting in lower willingness to pay in these markets," a low-carbon ammonia project developer who asked not to be named told S&P Global Commodity Insights. However, there are still many decisions to be made regarding regulations and certification in the US and internationally, such as the scope of emissions being measured, before prices become clear, the developer said.

"Building new clean hydrogen or ammonia facility can take 18 to 36 months just in construction," said Anri Nakamura, hydrogen analyst at Commodity Insights. "With an already tight timeline of 2028 for Korean hydrogen power generation auction, any further delays in the commissioning of US-based hydrogen might make it infeasible for them to supply to Korea."

US emerges as a significant supply hub

The US is seen as one of the key competitors for supply of low-carbon hydrogen such as ammonia to Japan and South Korea with various green and blue hydrogen projects currently being planned for export.

The US Gulf Coast has over 11 million mt of planned capacity for low-carbon hydrogen and derivatives, split between over 7 million mt derived using carbon capture and storage, and over 4 million mt of renewable derived hydrogen and derivatives, according to Commodity Insights Hydrogen Project Asset database.

The data also shows that the Commodity Insights estimated online date for larger scale projects above 50,000 mt/year of hydrogen and derivatives are expected to be operational from 2028 across both renewable and CCS derived projects.

According to US sources, achieving a 90% capture rate for carbon intensity is proving to be expensive for blue ammonia projects. As a result, they are considering compromises on carbon intensity. This decision is influenced by domestic and landed regulations, as well as the end-user appetite for low-carbon products.

CF Industries has two planned blue ammonia projects in Louisiana, in Donaldsonville and with South Korea's POSCO at the Blue Point Complex in Ascension Parish. Autothermal reforming technology and carbon capture and storage is to be used reduce over 90% of carbon dioxide emissions from the ammonia production, enabling the resulting low-carbon clean ammonia to comply with the South Korea's Clean Hydrogen Energy Portfolio Standard, according to CF Industries in September 2023.

POSCO plans to import low-carbon clean ammonia to South Korea to facilitate the decarbonization of coal-based power generation facilities, as well as converting the low-carbon clean ammonia into hydrogen to use in gas-based power plants and in the steel-making process itself, CF Industries said at the time..

Nutrien, a major player in the industry, previously halted its 1.2 million mt/year blue ammonia project in Geismar, Louisiana, due to costs and uncertainty surrounding the timing of new demand.

"Any blue ammonia that captures below 90% carbon is expected to struggle to meet Korean hydrogen standards," Nakamura said. "Projects looking to participate in Japanese support scheme are less affected by the delay due to 2030 delivery timeline. While the carbon intensity limit is likely to reduce significantly with a recent announcement to include upstream emission, the revised carbon intensity limit is still 25% higher than for South Korea."

Platts, part of Commodity Insights, assessed the low-carbon Japan Korea Ammonia Price (JKAP) at $470/mt CFR basis July 1, unchanged over the month. Australian-origin renewable-derived ammonia for delivery into Japan was the cheapest on the day, assessed at $907/mt.

Consideration for upstream emissions

The delay in US policy on the hydrogen production tax credits is creating uncertainty and hindering the progress of blue and green hydrogen and ammonia projects in the USGC.

Environmental watchdogs have raised concerns about the proposed rules for hydrogen PTC, as they may undercount emissions from blue hydrogen production and potentially allow polluting facilities to receive subsidies intended for carbon-free green hydrogen production.

If emissions from upstream and midstream activities are taken into account across the hydrogen production tax credits, a substantial portion of production will be pushed out of the most profitable segments, said Brian Murphy, senior analyst hydrogen and low carbon fuels at Commodity Insights. "This will result in fewer projects in the near future," he said.

The few cargo shipments for hydrogen and derivatives have primarily been destined for Asia.

The delay in US policy on hydrogen production tax credits is creating uncertainty and hindering the progress of blue and green hydrogen and ammonia projects in the US Gulf Coast. The consideration of long lead times and could impact their participation in the subsidy schemes in Japan and South Korea.

"Delays in US projects could open opportunities for other markets, such as blue hydrogen from the Middle East and green hydrogen from APAC countries such as Australia and India," Nakamura said.