Canada's low-carbon ammonia projects face barriers that mirror LNG

Efforts to develop Western Canada as an exporter of low-carbon ammonia to the Asia-Pacific region could run into similar challenges faced by the region's LNG projects, which raises concerns about potential permitting, construction, transportation and cost hurdles, market sources said.

Canada is developing several projects on both coasts to export hydrogen and derivatives like ammonia, which are viewed as potential low-carbon fuel supplies to Europe and Asia. Like its efforts with LNG and other energy-rich nations, Canada is leveraging hydrogen investment tax credits to advance these projects, aiming to finalize low-carbon trade flows.

While the growing global LNG market presents an opportunity to displace coal consumption, supporters of low-carbon ammonia see it as an even cleaner alternative for its ability to facilitate overseas shipments of hydrogen, which emits no carbon when burned.

A US-based renewable-derived ammonia developer told S&P Global Commodity Insights that while "hydrogen lacks this flexibility, ammonia offers it by integrating into existing systems. The focus on ammonia reflects pragmatism, given uncertainty over the establishment of hydrogen pipeline networks."

Alberta-based Hydrogen Canada Corp. plans to use abundant, low-cost natural gas as a business case to build and operate a 1 million mt/year carbon capture storage-derived "blue" ammonia facility and export infrastructure to serve Asian markets, targeting South Korea and Japan, it said on its website. Global chemicals company Linde is also planning a blue hydrogen facility in Alberta, Canada, expected to be completed by 2028, which will produce gas-fed hydrogen combined with CCS. This project has a long-term agreement to supply its clean hydrogen to Dow's Fort Saskatchewan ethylene cracker and derivatives site Path2Zero.

"A significant challenge is the domestic rail transportation from the Edmonton region to Prince Rupert," a representative with the Canadian government told Commodity Insights. "Current Transport Canada regulations prohibit long-haul ammonia trains, and both industry and provincial governments in Alberta and British Columbia are working to address this issue."

On Canada's West Coast, rail and insurance costs are significant challenges for ammonia export projects, said a low-carbon ammonia developer.

Unless this ammonia rail liability/insurance discussion gets resolved, West Coast Canadian projects cannot physically deliver ammonia to South Korea, the Canadian government representative added.

LNG Canada and Coastal GasLink faced similar challenges with respect to regulatory barriers, a Canada-based low-carbon hydrogen developer added. "Prince Rupert [Trigon Terminal] can handle ammonia. Again, the key issue is delivering the ammonia to the port from the production site," the government representative said.

High costs, regulatory hurdles

Challenges previously encountered with LNG are now emerging as ammonia projects have begun to request environmental approvals, bid in auctions, and attempt to secure attractive offtakers.

Canadian and global investors have faced difficulties in launching LNG projects on Canada's West Coast, with several major LNG export projects having been canceled, stopped in court, or abandoned because of climate change disputes, pipeline issues, regulatory hurdles, and environmental concerns.

"Regulatory constraints and access to First Nation land were also significant hurdles. To date, we've only had three Western Canada projects reach final investment decisions," said Ross Wyeno, Commodity Insights' director of global LNG analytics.

While these project challenges are offset by a lower expected feedgas price and shorter distance to the Asia-Pacific markets, Wyeno added, "The Western Canadian LNG export projects are among the more expensive projects in the world due to the high cost of the long-haul pipelines required to feed the plant and the remote locations, which are difficult to build in and have limited access to labor."

Canadian projects on the West Coast and some projects in the Midwest US view this cost as competitive because of affordable feedstock natural gas, its economical shipping route to Asian markets, and saving it from passage through the Panama Canal.

Platts assessed blue ammonia premium in the US Gulf Coast at $27.75/mt Nov 21, with an outright blue ammonia price at $527.50/mt, considering the premium and the US Gulf FOB assessment of $500/mt.

The FOB US Gulf low-carbon ammonia price was assessed at $500/mt, considering a maximum carbon intensity of 0.87 kg CO2eq/kg ammonia under a well-to-gate boundary.

Market participants have said projects on Canada's West Coast are competitive with those on the US Gulf Coast, as they benefit from a shorter route to Asia and avoid the Panama Canal.

Blue hydrogen and ammonia pricing from western Canada are largely influenced by rail insurance costs, the government representative said, adding, "While discussions are ongoing, the current domestic political climate, particularly with the upcoming Canada's federal election, may impact the pace of progress."